Why will US gas change nothing for Europe?

Why will US gas change nothing for Europe?

Baku, Azerbaijan, July 3

By Elena Kosolapova – Trend:

At the end of the last week, US President Donald Trump announced a new program on development of oil and gas fields on the country’s shelf. Following the announcement, a number of Europeans, including officials, told their fellow citizens that this program will finally allow the European countries getting rid of the Russian gas “yoke” and switch to the American liquefied natural gas (LNG). However, making such statements, the Europeans are highly disingenuous or indulge in wishful thinking.

Indeed, Moscow tends to use gas supplies as a means of blackmail and political pressure, and gas prices vary widely for “loyal” and “disloyal” governments to the Kremlin. Thus, “friendly” Belarus is paying $130 per 1,000 cubic meters of gas in 2017, while for “unfriendly” Ukraine, Russia’s Gazprom has set the price of $200-210 per 1,000 cubic meters since early 2017, which Ukraine’s Naftogaz refused to pay and preferred the reverse gas supply from the EU. However, even the most expensive Russian gas is cheaper for Europe than gas supplies from the US.

It will be possible to supply gas from the US to the EU only as LNG. According to BP, the cost of LNG is much higher than that of conventional gas – it was $6.94 per 1 million British thermal units (BTU) in Japan, on which nearly a third of world LNG purchases accounted for in 2016.

This is while the price of the most expensive imported conventional gas amounted to an average of $4.93 per 1 million BTUs in 2016 – the price paid on Germany’s border. The cheapest imported natural gas was in Canada, which cost $1.55 per 1 million BTUs. It is also worth noting that the main volumes of LNG arrived in Japan from relatively closely located countries – Australia and Indonesia. Supplying LNG from the US to Europe will cost even more due to the vast distance.

Supply of American LNG to the EU has not been established yet and it testifies to the fact that it is economically unprofitable to supply it despite the favorable geopolitical conjuncture.

So far, only two LNG tankers have left the US ports and approached the European shores - Portugal in April 2016 and Poland in June 2017.

If such supplies are at least a little profitable, the Americans could scrape money together for an additional tanker or two, or even a dozen LNG tankers for the EU within more than a year to support European partners in their efforts to ensure energy security.

Even without a new program for the offshore exploration, the US is among the world's leaders in gas production (according to BP, 749.2 billion cubic meters or 21 percent of global production). However, it did not happen, and the cost of American LNG for Europe is delicately hushed up, and plans for the further supplies are not disclosed.

Thus, the US gas will hardly press Russia’s Gazprom in the European market. Being in right mind and having a much cheaper alternative, no one will buy gas which costs an arm and a leg even if from a political point of view, expensive gas is more attractive.

To date, in principle, there are no suppliers that will be able to shake the hegemony of Gazprom in Europe. The Azerbaijani gas expected to be supplied to the EU by 2020 will not jeopardize the monopoly of Russia in the European gas market. Of course, Azerbaijani gas will be supplied to Europe. Its supplies to Europe have been contracted for 25 years ahead.

At present, the construction of the Trans-Anatolian Natural Gas Pipeline (TANAP) and Trans-Adriatic Pipeline (TAP), specifically designed for supplying Azerbaijani gas to the EU, is in full swing. Billions of dollars, including the European companies’ money, have been invested in TANAP and TAP.

Finally, the EU has defined diversification of sources and routes of energy supplies as its strategic goal. Azerbaijani gas is currently the only real alternative to Russian gas, and Europe has managed to agree upon the supplies of the Azerbaijani gas. Therefore, Europe won’t refuse from Azerbaijani gas under any circumstances.

However, Azerbaijani gas volumes are not large: annual supplies to the EU will amount to 10 billion cubic meters given domestic consumption of 450 billion cubic meters of gas in Europe. At the same time, according to experts’ forecasts, gas imports to Europe will increase, as the demand for gas in the EU grows, while domestic production gradually falls.

Thus, gas coming from Azerbaijan to the EU won’t lead to reduction in purchases of Russian gas. It will only occupy a place that emerged in the European market. Although in this case even small but stable volumes are big contribution to the energy security of the EU.

Gas from Turkmenistan, Iran and the Middle East could compete with the gas supplied by the Gazprom company in the European gas market. But in order for such supplies to become a reality, European leaders will have to show remarkable political will, and this hasn’t been observed so far.

Meanwhile, as Alexey Miller, the chairman of the Management Committee at Gazprom, said at the company’s annual general meeting of shareholders held at the end of last week, record volumes of Russian gas supplies to the EU were reached in 2016, this is while Gazprom increased gas supplies to Europe by 30.4 billion cubic meters over the past year and a half.

It should be noted that all this was achieved against the backdrop of considerable deterioration in Russia-EU relations, mutual sanctions and sharp irreconcilable statements from the both sides.

So, decreasing the share of Russian gas in the European market is out of the question.


Elena Kosolapova is Trend Agency’s staff journalist, follow her on Twitter: @E_Kosolapova

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