US, Russia to compete for gas markets in Europe, Asia

OREANDA-NEWS. September 26, 2016. US and Russia will compete to provide natural gas to Europe and Asia in the low-price environment, a former CIA analyst said yesterday.

Bud Coote, now a resident fellow at the Atlantic Council, and other gas analysts at an event held by the council in Washington said countries have not adopted policies that would increase gas use.

"Governments need to focus on gas as a transition fuel," he said. "Markets cannot do it all."

A golden age of natural gas suggested by the International Energy Agency five years ago has not yet materialized, said Nicol? Sartori, a fellow at Rome's Istituto Affari Internazionali.

Coote said US shale gas has depressed world market prices since 2009, but recent Henry Hub gains hurt the competitiveness of US LNG. The prompt month US futures contract is up 28pc this year.

That increase, combined with \\$3/mmBtu in liquefaction costs, allows Russia's Gazprom to maintain European market share with recent delivered prices around \\$4.85/mmBtu, Coote said.

Gazprom also responds by advancing pipeline projects like Turkstream, which would traverse Turkey into south central Europe, and Nordstream, which would reach Germany through the North Sea.

But experts at the event questioned Russia's ability to provide China with more gas as demand there declines and the nation's growth rate retreats.

Gazprom is supposed to begin supplying China's state-owned CNPC for 30 years beginning in 2018 and gradually ramp up volumes to 1.3 Tcf/yr (38bn m?/yr). Argus has estimated the implied average price is \\$9.73/mmBtu. But Coote said yesterday that Russia is unable to get the price it wants from China.

Jane Nakano, a fellow at the Center for Strategic & International Studies, called the 2014 agreement "partially politically driven."

US LNG suppliers offer the most flexible terms for gas sales, she said, at a time when Chinese power demand is slowing and the country seeks to be an electricity exporter.