22/09/14 – US shale gas exports to hit Gazprom revenue

 

Russia’s Gazprom could lose 18 per cent of its revenues as a result of competition from US liquefied natural gas exports, according to a New York-based think-tank.

European consumers can expect to pay 11 per cent less for their gas as a result of the downward pressure on world prices created by rising US LNG exports, hitting revenues of the Russian state-controlled gas group, according to an analysis published on Monday by the Center for Global Energy Policy at Columbia university.

 However, while the loss would be significant for Gazprom, the impact on Russia’s total export revenues would be more modest, suggesting that US gas exports are unlikely to be an effective tool in forcing policy change from the Kremlin.

The analysis also finds that Europe is likely to remain a large consumer of Russian gas, so will need to strengthen its energy infrastructure to cope with potential supply disruptions.

Weaker world gas prices are expected to hit proposed export projects in other areas, such as the planned development of the large gasfields found off the coast of Mozambique.

The US shale revolution, caused by advances in production techniques from reserves that were previously not commercially viable, has boosted the country’s gas production and created expectations that the country could become a significant exporter of LNG, at prices that will be competitive in world markets.

Three multibillion-dollar gas liquefaction projects have been given the go-ahead by the Federal Energy Regulatory Commission to start construction, and 13 more have filed applications for approval.

The shale boom has already had a significant impact on world gas markets, by removing the US need for LNG imports, freeing supplies from Qatar and elsewhere to go to Europe and Asia. That has given European utilities and other gas customers greater leverage, enabling them to renegotiate supply contracts with Gazprom.

US LNG exports, expected to start in 2016, could ultimately exceed the 14.5bn cubic feet per day that Russia exports to the EU.

Much of the US LNG is likely to go to Asia, where prices are higher, but the additional supply will still put downward pressure on world gas prices. On reasonably conservative estimates, that could cost Russia 27 per cent of its gas export revenues, the study suggests.

Jason Bordoff, a former White House energy official now at Columbia university, said the lost revenue would be “a big deal for Gazprom”.

However, gas accounts for only about 14 per cent of Russian export revenues, which are dominated by oil, meaning that the overall effect on the country’s economy would be much smaller.
Even if the gas price falls, Europe is likely to remain heavily dependent on imports from Russia, because it is among the region’s lowest-cost suppliers.

Mr Bordoff said that meant Europe needed to “get its house in order” by investing in gas storage and transmission and developing its own production to reduce the impact of any disruption in supplies from Russia.

 
Source – FT.com