RUS | ENG | All
Enter the email or login, that you used for registration.
If you do not remember your password, simply leave this field blank and you will receive a new, along with a link to activate.

Not registered yet?
Welcome!

2016-02-04 19:20:00

GAS PRICE WAR

GAS PRICE WAR

 

EUROPE GAS PIPELINES

 

With the prospect of a wave of US liquefied natural gas (LNG) supplies starting to hit the market later this year, energy investors fear the Russian state gas giant may adopt the same strategy in the gas market that Saudi Arabia has done in oil.

It may seem like a gas price war is the last thing that Russia, already reeling from the impact of low oil prices, needs.

But analysts say that such a strategy may be economically rational for Gazprom: already-low prices in the European gas market mean it could relatively easily push prices to a level at which it would be unprofitable to ship LNG from the US — and in doing so defend its market share in a region which accounts for the bulk of its profits.

Such a move would have significant repercussions for the global energy markets: a fully-fledged price war in the European gas market could have a ripple effect across other regions and commodities — from Australian LNG to Colombian coal — as well as threatening the viability of the nascent US LNG industry.

"Why would you concede market share to a higher cost producer?" says James Henderson, Russian oil and gas specialist at the Oxford Institute for Energy Studies (OIES). "If I was an investor in US LNG I would be worried."

The argument in favour of a price war is simple.

Just as Saudi Arabia is the main swing producer for the global oil market thanks to its ability to ramp up production if needed, Gazprom is the main holder of spare capacity in the global gas market.

According to Gazprom executives, the company has about 100bn cubic metres of spare production capacity — thanks largely to investments made on over-optimistic assumptions about future gas demand — equivalent to almost a quarter of its production and about 3 per cent of world output.

And just as Saudi Arabia has been unnerved by the prospect of US shale oil producers eroding its market share, Gazprom faces a similar prospect in the gas market. The flood of cheap gas unleashed by the US shale boom has prompted a wave of US LNG projects in recent years. The first cargo of LNG from the "lower 48" contiguous states of the US was shipped in January, and the total export capacity under construction is equivalent to two-thirds of Gazprom's exports to Europe.

Finally, like Saudi Arabia in oil, Gazprom is one of the lowest-cost gas producers. According to calculations by Mr Henderson at OIES, the cost to Gazprom of delivering its gas to Germany is $3.5 per mmbtu (million British thermal unit) — compared with an estimated $4.3 per mmbtu break-even for US LNG supplies despite US gas prices trading near 16-year lows.

Put all those facts together, and it would seem to make sense for the Russian company to push down prices to keep US LNG out of the market.

"Now the market is getting excited about it; but also the Russians have done their maths and they know they can win if it happens," says Thierry Bros, European gas analyst at Société Générale in Paris.

Such a move would be cheaper to implement now because European gas prices have already fallen dramatically — spot UK gas prices are down 50 per cent in the past two years. Gazprom's contract prices, which are largely tied to oil prices, have kept pace with the spot gas market decline and are likely to fall further in the next six to nine months.

Mr Bros estimates it would cost Gazprom $1.3bn in lost revenues to price US LNG out of the market this year — less than 1 per cent of its historical annual sales.

Gazprom executives have studied the economics of the price war approach and are discussing the issue, according to people familiar with the company's thinking.

At a meeting with investors in New York this week, Alexander Medvedev, Gazprom's deputy chief executive, argued that low spot prices in Europe had already made US LNG supplies uneconomical. "Despite the prevailing view on the market that North American LNG can change the current pricing model in Europe, in reality this is not the case at all," he said.

Analysts say a Gazprom-led price war could have two distinct objectives: first, to price cargoes of US LNG out of the European market in the short term; and second, to disincentivise new investments in LNG projects in the longer term.

The first goal would require the European spot price to fall below the marginal cost of shipping US gas to Europe — a scenario that Mr Bros now believes is likely in the second half of this year, but which analysts say would be painful for Gazprom to maintain for a long time.

More sustainably, Gazprom could adopt a medium-term strategy of managing European prices to prevent new LNG projects being approved. While few projects are likely to be considered in the short term given low oil and gas prices on both sides of the Atlantic, it may become a consideration should prices rise in the next year or two.

As one government official in Moscow puts it: "They have no choice. They are already in a price war."

ft.com

-----

More: 

GAZPROM WILL UP 

U.S. GAS: EXPENSIVE 

EUROPEAN LNG PROBLEM 

NORD STREAM'S RECORD 

NORD STREAM -2 WILL BE BUILT

 

Tags: GAS, PRICES, GAZPROM, EUROPE, LNG, USA
Chronicle:
GAS PRICE WAR
2022, July, 4, 12:44:00
6TH ANNUAL LNG SUMMIT USA
The 6th Edition of Wisdom’s Much Acclaimed Annual LNG Summit Will Be Held Live in Houston - PREPARING THE INDUSTRY FOR THE RISE IN DEMAND FOR LNG
GAS PRICE WAR
2022, July, 4, 12:43:00
9TH INTERNATIONAL LNG CONGRESS LNGCON 2023
9th International LNG Congress (LNGCON 2023) 6-7 March, 2023 Link to the Congress website: https://bit.ly/3tXVmr7
GAS PRICE WAR
2022, July, 4, 12:40:00
GERMAN UTILITIES COLLAPSE
German leaders are stepping up warnings of impending turmoil and natural-gas shortages in Europe’s biggest economy, which relies on Russia for about one-third of its energy.
GAS PRICE WAR
2022, July, 4, 12:35:00
IRANIAN OIL RISES
Iran could increase production to levels before the sanctions, he said, without giving an estimate of current output.
GAS PRICE WAR
2022, July, 4, 12:30:00
S.KOREAN NUCLEAR FOR CZECH
"A nuclear power generation project requires more than a decade for construction and involves operations for more than 60 years. South Korea is a reliable partner in terms of economic feasibility, safety, and ensuring the construction period," Lee said.
GAS PRICE WAR
2022, June, 28, 12:10:00
OIL PRICE: BRENT NEAR $117, WTI ABOVE $111
Brent climbed $1.9, or 1.7%, to $116.99, WTI rose $1.8, or 1.6%, to $111.36 a barrel.
GAS PRICE WAR
2022, June, 28, 12:05:00
OPEC OIL PRICE: $112.35
The price of OPEC basket of thirteen crudes stood at $112.35 a barrel
All Publications »