Russians Are Going to Win the Gas Wars, Trump Doesn't Stand a Chance

The US has neither the price nor the quantity to supply Europe. The little LNG it has available for export fetches better price in Latin America

Thu, Jul 20, 2017
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Trump can talk, but last year Russia exported 200 million cubic meters of gas. The US exported 5 million

The Russians will probably win this one.

The shale energy competition between the U.S. and Russia started with President Barack Obama. But Donald Trump made it known in what has become akin to "ground zero" in the competition between Washington and Moscow's energy goals in Europe.

Trump met with Poland president Andrzej Duda earlier this month. His speech on Western culture got all the hits from the political press, but the WSJ was onto the fact that Trump was speaking about energy security, a favorite Duda topic.

For Poland, it's way more than a talking point. The country spent around $1.09 billion on an LNG terminal in Swinoujscie, Poland. The two year old Baltic LNG terminal is busy battling the Russians for market share. Their government recently tried to roadblock the Russian proposed Nord Stream II pipeline in the Baltic Sea, but failed to get larger anti-trust bodies inside of the European Commission interested. The Gazprom gas line from Russia to Germany is still in the works.

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Duda recently got an unsuspecting nod from Republicans in a Senate bill on Russian sanctions renewal. It threatened sanctions on Nord Stream II, something Poland also disdains. Sadly for Poland, that bill is in somewhat of a pickle and needs a rewrite. Germany and Austria are very much against it. As are American oil and gas companies who have nothing to do with Nord Stream, but have a trusty partner in Russian energy companies and don't want to be cut out of their market any more than they have been already by sanctions.

The U.S. and Europe sanctioned Russia in 2014 because of its government's support for rebel forces in Ukraine.

Duda and Trump hit it off and it's not just because of their shared ideas on the failed migrant policy in Europe. Trump will open the borders, but only if it involves energy. He will continue with the Obama policy of marketing U.S. gas to the world. Poland could use the help to fend off the Russians. They didn't build a billion dollar LNG terminal to watch it get beat down by Russian competitors. Gazprom is a low cost and major player in the lucrative EU market. It controls roughly a third of the region's gas imports because it has two things every buyer wants: supply and price.

Duda signaled that more U.S. natural gas is welcome in Poland. The message may be more political than it is practical.

"We will develop the ability to use LNG from the United States and elsewhere," Duda was quoted saying in the Russian newswire Tass. Poland wants to become a source of American imports into Europe, thus helping Poland be what it wants to be: an alternative to Russian natural gas in the center of the EU.

Trump was his usual self, talking big deals and timely delivery of them, saying that a long term LNG deal with Poland could be signed in "15 minutes."

It wasn't. Nor was one signed within 15 hours or five days.

The U.S. started to ship natural gas to Poland already this year.  In a statement to the press, State Department spokeswoman Heather Nauert never mentioned the all important energy security policy in Europe, of which Russia is a number one competitor for both gas and nuclear power markets, but she noted that exports to Baltic LNG were "good for jobs in the United States, and helps to reduce energy costs and ensures Poland a more reliable source of gas."

Russia is aware of Washington's hopes to compete in Europe. Mikhail Krutikhin, a partner with consulting firm RusEnergy called this month's Trump-Duda talk on gas deals "political bravado." He said in an article published by Interfax that Trump's "15 minutes" was unlikely.

"LNG delivery contracts are concluded between companies, not between countries," he was quoted as saying. "U.S. suppliers are unlikely to obey the government. LNG from the U.S. goes to where prices are the highest," he says, naming spot pricing for LNG in the Asia-Pacific region and in South America. "Prices are lower in Europe. I suspect a long slump for gas."

Love 'em or hate 'em, Poland is still at the whim of the Russians. They have a deal for Gazprom natural gas that is good until 2022. They'll keep buying it because it is still cheaper than what the Americans can deliver.

There has been some concern that Gazprom's preference for long term contracts with price-locks undermines the spot market, where prices for gas have been cheaper than Gazprom's locked-in rates. With the new competition coming from the U.S., Gazprom will have to be more flexible or risk ticking off its clients, which is not all that hard to do given the rabid anti-Russia climate there.

The biggest demand for natural gas is coming from Europe, up 6% last year to 28 billion cubic meters, according to BP's own analysis. China was in second place with 16 billion cubic meters. European supply needs have been met to a greater extent by gas from Russian and Algerian pipelines.

Last year, Russia produced 579.4 billion cubic meters of gas, of which 204.8 billion cubic meters were exported, including 14 billion cubic meters of LNG. For comparison, the U.S. exported 186.8 billion cubic feet of natural gas last year, as recorded by the Energy Information Administration. That comes out to about 5.2 billion cubic meters.

Source: Forbes