U.S., Russia Gearing up for European “Gas War”

A new “gas war” between Russia and the United States over European sales could be in the making, as rising U.S. production and ambitious Russian pipeline projects aim at securing the lucrative LNG market, The Street writes.

This year, some of the warmest temperatures on record have melted the ice caps that lock ships out of the Arctic Circle, thus opening a new trade route for Russian liquified natural gas (LNG). These circumstances are giving Russia an edge in shipping LNG from its rich wells to its core European market.

In February, the Eduard Toll, a vessel owned by tanker company Teekay (TK), became the first LNG icebreaker tanker to cross the full Northern Sea route in the winter, traveling from a South Korean shipyard to Russia’s northern port of Sabetta and then to France, cutting 3,000 nautical miles off the traditional route through the Suez Canal.

The Northern Route may save Yamal $46 million in shipping costs for the remainder of the year and those savings could quadruple by 2023, according to Novatek estimates. The route saw 9.7 million tons of cargo shipped through it in 2017. There were 615 voyages along the Northern Sea route this year through July 15, about the same as in the whole of 2017. The Russian government is targeting cargo traffic through that route totaling 80 million tons by 2024.

According to The Street, this is a setback to U.S. LNG exporters who are looking to increase their market share in Europe at a moment where the Trump administration is alienating its trade relationships with China.

The EU is currently depended on cheap Russian gas with at least 33% of imports coming from the country. Russia’s state-controlled gas giant Gazprom has consistently increased export volumes to Europe by building the TurkStream pipeline in southern Europe through the Black Sea and the Nord Stream 2, the second tranche of the pipeline under the Baltic Sea. The first part of Nord Stream was built to circumvent any land transit for Russian gas through the Baltic states and Poland, thus directly influencing the supply of gas to Western Europe. Gazprom is the majority owner of Nord Stream with 51% stake, and is also the operator and sole producer, seller and transporter of the gas.

European and U.S. efforts to open and diversify the natural gas market in Europe seems a distant wish as Russia carries forward its pipeline expansion with the support of Germany, The Street wrote. Russia’s gas cannot simply be replaced by U.S.-sourced LNG, as it represents only a small supply compared to the continent’s overall gas consumption. According to U.S. officials, the upside for European markets is that American LNG supplies “increase the energy security and stability of Europe.”