The US Will Not Be Able to Compete with Gazprom in Europe

It is questionable whether the meeting between Vladimir Putin and Donald Trump in Helsinki changed the situation regarding the gas market in Europe. Representatives of Russia, Ukraine and the European Commission in tripartite consultation worked on the distribution of roles in the theater of energy activities. One can respectfully take with a pinch of salt the words of President of the USA Donald Trump about fierce competition for Gazprom in the European market if American producers of liquefied natural gas (LNG) get involved. In reality, this just cannot be.

In order to bring LNG to Europe, the US needs a state company that controls all stages of this process - from extraction to unloading of gas carriers at LNG terminals in European ports. But US law does not allow such: the gas industry in America is extremely private, seeing, in parallel, a number of companies engaged in the production of shale gas; others in transportation to the liquefaction plant, and more still in getting LNG supplies to end users, this last being in the hands of international traders.

The extraction of shale gas is the highest costing in the gas industry and liquefying natural gas is also a very expensive technological process. “We will add storage and transportation of LNG through the Atlantic Ocean and get the result we have already discussed,” said Trump. As such, US LNG will cost European consumers 30% more than that offered by Russia.

In Washington on July 25, a meeting was held between Donald Trump and European Commission Chairman Jean-Claude Juncker, the result of which, in terms of energy, many have been interpreted as a "done deal" for the supply of American LNG to Europe. But this is far from the case: one must realize that the European Commission, like any other EU structure, does not determine the volume of purchases by European gas companies. The majority of national governments in Europe do not determine the volumes, prices of gas, or specific suppliers for gas companies of their jurisdictions. Therefore, in Washington, a certain "protocol of intent" was signed, nothing more.

The situation in the United States and Europe is radically different from that in Russia, where the Russian President has the right to determine the development strategy and actions of the state gas corporation Gazprom, which has exclusive monopoly rights for the export of pipeline gas. In Europe and the US, the governments have practically no option to interfere in the activities of its gas companies.

European prices for LNG this year fluctuated from extremely high during the winter at $425 per thousand cubic meters and $265 in the summer. Gazprom did not spoil negotiations with a full disclosure of prices, but in February and March, when demand was at its maximum, Gazprom’s prices, judging by the responses of its European partners, did not rise above $225 per thousand cubic meters, while in summer, prices were kept at around $200.

So, the words of politicians are one thing, while the economic interests of real gas European companies are another entirely. The difference in prices is visible to the naked eye, and the mechanisms that would allow European Commission officials to force gas companies to abandon their own economic interests simply do not exist in EU legislation.

If we exclude political dictatorship, then the US can compete with Gazprom only at the expense of reducing the price. But Gazprom's "safety margin" is such that it can "drop the price" until American LNG traders are forced to abandon the continuation of the struggle. Competition with Gazprom in the European market is a losing game for traders of American LNG.

Competition for the sake of competing with the risk of losses? Are American gas companies ready for it? Will they fulfill the wishes of the political leader of the country and work "at a minus" solely in order to compete with Gazprom?

And one more question: is it profitable for American producers and traders to supply LNG for export? The first batch of LNGs from the Yamal LNG plant in December last year, after passing through a chain of intermediaries, was delivered to the US when anomalous frosts appeared in Boston: the gas price (in terms of cubic meters) in Massachusetts rocketed to $3,400 per thousand cubic meters. Nobody asked the question as to why at that moment traders working for Sabina Pass did not send a tanker instead.

According to the navigation portal Marine Traffic, the Gaslog Hong Kong gas carrier, with a capacity of just over 100 million cubic meters (in terms of regular gas) with Yamal LNG (Russia) arrived at the Everett terminal on July 26.

On July 18, Gaslog Hong Kong left the port of Amsterdam, where the Boris Vilkitsky gas carrier had arrived, to transport LNG to Europe from Yamal. Both ships left the Dutch port on July 18. The first went to the US, the second to Sabetta (a settlement in the Yamal district where the LNG plant is located). One contained gas, the other was empty.

It is clear that while supplying LNG for export, the United States is simultaneously importing LNG for its own needs. Following the tenets of the liberal economy, the US as a state completely withdrew from the energy sector, hoping that it would be able to regulate it with the help of laws, taxes, duties and licenses. As a result, there are problems ensuring the country's energy security. And that doesn’t bode well for Trump’s plans.

By Dimitri Dolaberidze

06 August 2018 16:56