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    LNG Surge Threatens Russian Pipeline Exports: Rystad

Summary

But the cost advantage lies with Gazprom.

by: William Powell

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Complimentary, Natural Gas & LNG News, World, Market News, Liquified Natural Gas (LNG), Infrastructure

LNG Surge Threatens Russian Pipeline Exports: Rystad

US gas exports could challenge Russian dominance in Europe this year, if the sellers are prepared to cut their prices, according to new research by Rystad Energy published February 5.

“The global market for LNG is geared for substantial supply growth this year, mirroring a major increase in US liquefaction capacity. Asia’s appetite for LNG – while vast – is not likely to consume all of the additional volumes,” said Rystad Energy head of gas market research Carlos Torres Diaz.

“With increasing export capacity, US LNG might be in a position to pose a serious challenge to Russian gas on the European market this year. Prices will come under pressure due to the healthy supply situation but the market is expected to tighten again after 2022, meaning that investment decisions for new liquefaction projects are needed this year in order to satiate future demand,” Torres-Diaz added.

Russian gas delivered to Europe has a low breakeven price of around $5/mn Btu. This compares to a long run marginal cost of between $6.00 and $7.70/mn Btu for US LNG. “Given the fast increase in supply, US sellers might be willing to sell spot volumes at a short run marginal cost level, which is closer to $5/mn Btu, if they are unable to find enough demand in Asia. Such a scenario could see US volumes compete quite closely with piped imports this year,” Diaz said.

The head of Gazprom Export, Elena Burmistrova, told the European Gas Conference in Vienna late January that there is a lot of spare capacity for regasification in Europe and demand was rising, but added that LNG was not the universal answer to the supply-demand gap.

In the first 15 days of the year, she said, gas deliveries outside the former Soviet Union were up 3.1% relative to the same period of 2017. "Austria, Italy, Czech republic, Netherlands, Denmark, Bulgaria, Greece and a number of other countries all took more. The breadth of this geography again stresses the demand for modern and effective gas transport systems which Gazprom is now building with its partners," she said.

Liquefaction capacity rises

Global LNG production is expected to rise 11% and reach 350mn metric tons this year, as fresh liquefaction capacity is added, leading to a looser market. Total liquefaction capacity is set to increase to 434mn mt, up almost 10% from 2018, the researcher added.

This is mostly driven by the commissioning of US projects. The US is expected to see capacity more than double in 2019, putting it ahead of Malaysia and behind Australia and Qatar. Australia could also overtake Qatar as the world’s largest LNG exporter this year.

Other trends noted in the report include Asian demand growth, pricing pressures and the need to take more final investment decisions upstream.