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    Russia is Facing Strong Competition from US Shale Gas Expansion



At present, Russia continues to flounder to secure its position as a major gas supplier for the EU due to its oil-linked prices and stiff competition from US shale gas expansion.


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Natural Gas & LNG News, News By Country, Russia, Shale Gas

Russia is Facing Strong Competition from US Shale Gas Expansion

Russia’s hegemony in the gas sector had flown under the radar until recently, as the country now enjoys the status of the world’s largest exporter. The situation started to change over the last decade, as the US discovered a way to extract natural gas from trapped shale formations.

Despite the fact that the environmental impact of the process spurred heated debates, the country proceeded with shale gas extraction, making every effort to expand its output. As a result, what not long ago sounded highly improbable turned into a reality. In 2000 shale gas provided only 1% of total American natural gas output, by 2010 the figure jumped to 20%.

Experts at Gas Strategies, a London-based energy consultancy, outlined that while the expansion of American LNG production is important, what is pivotal is the revision of appraisals of US domestic gas resources. Chris Levell, a manager with the firm posited that, “estimates of the size of the US gas resource base have been radically revised in light of the growing importance of shale gas, which is making up some 33% of the total resource base of the country.”

Shale gas became a game changer for the whole sector globally, making its significance impossible to ignore. FT reported that only after the effect of the boom in the US natural gas extraction became clear, in the depression of prices globally and the increasing chances of the country becoming an exporter, did Russian authorities finally recognize the potential threat.

Europe has always been the country’s “safe haven” market for gas exports. A number of pipelines linking the two regions, coupled with long-term contracts between the parties have arguably created a false sense of security for Russia.

Currently, the country is trying to adapt to a swiftly changing business landscape. However, some experts including Andrey Konoplyanik, director at the Institute for Energy and Finance, argue that it has long way to go. “Russia’s Gazprom is really facing increasing competition in the European Union gas market, and I think it is not a temporary situation,” Konoplyanik said by phone on Friday, concluding that, “in order to protect its market niche, Gazprom has to become more competitive and more adaptable; however, so far the company has been losing this struggle.”

While at present, Russia continues to flounder to secure its position as a major gas supplier for the EU, the US concluded its first long-term contract with British Gas, one of the key players on the European gas market. Under the agreement, the price is linked to Henry Hub spot prices, which dipped below $2 per million British thermal units or Btu (a measure of heating power) earlier this year. Just for comparison, currently the average price of gas imported to the UK is $8-10 per million Btu, while Russian gas at the German border costs no less than $11-12 per million Btu.

Source: Voice of Russia