- The Writer holds听an MSc in Eurasian Political Economy & Energy听from King鈥檚 College London and听also an听MA in European Studies from Sabanci University.
The question as to whether LNG will be an viable alternative energy supply to Russia for countries such as Bulgaria, Macedonia, the Czech Republic, Slovenia, Ukraine, and Poland is at the forefront of topics frequently discussed in the EU's high-level technocracy.
Energy supply diversity and efforts to create a strong integrated European energy market has created an opportunity for the U.S.鈥� LNG, and looking at the framework of the European LNG strategy, this is likely. According to International Energy Agency (IEA) estimates, the U.S., which plans to export 60 billion cubic meters (bcm) of LNG by 2020, is expected to give priority to European and Chinese markets. The IEA stated that the U.S. will be ready by 2018 for an LNG capacity of 99 billion cubic meters (bcm) in addition to its already existing capacity by 2020 and thus, the total capacity increase will promote the United States to third place in the world as the biggest LNG exporter, after Qatar and Australia.
Following gas shortages between Russia and the EU in 2006 and 2009, the EU has placed emphasis on energy security at every opportunity in its focus on strategies such as in the 'third energy package' and the 'energy union', making it a major target to reduce its dependence on Russian gas. Within this framework, the U.S.鈥� LNG imports were warmly welcomed and seen as more secure against political targets, thus the first U.S. LNG shipment was made to Portugal on April 26, 2016.
Among Eastern European countries, Lithuania has had a great success story with LNG. The country has reaped the benefits from its critical investment decision, which they negotiated with Russia鈥檚 Gazprom. Lithuania鈥檚 independent LNG terminal started operations in 2014, and secured a reduction of 23 percent in prices from Gazprom. This could be interpreted that the LNG terminal has strengthened Lithuania鈥檚 hands in LNG supply negotiations by creating room for manoeuvre.
Despite the drop in natural gas prices, it could be argued that the U.S. can still offer competitive prices in the eastern European gas market, even though it might offer greater discounts on the quoted market price for Germany and the U.K. Between 2011 and 2014, Japan鈥檚 LNG imports accounted for $16 million British thermal unit听(MMBtu), while for Germany and the U.S. this figure was $10 and $4 per MMBtu respectively. With the unexpected decline in oil prices, prices were revised in 2015 and the price range for Japan was $7.40 per MMBtu, and down to $6.24/MMBtu for Germany and $2/MMBtu for the U.S.
If LNG is to be supplied to the EU market at low prices, a consequent decrease in Gazprom's export revenues will be likely. This could lead to a reduction in Russia's budget revenues, but considering that natural gas exports correspond to 10 percent of the total budget revenue and as the lion's share of 40 percent of Russia鈥檚 budget revenue comes from oil, it could be the case that it will not lead to a significant change in Moscow's short term energy strategy.
Russia's dominant position in the EU gas market could possibly diminish especially when long-term contracts end. However, it is unlikely to be completely obliterated given the unfolding developments.
The recent ratification between Russia and China, which is expected to begin in 2019, has been signed with the agreement to involve the transfer of 38 bcm of gas per year for a total of 30 years. The agreement between Russia and China for Russia to make inroads in the Asian gas market could be to acquire market share that might possibly be lost once new LNG supplies arrive in the EU gas market. Although the deal appears to be for the protection of Russia's existing market, the details of the deal are not directly contradictory to either China's or the EU鈥檚 gas market realities on the ground, as the Siberian Kovykta and Chayanda gas fields are too far to transport gas by pipeline to the EU market. Therefore, it is economically rational to offer it specifically to the Asian market.
The Sino-Russian agreement was debated for about a decade and is the result of unprecedented work up to last year. Although it was thought that LNG costs would be well below the current Asian LNG price, no figure has been announced, but market analysts estimate that the figure is between $10 and $11 per MMBtu. This price level is thought to be equal to the average gas price supplied by Gazprom to the European market.
The U.S.鈥� LNG exports might be a game changer by creating supply surplus, but nevertheless placing the EU鈥檚 hopes on the potentiality of U.S. LNG might result in short-sighted policy decisions. In response to the question of how developments in the U.S. will affect Russia's energy policies, the current world gas trends show that the status quo will continue in the coming period, and that LNG imports from the U.S. will not reduce the EU's dependence on Russia as expected at least in the years to come.
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- Opinions expressed in this piece are the author鈥檚 own and do not necessarily reflect Anadolu Agency's editorial policy.听
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