The President of the Russian Federation Vladimir Putin convinces the world that gas from Russia is the cheapest, but the world does not want to listen to it. The trend is conducive to the development of import of alternatives to Europe, including LNG from the USA – writes Wojciech Jakóbik, editor-in-chief of BiznesAlert.pl.
Who pays for LNG?
– Europe needs gas supplies from Russia, so the Nord Stream 2 project will be implemented despite the threat from the US – said Russian President Vladimir Putin. – Objectively speaking, Europe is interested in deliveries from Russia.
However, according to Putin, “one can imagine a situation in which the United States will convince Europe to replace Russian gas with American,” he said. – If they now convince Europeans that they should buy gas from them at higher prices, then it will be Europeans’ choice. The next step will be funding a non-competitive product on the European market from the state budget. Theoretically, you can imagine it – he added.
It is worth adding that in the work of Anna Mikulska from the Baker Institute at Rice University, you can read that it is the Russians who subsidize LNG through tax breaks for Novatek leading in the export of this type of fuel. In turn, the US government does not offer any relief to domestic gas port builders, and these are doing well. An example would be the Calcasieu Pass LNG project from Venture Global LNG, which has already obtained financing and a set of building approvals. In October 2018 and June 2019, PGNiG and Venture Global signed long-term contracts for the purchase of liquefied natural gas from the Calcasieu Pass and Plaquemines terminals. The total volume of contracts is 3,5 million tonnes of LNG per year, which after regasification makes approximately 4,7 billion cubic meters – informs PGNiG.
The Nord Stream 2 project will probably be implemented, though with a delay, but will have to compete for customers with alternatives that have already appeared in Poland, and will also be present in Germany, which will become a Russian gas distribution station. Liquefied gas terminals are also to be built there.
LNG displaces Gazprom
Due to favorable market conditions, LNG – also from Russian Novatek – is pushing Gazprom out of the European market. Gazprom delivered 61,1 billion cubic meters to Europe. natural gas in the first half of this year. Novatek’s deliveries increased by 9,5 billion cubic meters. This is the most of all suppliers on the European market. Americans increased deliveries by 7,1 billion cubic meters – reports BiznesAlert.pl.
This trend, combined with a mild winter, effected in decline in Gazprom’s sales to countries outside the Commonwealth of Independent States by 0,5 percent to 96,2 billion cubic meters. The largest decrease occurred on the Turkish market (a decrease of 4,6 billion cubic meters, or 36 percent) due to the devaluation of the lira and the start of supply with the Transanatolian Gas Pipeline from Azerbaijan. Deliveries to the European Union fell by 0,4 percent to 88,5 billion cubic meters.
The recession would be conducive to the low price of LNG
American natural gas is so attractive because the economic slowdown in Asia means that LNG interest, e.g. in China, is lower than expected. As a result, commodity prices fall on the Asian stock exchange and it pays to bring it more to Europe. This trend will not last forever.
Still, if futures contracts concluded with the Americans contain favorable price formulas, and this is to be the case with the PGNiG-Cheniere agreement until 2043, LNG with the US delivered under them will remain attractive to customers in Europe regardless of the situation in Asia. This, however, will not necessarily improve quickly due to the growing number of signals suggesting the arrival of a global recession.
For now, the price of Russian gas in Poland is high and increases along with the increase in oil prices a few months ago, as reported by PGNiG in the latest results. In the next few months, however, it may fall slightly, because the barrel is cheaper for the same reasons as LNG – a sluggish increase in demand – despite 163 percent OPEC+ oil cuts being implemented. However, the Yamal contract will not be cheaper than alternatives without indexation to the price of oil, but dependent on European stock exchanges, and this is the PGNiG-Cheniere agreement.