Sun, Jul 01, 2018 - Page 7 News List

In the age of Trump and Putin, Europe faces hard choices on gas

By Naureen Malik and Anna Shiryaevskaya  /  Bloomberg

Europe’s shrinking production of natural gas has made it an enticing target for exporters. It has also left the region facing difficult choices at a time of growing political uncertainty.

Imports to the continent are poised to rise almost 20 percent by 2040 from 2016 levels, the International Energy Agency has forecast.

While Russia has long been the region’s top supplier, it is now facing significant challenges from the US, as well as Qatar, rivals with vast natural gas reserves.

For Europe, there is both opportunity and risk. While competition can drop prices, geopolitics is becoming increasingly tricky in an age dominated by strong headwinds coming from both US President Donald Trump and Russian President Vladimir Putin.

“Things that jeopardize security of supply are going to be at the forefront” of Europe’s decisions on who to buy from, said Breanne Dougherty, a New York-based analyst with Societe Generale SA.

European countries have fought with Russia over pricing and been hit with key stoppages. A burgeoning trade war with the US spurred by Trump’s tariff decisions is complicating the relationship with that country and Qatar is in the midst of an antitrust probe brought by the EU.

Still, US companies are getting ready to jump into the competition in a big way.

After Cheniere Energy Inc two years ago began shipping gas from its Sabine Pass terminal in Louisiana — the first to send shale output abroad — the US became a net exporter of the fuel for the first time since the 1950s.

This year, Dominion Energy Inc opened the first export facility on the east coast, providing a quicker route to European buyers.

Meanwhile, four more US terminals might start up by the end of 2020, making the US the world’s third-largest liquefied natural gas (LNG) supplier, behind Qatar and Australia.

However, concerns about a potential trade war are not making matters easy. After the Trump administration hiked tariffs on EU steel and aluminum exports, the union retaliated with duties on a range of US products.

Although natural gas is not directly affected, political friction could make it more difficult to ship US supply overseas, Societe Generale said.

“The US influence on European policymakers isn’t particularly strong at the moment,” said Trevor Sikorski, head of natural gas and carbon research at Energy Aspects Ltd in London.

Meanwhile, the EU is investigating whether contract restrictions have prevented importers from reselling gas bought from Qatar Petroleum.

Europe has become an enticing target for gas exporters as the Netherlands winds down production from the Groningen field — the continent’s largest — to limit damage from drilling-induced earthquakes.

Many of the continent’s buyers, particularly in Eastern Europe, are eager for alternatives to Russian supply.

Gas flow to Europe was twice disrupted over a pricing dispute between Russia and Ukraine, in 2006 and 2009. Meanwhile, Lithuania and Poland have built terminals to import cargoes of LNG from overseas, reducing their reliance on Russia.

“Everything’s quite bullish at the moment” in Europe, Sikorski said. “Next winter, the global gas market will be quit tight” before probably easing as new US export terminals come online next year and in 2020, he said.

Europe is “one of the biggest surprises” in terms of rising demand for gas, Venture Global LNG chief commercial officer Tom Earl said at a conference in Amsterdam in May.

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