Submitted by Taps Coogan on the 18th of December 2017 to The Sounding Line.
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Russia is the world’s largest natural gas exporter with the largest portion of its exports being piped to Europe. However, as the following charts show, Russian natural gas exports to Europe are currently more than twice as expensive as natural gas produced and sold in the United States, the world’s top natural producer (but not exporter). At times, the Russian price premium has been even higher. In the spring of 2012 for example, Russian gas was nearly 500% more expensive than US gas.
Russia’s large price premium results from the fact that Europe has failed for decades to find sufficiently plentiful alternative sources to compete with Russian imports. The resulting Russian semi-monopoly in Europe has been a boon to Russia and a consistent drain on Europe’s economy.
Now that Russian dominance may be changing, at least marginally. Surging US natural gas production has led to the opening of the first Liquid Natural Gas (LNG) export facility in the US in February 2016 with a second terminal expected to come on line imminently in Maryland and at least three more to follow in the coming years. However, the process of liquefying natural gas for export is significantly more expensive than transporting it via pipeline resulting in US LNG export prices being about double that of US domestic pipeline prices. Consequently, US LNG export prices are roughly in line with Russian export prices. While US exports will not completely out-compete Russian exports, they can put a price ceiling on Russian gas. If Russian prices rise much higher than US LNG, European’s will have an incentive to buy US gas instead. That’s good news for Europe and the US and potentially marks the end of Russia’s most exorbitant price premiums.
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