Related Articles
Forward article link
Share PDF with colleagues

Russia beating US in LNG price war

Aggressive pricing is giving Russia a strong position in Europe’s competitive LNG import market, according to Platts

Russian LNG’s low price point is putting pressure on its competitors in the European LNG import market, attendees heard at the S&P Global Platts London Oil and Energy Forum yesterday.

“Russian LNG cost into Europe is some of the cheapest LNG in the world. It can get into Europe for under $2/mn Btu,” says Samer Mosis, LNG senior analyst at S&P Global Platts. “Because of this price incentive, Russia became the second-largest supplier of LNG in Europe last year, beating Nigeria and pushing out other key suppliers including Algeria.”

Russia exported 16mn t of LNG into Europe last year, sharply up from 7mn t in 2018. It was behind only Qatar, which exported 21mn t into the market, and ahead of the US, which exported 12mn t, according to S&P Global Platts’ data presented at the event.

“Europe is the balancing market [for LNG]… watch how aggressively Russian gas strategy evolves there,” says Mosis, adding that Novatek’s Yamal LNG was “only the beginning of a massive [Russian] expansion in the Arctic”.

Russia’s LNG expansion comes alongside a “volume over value” pipeline strategy that benefits from Gazprom's new electronic sales platform (ESP), according to Mosis. “The ESP has allowed Russia to be very nimble in the way it conducts spot sales—and frankly maintain the market however it wants to.”

“Watch how aggressively Russian gas strategy evolves in Europe” Mosis, S&P Global Platts

Following the successful renewal of the Russia-Ukraine pipeline gas transit deal, he says that “Russian gas can keep getting into northwest Europe for $250 [/1,000m²]. That in all respects is cheaper than landed US LNG costs into Europe.”

Unlocking demand

A period of even more extreme oversupply of LNG looms for 2020-21—but even this could again benefit Russia’s gas strategy. Continued low prices will eventually unleash latent demand from coal-switching, according to Desmond Wong, European and Atlantic Basin LNG editor at S&P Global Platts.

“[The gas market] is looking bleak. But because it is bleak, it has brought gas back to life. It is a lot cheaper these days [so it] has wiped out the demand for coal. And that leads to something very interesting, which we will see [over] the next couple of years,” he says.

Wong adds that while political concerns surround Russian gas exports into Europe, pricing often trumps politics. “In Brussels, there are always going to be politically motivated voices calling for more US LNG imports. But the utilities, the portfolio guys and the commercial people will say ‘it only makes economic sense for us to pick up the cheapest source of gas delivered to our customers’.” 

Also in this section
Myanmar LNG projects overcome pandemic and sceptics
3 July 2020
China and Hong Kong-led consortium has started operating first of three planned facilities as Yangon targets nationwide electrification
Letter from China: Pipeline reform heats up
2 July 2020
The signs are positive that Beijing is getting serious about opening up its gas network
India sets out multi-faceted reform to support gas
2 July 2020
New Delhi is set to implement a new pipeline tariff policy to complement its first trading exchange and under-construction distribution network, to further boost the use of gas