US LNG: A new era in the European economy

Vagif Sharifov's picture
Vagif Sharifov, Oil Price Analyst & Expert in Energy Markets, Trend News Agency
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Recent news from the gas market make it clear that the US starts its new energy policy with LNG. In April, the US Cheniere Energy for the first time delivered nearly 100,000 tons of LNG on a tanker to Portugal. It's clear that the first cargo serves to test the route to Europe, but it's obvious that this is already the beginning of a new era in the European economy of oil and gas, energy security and diversification of energy supply sources so beloved to Europe. Europeans are not against such developments, since it will positively affect them. The competition between the business giants, between countries only benefits Europe which always supports an open gas market.

The gas prices for the residents in Europe are made up of several components, including the price for the gas itself, the cost of distribution and storage, the energy tax and the VAT. The highest gas prices for consumers is in Sweden, Portugal and Denmark, while the lowest prices are in Romania, Hungary and Lithuania. The gas prices for consumers are high because Europe imports around 60 percent of the consumed gas. The wide range of prices is a result of the geographical location, the existence of gas transportation infrastructure and gas storage facilities and the taxes. For example, the gas price in Sweden is three times higher than in Romania.

The US LNG can reduce gas prices in Europe due to a price war with the current largest suppliers - Russia, Norway and Algeria. The experts working in the gas market believe that Americans will start with $150-160 per 1,000 cubic meters in order to immediately show their price advantage in Europe before the Russian Gazprom, which they see as their main competitor, because this company covers a third of the gas demand in Europe. It will force Gazprom to think seriously about reducing the prices, for example, to $100-120 per 1,000 cubic meters versus the current $200 on average in Europe. Algeria and Norway will be automatically forced to join the general decline in prices. The issue of gas consumption growth in Europe will especially be acute since 2017, when it is planned to give up using the old coal plants in the EU due to environmental reasons. The power plants will be switched to the gas mode.

The US plans to become a net gas exporter in the next two years. Europe is perfect for such a plan. The shale gas producing companies in the US are concerned about the low energy prices but this will not force them to close the wells and stop the gas production. Closing the wells would cause more damage to the business than continuing the production under the current economic conditions.

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