In the Age of Trump and Putin, Europe Faces Hard Choices on Gas

  • Date: 27/06/18
  • Bloomberg

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

Imports to the continent are poised to rise almost 20 percent by 2040 from 2016 levels, according to International Energy Agency. While Russia has long been the region’s top supplier, it’s now facing significant challenges from both the U.S. and Qatar, rivals with vast natural gas reserves.

For Europe, there’s both opportunity and risk. While competition can drop prices, geopolitics are becoming increasingly tricky in an age dominated by the strong headwinds coming from both U.S. President Donald Trump and Russian leader Vladimir Putin.

The result: “Things that jeopardize security of supply are going to be at the forefront” of Europe’s decisions on who to buy from moving forward, according to Breanne Dougherty, an 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 U.S. spurred by Trump’s tariff decisions is complicating that relationship. And Qatar is in the midst of an antitrust probe brought by the European Union.

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

After Cheniere Energy Inc. began shipping gas two years ago from its Sabine Pass terminal in Louisiana — the first to send shale output abroad — the U.S. 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 U.S. terminals may start up by the end of 2020, to make America the world’s third largest LNG supplier, behind Qatar and Australia.

But concerns about a potential trade war are not making things easy. After the Trump administration hiked tariffs on the continent’s steel and aluminum, the E.U. retaliated with duties on a range of U.S. products. Though natural gas isn’t directly affected, political friction could make it more difficult to ship U.S. supply overseas, according to Societe Generale.

“The U.S. influence on European policy makers 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 European Union 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 disrupted twice, in 2006 and 2009, over a pricing dispute between Russia and Ukraine. Meanwhile, Lithuania and Poland have built terminals to import cargoes of liquefied natural gas from overseas, reducing their reliance on Russia.

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