U.S. Overtakes Russia as Biggest Natural Gas Producer (Update1)

Jan. 12 (Bloomberg) -- The U.S. overtook Russia as the world’s largest natural-gas producer last year as U.S. suppliers tapped unconventional resources while demand in Russia plunged amid the country’s worst economic decline on record.

U.S. output in January through October advanced 3.9 percent from a year earlier to 18.3 trillion cubic feet (519 billion cubic meters), according to the latest Department of Energy data. Russian output, about four-fifths of which comes from state-run OAO Gazprom, plunged 17 percent in the period to 462 billion cubic meters.

“Minimal hurricane disruptions and significant growth in production from onshore shale basins have contributed to the increase in domestic supply,” the Department of Energy’s Energy Information Agency said on its Web site last month.

The U.S. growth trend may indicate that Gazprom will not be able to break into the U.S. market as it had planned, Mikhail Korchemkin, head of East European Gas Analysis, said today by telephone today from Malvern, Pennsylvania.

The state-run Russian company set a target to take as much as 10 percent of the U.S. market by 2020 through sales of liquefied natural gas, or LNG, from Arctic deposits, Gazprom Deputy Chief Executive Officer Alexander Medvedev said in June.

The surprising boost shale gas has given U.S. output has closed the world’s biggest energy consumer to some imports and “created a huge oversupply of LNG in Europe,” Korchemkin said.

Qatar LNG

In July, Qatari LNG prices in the U.K. fell as low as $75 per thousand cubic meters compared with Gazprom prices of between $210 and $220 per thousand cubic meters for countries in the European Union under long-term deals, Korchemkin said.

Gas deliveries from Norway and Qatar to Europe in the third quarter outpaced European growth in consumption while Russian exports lagged behind, according to the International Energy Agency.

European imports from Qatar more than doubled to 4 billion cubic meters in the third quarter from the same period the previous year. Supplies from Norway rose 27 percent to 21.1 billion cubic meters while overall European imports grew 10 percent to 100.1 billion cubic meters, according to the IEA. Imports from the former Soviet Union grew 8.6 percent to 32.6 billion cubic meters.

“There are winners and losers in the world gas business,” Korchemkin said. “The losers are Gazprom, Nigerian National Petroleum Corp., Turkmengaz” and NAK Naftogaz Ukrainy.

European imports from Nigeria fell 38 percent to 2.1 billion cubic meters in the period, according to the report. Turkmenistan’s route to Europe was closed when Gazprom stopped purchases in April of this year.

Gazprom European Share

Gazprom’s share of the European market may fall further as it refuses to show flexibility by giving a temporary price discount to European buyers, Korchemkin said.

This may result in Gazprom exports to Europe remaining flat at levels just above contractual minimums over the next 5 to 10 years while others take advantage of growth, he said.

Russia surpassed the U.S. in gas production in 2002, pumping 539 billion cubic meters versus America’s 536 billion, according to BP Plc. Russia, which has the world’s largest reserves and a quarter of Europe’s market, led the world in output from 1986 to 1996 and again in 1999, the year after the government defaulted on $40 billion of domestic debt and devalued the ruble.

The EIA said full-year U.S. output probably increased 3.7 percent to the equivalent of 624 billion cubic meters. The agency is slated to release November data on Jan. 29. Russia’s annual output fell 12 percent to 582 billion cubic meters.

Demand for gas in Russia, the world’s largest user of the fuel after the U.S., contracted last year along with the economy. Prime Minister Vladimir Putin said Dec. 30 that annual gross domestic product declined 8.5 percent, the most since the collapse of the Soviet Union in 1991. Industrial output fell about 11.5 percent, the Economy Ministry said last month.

To contact the reporters on this story: Stephen Bierman in Moscow sbierman1@bloomberg.net;

To contact the editor responsible for this story: Guy Collins at guycollins@bloomberg.net.