Cheap Russian Gas Tempts EU Buyers as LNG Import Growth Stalls

  • LNG imports into region fall for a third month in August
  • Russian pipeline gas flows increase by 20% in August

Europe lowered purchases of liquefied natural gas for a third month in August as buyers boosted purchases of oil-linked fuel through pipelines from Russia.

LNG imports by 10 nations in the region that receive the tanker-delivered fuel dropped 3.4 percent from a year earlier in August, after reaching a two-year high in March, according to data from Genscape Inc. Russian pipeline supplies soared about 20 percent from a year earlier in August, remaining at the highest level this year, tracking declining crude prices, according to data from Gazprom PJSC, the world’s biggest gas producer.

Europe, which imports as much as 70 percent of its gas needs, has increased shipments from Russia as contract prices declined because they follow crude with several months delay. Traders bought more LNG as they waited for pipeline gas prices to drop further in the third quarter, encouraged by a slump in Asian LNG prices that removed the incentive for producers such as Qatar to send cargoes east.

“We expect the supply picture to remain stable for the rest of the year with shippers continuing to draw heavily on oil-indexed supply and LNG sitting on the margin,” Ashish Sethia, head of Asia-Pacific gas and power analysis at Bloomberg New Energy Finance, said in an e-mailed note Tuesday. “As has largely been the case in 2015, exactly how much LNG will land in Europe depends on how competitively priced seaborne gas is.”

Chart showing changes in LNG imports in August vs year earlier
Chart showing changes in LNG imports in August vs year earlier

LNG imports into the U.K., Belgium, Spain, France, Greece, Italy, Lithuania, the Netherlands, Portugal, and Turkey declined to 3.02 million metric tons in August, compared with 3.13 million tons in the same month a year earlier, according to Genscape. Only the Netherlands, Italy and Portugal boosted shipments.

Russian exports to Europe, excluding the Baltic states and including Turkey, were at 14.3 billion cubic meters in August, unchanged from the previous month, and up from 11.5 billion cubic meters in the same month a year earlier, according to data from Gazprom and the Russian Energy Ministry’s CDU-TEK unit.

Russian gas exports rise as oil-linked prices fall
Russian gas exports rise as oil-linked prices fall

Russia’s average price could drop as low as $237 per 1,000 cubic meters ($6.64 per million British thermal units) this year, according to Valery Nemov, a deputy head of department for Gazprom’s export arm, from more than $340 in 2014. That compares with $6.39 per million British thermal units for front-month gas in the U.K., the European benchmark, on the ICE Futures Europe exchange.

European LNG imports so far this year are 4.3 percent higher than a year earlier at 26.1 million tons, according to Genscape data through August.

LNG imports into Europe are expected at 30 million tons this year, according to BNEF. The EU will have a “moderate LNG demand growth” to 40 million tons in 2020, and 74 million tons in 2025, according to BNEF’s Global LNG Market Outlook.

“Existing supplies in the Middle East and Atlantic basin may be increasingly forced to look for markets in northwest Europe to deliver their LNG and put downward pressure on European gas hubs,” Barclays analyst Nicholas Potter said in a note dated Sept. 7.“With limited outlets, Gazprom may continue to raise exports to Europe in order to balance falling oil-linked prices.”

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