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Can US Threaten Russia's Dominance in Europe's Gas Market?

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With Europe using up more natural gas than it produces, the continent has long been eyed by liquefied natural gas (LNG - Free Report) exporters. According to Forbes, demand for natural gas in the continent touched the highest mark in 2017 since 2010. Demand is going to rise further as natural gas’ contribution to Europe’s energy needs is expected to increase from the current 24% to 30% in the coming years, said the International Energy Agency (IEA). 

Meanwhile, Europe has been excessively relying on Russia’s gas supplies. However, the continent has been trying to reduce dependence on the politically-unstable Moscow and has decided to import more LNG from the United States in the coming years. Washington is keen to bump up its LNG supplies to Europe and has been accordingly building a number of LNG export terminals, especially in the Gulf Coast area.  

US LNG Export to Europe Very High Last October

Washington dispatched 24% of its exported LNG volumes to Europe last October, per CNBC. The source added that the volume of LNG exported was 0.6 billion cubic meters and America has never before exported such high monthly volumes. Against this, just 10% of the LNG exported volumes of America had gone to Europe in 2017.  

Exports of LNG from Washington to the continent are estimated to double by 2022, per the European Commission, a politically independent executive unit of European Union.

However, U.S. gas supplies to Europe will only increase if the price is competitive, added the European Union. In recent years, the Henry Hub natural gas spot price had come down following new discoveries and plentiful supply in the domestic market. The price of natural gas is below $4 per Million Btu now as compared to more than $6 mostly from 2005 through 2008.

Russia’s Clear Dominance in Europe

Per recent data from the European Commission, the continent continues to have the strongest reliance on Russian gas. In fact, owing to proximity with Europe, Russia accounted for more than 75% of the natural gas imported volumes of each of the 11 member states of the European Union — Estonia, Slovakia, Bulgaria, Czech Republic, Latvia, Hungary, Austria, Poland, Finland, Romania, and Slovenia.

Through the extensive pipeline network of leading energy company Gazprom, Russia transports a bulk of its natural gas to Europe. Transportation expenses have come down due to the favorable geographic position of the country and the continent. Established midstream assets and several pipeline networks — under construction — have also lent Russia an advantageous position.

Can US Gain Lead in Europe’s Gas Market?

For U.S. to outmanoeuvre Russia and get a foothold in Europe, it could exploit the strained ties between Europe and Russia, apart from the quite obvious option of ramping up supplies. The relationship started deteriorating since early 2014 following the annexation of Crimea from Ukraine by Russia. Moscow also assisted the insurgence of pro-Russian in east Ukraine.

Overall, the rising export of U.S. LNG to the European market is expected to brighten prospects for domestic players like Cheniere Energy, Inc. (LNG - Free Report) , Sempra Energy (SRE - Free Report) , Kinder Morgan, Inc. (KMI - Free Report) and NextDecade Corporation (NEXT - Free Report) . These Zacks #3 Ranked companies are contemplating the construction of export facilities or expansion of terminals.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

However, the growing acceptance of U.S. LNG doesn’t necessarily mean that Washington poses a threat to Moscow, believes RBC Capital Markets. The established midstream infrastructures and proximity to Europe have made Russia a dominant natural gas supplier to the continent, added the investment bank. Hence, it will take time for Washington to overtake Moscow and establish its presence as a prominent supplier of the commodity to Europe.

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