Up to half of US LNG exports to Europe could be shut-in over the next five years, depending on the prices of oil and coal and Russia’s export strategies, Wood Mackenzie said in a report on Wednesday.
WoodMac’s Stephen O’Rourke said in the report there is much speculation on Russia’s response to the rise of European LNG imports from the United States.
Questions have been raised whether Russia will push to retain its market share, similar to the Saudi Arabia’s oil strategy, which could push European gas prices to low levels, causing shut-in of LNG exports from the US.
Noel Tomnay of Wood Mackenzie said that Russia’s export strategy has a major influence, however, prices of other commodities like oil and coal are more likely to have a stronger effect on US LNG exports. Coal prices could have the most impact since it “will determine European spot prices through coal-gas switching in the power sector.”
In a low oil price environment, Russia’s gas indexed to oil will allow it to retain over 30 percent of the European market, around 490 billion cubic meters, according to Wood Mackenzie. As Russian gas would remain cheap, buyers would maximise the offtake, threatening US LNG export volumes.
In case the prices of coal also remain low, it could push the European gas prices to US$3.85/mmbtu. This, in turn, would see the US LNG export capacity averaging 85 percent between 2017 and 2020.
LNG World News Staff