US LNG heralds lower Russian gas prices, coal switching in Europe: BP

US LNG

US LNG exports to Europe are anticipated to grow over the next five years.

US LNG, cheap Russian gas may encourage switch away from coal

 

By Alissa de Carbonnel

BRUSSELS, June 22 (Reuters) – A glut of US LNG exports to Europe will push Russian pipeline exporter Gazprom to slash prices and could spur a switch away from coal-fired plants, BP’s chief economist said on Wednesday.

Russian gas prices in Europe fell more steeply last year than would have been implied by a simple link to oil prices, which is the basis for Gazprom’s contracts, BP’s Spencer Dale estimated by subtracting gas flows from other countries from average German import price data.

“They competed on price,” Dale told Reuters.

With European imports of US LNG anticipated to grow over the next five years, sending prices as low as $4 per million British thermal units (mmBtu), Russian exporters could be forced to cut prices further, he said.

“Russia will do what it needs to do to maintain its market share,” he said.

However, greater access to global LNG markets could ease concerns over Europe’s dependence on Russia for about one third of its gas, he added.

BP also sees Russian plans to double its Nord Stream pipeline directly to Germany as an attempt to reroute gas exports around Ukraine rather than to increase volumes.

The Nord Stream 2 project, which includes E.ON, Wintershall, Shell, OMV and Engie , has roused resistance in Brussels due to Russia’s role in Ukraine’s crisis.

SWITCHING FROM COAL

The bigger impact of US LNG in Europe could be if prices are low enough to stimulate switching away from coal to gas-fired power plants on the same scale as in the United States and China last year.

Coal consumption took its steepest drop ever last year, falling by 1.8 percent, largely due to its displacement by gas in the United States.

Gas prices, however, might not fall low enough to crowd out coal without environmental levies enacted by European Union policy makers, such as a stronger carbon price on the Emissions Trading System (ETS)

“At the moment, it is right on the edge … if you just do something to help the bargain of gas over coal; just a small nudge in terms of carbon pricing,” Dale said.

EU politicians are debating how to reform the ETS – a scheme designed to make big polluters pay for their emissions.

Ten years since the launch of what aims to be the EU’s flagship climate policy, a surplus of carbon credits following the economic crisis has crushed the market.

Dale said a carbon price closer to 20 euros could make a “significant difference.”

(Reporting by Alissa de Carbonnel; Editing by Ruth Pitchford)

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