A tanker loaded with US natural gas is en route to Portugal. It may not appear to be newsworthy, but it is considered a game changer, as this is the first shipment in a trade relationship that could shake up the EU market, which relies heavily on Russian pipeline gas.
The 970-foot long Creole Spirit, carrying liquefied natural gas, is expected to arrive by the end of April, according to shipping data and people familiar with the matter, the Wall Street Journal reported on Thursday (21 April).
Separately, on 19 April, the Interpid cargo shop brought 27,500 cubic metres of American ethane to Norway, The Guardian announced last month. Ethane is a component of natural gas that is separated out and can be turned into a liquid to make it easy to transport. This is believed to be the first American shale gas to arrive in Europe.
American gas will add to a crowded market long dominated by Russia. Analysts predict that the arrival of US gas could trigger a price war, leading to lower prices for consumers that could act as a shot in the arm for the struggling European economy.
The US began selling Gulf Coast gas abroad for the first time in February, marking its emergence as a major exporter. After a yearlong effort by Houston-based Cheniere Energy, the first shipment went to Brazil, with subsequent shipments heading to Asia.
Gail India Ltd. bought the second shipment of liquefied natural gas from Cheniere Energy, last March.
“It’s the start of the price war between US LNG and pipeline gas,” said Thierry Bros, an analyst at Société Générale, quoted by the WSJ.
In the past, exports of oil and gas were banned in the US, as the country was a net importer.
But the massive ramp up in US shale oil and gas production, which has seen the price of both oil and gas plummet worldwide, has encouraged Barack Obama to change the law.
In Europe, US suppliers will square off with Russia, which currently supplies about a third of the continent’s gas via pipeline. Germany, for example, gets half of its gas, and Italy a third, from Russia. Norway, Algeria and the Middle East are other major sources of gas for the continent.
Analysts say that Russia could cut the prices it charges its European customers to try to chase away the new US competitors.
Russian gas export monopoly Gazprom said earlier this year it wasn’t planning a price war. But if American LNG prices did fall, the company “would seek to cut its own costs,” Gazprom’s deputy chairman Alexander Medvedev said in February.
Pipeline gas can be cheaper than LNG, because that gas has to be liquefied, shipped and re-gasified at arrival. But many in Europe see the US entry into the market as part of a broader geopolitical effort to challenge Russian domination of energy supplies and prices.
The impact of US gas in Europe “will be gradual, but it does start to change everything”, said Trevor Sikorski of London-based consultancy Energy Aspects, as quoted by WSJ.
“The new LNG will put downward pressure on prices, and losing both volume and value could be a hard pill to swallow,” for Russia, he said.