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Europe Seen Paying Twice as Much to Replace Russian Gas

Arzamas 16

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Europe’s natural gas prices would have to double to lure enough cargoes from the global market to replace Russian supplies, adding to the challenges of decreasing the region’s dependence on its neighbor.

Benchmark U.K. prices would need to rise 127 percent to attract liquefied natural gas if Europe had to replace all its Russian fuel for two summer months, according to Energy Aspects Ltd. inLondon. LNG, shipped by tanker from as far away as Australia, would be the main alternative to the regional pipelines filled by Russia.

The European Union will announce a strategy by June for reducing its reliance on Russia, whose annexation of Crimea this month sparked the biggest regional crisis since theCold War. The 28-nation bloc gets a third of its gas from Russia, mostly via Ukraine, at an annual cost of about $53 billion. The EU would need to pay as much as 50 percent more to replace that with a combination of LNG, Norwegian gas and coal, according to Bruegel, a research group in Brussels.

“There will be high costs for a complete switch,” said Will Pearson, director for global energy and natural resources at Eurasia Group in London. “Russia will continue to be an important supplier to Europe, but I do think the emphasis will be on diversifying capabilities anyway so that they can import other sources when needed.”

Price Increase
Futures on London’s ICE Futures Europe exchange fell 2 percent to 52.5 pence a therm today. Prices would need to rise as high as 120 pence a therm ($19.93 per million British thermal units) to attract LNG in the spot market, said Trevor Sikorski, the head of natural gas, coal and carbon at Energy Aspects, a research company.

Traders aren’t expecting disruptions any time soon. While the cost of U.K. gas rose 9.9 percent on March 3, the first trading day after Russia’s incursion into Crimea, the Ukrainian province annexed by President Vladimir Putin, all the gains were erased since then.

Futures fell 32 percent since September 2008 as the euro zone’s longest-ever recession reduced demand to a 15-year low, Societe Generale SA estimates. The region has bigger-than-average stockpiles for this time of year after the mildest winter since 2007 diminished demand for heating.

Europe imported the least LNG in nine years in 2013 as demand weakened, according to BG Group Plc. A drive to buy more cargoes in the spot market would pit the region against Asia, where prices were on average about 30 percent higher last year. Japan accelerated imports of the chilled fuel after closing its nuclear power plants following the Fukushima disaster in 2011.

Gas Supply
A halt to Russian gas supply this summer would double U.K. prices to more than $18 per million British thermal units, said Mike Fulwood, a London-based principal for global gas at Nexant Ltd., which advises utilities and governments. Increased competition for LNG supply would also mean about a 19 percent increase in costs for Asia, he said.

European terminals can import as much as 199 billion cubic meters (7 trillion cubic feet) of gas a year, according to Gas Infrastructure Europe, a lobby group in Brussels. Russia supplied 138 billion cubic meters to the EU last year at an average price of $387 per thousand cubic meters ($10.50 per million British thermal units), according to OAO Gazprom, the Moscow-based Russian pipeline gas export monopoly.

“It’s probably not impossible to eliminate Europe’s dependence on Russia for gas, but it’s not going to be a cheap or easy project,” Laszlo Varro, the head of the International Energy Agency’s gas, coal and power markets division, told a conference in Berlin on March 25. “It would take some very difficult and very expensive policies.”

Russian Fuel
Dependence on Russian gas ranges from 100 percent in Finland to 37 percent in Germany and 16 percent in France. Belgium and Spain are among those who get no Russian fuel. Some nations are already trying to diversify their supply.

Poland, with a 59 percent dependency, says it will complete an LNG terminal by May 2015. Neighboring Lithuania, which gets all its gas from Gazprom, will receive a floating LNG facility by the end of 2014. France will start an LNG terminal next year, while a canceled project in Germany may now find new investors. Croatia and Ukraine are also reviewing projects.

The 18-member euro area’s economy will expand 1.1 percent in 2014, after contracting for two consecutive years, according to the median of 53 economist estimates compiled by Bloomberg. Surging energy costs would threaten the recovery. A halt in supplies would hurt Russia more than the EU, said Georg Zachmann, a research fellow at Bruegel in Berlin.

Lost Revenue
Europe is Gazprom’s biggest market by sales and the region pays more than Russian customers or some other buyers in the former Soviet Union, according to the state-backed company’s latest financial report. Lost revenue from the EU would also deplete the state budget, 15 percent of which comes from gas sales, Zachmann said. Sergei Kupriyanov, a spokesman for Gazprom in Moscow, declined to comment.

Gas is flowing from Russia to the EU as normal and the bloc expects Russia to meet its supply commitments, Sabine Berger, an energy spokeswoman for the European Commission, said March 26. Exports to Europe expanded 2.9 percent this year through March 26, Russian Energy Ministry data show.

There are no alternatives to Russian gas for Germany, Gazprom’s biggest market in Europe, Economy and Energy Minister Sigmar Gabriel said yesterday in an interview with the Neue Osnarbruecker Zeitung. Russia stuck to its supply contracts, “even in the darkest hours of the Cold War,” he said.

U.S. Exports
U.S. President Barack Obama said March 26 in Brussels after meeting European leaders that the EU should consider gas imports from the U.S. as well as developing domestic resources. The EU’s overall energy dependency rate will rise to 80 percent by 2035 from 60 percent now, according to the Paris-based International Energy Agency.

Three congressional committees are holding hearings this week on whether the U.S. should sell more of its growing oil and gas resources overseas, in part to lessen European dependence on Russian oil and gas.

“Natural gas exports will not only drive continued investment in domestic production and create jobs, they’re also a powerful geopolitical tool particularly in light of Russia’s illegal aggression in the Ukraine,” Mary Landrieu, chairman of the Energy and Natural Resources Committee, said March 25 at her first hearing as head of the panel. “The last thing Putin and his cronies want is competition from the United States of America in the energy race.”

Alternative Fuels
In addition to LNG, European nations could buy more gas from Norway and the Netherlands. They have the capacity to each boost pipeline exports by at least 20 billion cubic meters, or enough combined to supply France for a year, Bruegel estimates. Europe also could favor coal over gas in power plants, said Jonathan Stern, the founder of the Oxford Institute for Energy Studies.

Replicating the U.S. success in tapping gas trapped in shale-rock formations will take years. Poland is developing Europe’s largest recoverable deposits, estimated at 4.2 trillion cubic meters by the U.S. Energy Information Administration. While that’s enough to meet nine years of EU consumption, the country will likely be producing no more than 20 billion cubic meters annually by 2020, said Sikorski of Energy Aspects.

“Neither Polish shale gas, or shale gas anywhere else in Europe, nor anything else can be a game changer which will make any immediate and significant difference,” Stern said. “The only thing which can be done quickly would be to use massive amounts of additional coal rather than gas. This would massively add to environmental problems.


Europe Seen Paying Twice as Much to Replace Russian Gas - Bloomberg


:omghaha::omghaha::omghaha:
 
Europe's current GDP growth is what, 0.3% right now? (They just emerged from negative growth).

And America's latest GDP growth was actually negative, at -1%.

Really, instead of sanctioning Russia, they should be focusing on their own economies. Instead of hurting their economies further just to do some very limited damage to Russia's economy.
 
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Europe's current GDP growth is what, 0.3% right now? (They just emerged from negative growth).

And America's latest GDP growth was 0.1%.

Really, instead of sanctioning Russia, they should be focusing on their own economies. Instead of hurting their economies further just to do some very limited damage to Russia's economy.

The economic crisis is coming back again.

Last time it was the Lehman Brothers, now this time it is the Citigroup.

This is not funny at all.

Citigroup’s CFO Says Trading Revenue Could Slide 25% - Bloomberg
 
We welcome gas imports from Russia. Infact or government is talking of a pipeline with Russians through China.

If that materializes which we hope, it will make us more independent from the volatile middle east which is so unpredictable.
 
Bit of a load of bs isnt it, theres enough in the north sea, look at you all lapping it up like something brilliant has happened haha, were used to price increases over here, our greater wages can afford it :)

Clearly missing the bigger picture though, who loses more? rich western nations that HAVE to pay top dollar for Russians supplies...or the Russians who no longer get that money and are forced to sell it to poor countries for a fraction of the cost, I think thats the far worse scenario.
 
@Schutz : China is paying a little less than the EU average for its gas so Russia is not losing out much. On the other hand, a struggling EU simply cannot afford even more expensive energy imports.

North Sea gas, like oil, is drying up as the UK is having to import gas now from Qatar.

@Audio : Hate to say but I told you so this would happen. By all means feel free to sanction Russia and pay double.
 
You really have no idea what you are talking about.

Bit of a load of bs isnt it, theres enough in the north sea, look at you all lapping it up like something brilliant has happened haha, were used to price increases over here, our greater wages can afford it :)

Clearly missing the bigger picture though, who loses more? rich western nations that HAVE to pay top dollar for Russians supplies...or the Russians who no longer get that money and are forced to sell it to poor countries for a fraction of the cost, I think thats the far worse scenario.
 
Bit of a load of bs isnt it, theres enough in the north sea, look at you all lapping it up like something brilliant has happened haha, were used to price increases over here, our greater wages can afford it :)

Clearly missing the bigger picture though, who loses more? rich western nations that HAVE to pay top dollar for Russians supplies...or the Russians who no longer get that money and are forced to sell it to poor countries for a fraction of the cost, I think thats the far worse scenario.

North sea is mainly oil ,less of gas.

Russia sells gas on oil-indexed basis. So spare me your BS as you are talking out of your ***. West is economically drained and debt to gdp ratio(including derivatives created ponzi debt) is very high.
 
: China is paying a little less than the EU average for its gas so Russia is not losing out much. On the other hand, a struggling EU simply cannot afford even more expensive energy imports.

North Sea gas, like oil, is drying up as the UK is having to import gas now from Qatar.

@Audio : Hate to say but I told you so this would happen. By all means feel free to sanction Russia and pay double.

I see you're again in your business of misinformation. Namely how would you know what China pays if the official numbers weren't even released.? IIRC the negotiation isn't even fully concluded, the announcement was made in a hurry on last day of Putin visit.

Stop making a fool out of yourself.

Qatari emir will bend over backwards to get energy to Europe as he has shares in major companies as insurance for his country when the oil/gas runs dry.

Furthermore, there's the signed deal for Kaspian Basin gas, which will be brought through Turkish pipeline and the ever increasing prospects of Iranian gas from the Pars field. Nabucco is slowly but surely being rectified, in all but name.
 
INDIA & CHINA will get the left over gas at discount rate lol

I doubt it will happen, besides we don't import gas from Russia as far as I know.

Gas pipeline between Russia and India is not feasible due to geographic obstacles.

The only way it can come to India is via Arabian sea after travelling from Russia, FSRs and Iran.

world-map.gif
 
it should also be noted that the article tries to promote australian LNG in the first part, a complete nonsense. Every kindergarten kind can see how expensive something would be to be shipped from australia to europe.
 
How are we going to transport and unload the amount of gas that we already buy from Russia. This question has been avoided by the politicians from the very beginning. On top of that, how much more will it cost to build all those ships and docking stations at the ports and how long will it take to build them?

Even in the medium term, getting gas from the US or anyone else other than the Russians is nothing but a pipe dream.
 
I doubt it will happen, besides we don't import gas from Russia as far as I know.

Gas pipeline between Russia and India is not feasible due to geographic obstacles.

The only way it can come to India is via Arabian sea after travelling from Russia, FSRs and Iran.

world-map.gif
What about ship
Even decreasing shiping cost russian currency has low value
 

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