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October 18, 2016
Russian gas comes out fighting with strong support from the industry
By: Melissa Stark

U.S.  shale gas being exported to the world as LNG has stolen the headlines for the last two years with articles like the WSJ’s “With U.S. Gas, Europe Seeks Escape From Russia’s Energy Grip” 1, and being one who has written about the phenomenon of U.S. shale since 2015 (refer to Oil and Gas Journal article “Lower oil prices have strengthened the role of unconventional in upstream portfolios” 2), I still support the view that U.S. shale gas will continue to increase in competitiveness. However, sitting here in St.  Petersburg with the International Gas Union’s (IGU) Triennial working committees at the St. Petersburg Gas Forum, it’s clear that Russian gas should not be underestimated for a few key reasons.

  1. There is strong support for Russian gas from many producers and consumers. The St. Petersburg forum keynote panel with Alexey Miller, Gazprom’s Chairman, included Ben van Beurden (CEO of Shell), Klaus Schafer (CEO of Uniper), Xu Wenrong (VP CNPC), and Manfred Leitner (OMV Executive Board member) who were all vocal in their support for Russian gas. We heard about the cooperation with Shell on Baltic LNG, Sakhalin II LNG, and Nordstream 2. OMV called out its 48-year relationship with Gazprom and how U.S. LNG was still too expensive. CNPC emphasized the strategic importance of the Eastern Siberia pipeline to China that will give China sustainable supply from Russia by 2019/20.

  2. Russian Gas has some of the most cost competitive gas in the world, huge potential volumes, and many development options (of which fields to develop and what infrastructure to build).  It could possibly meet Europe’s gas demand at ~$5.50/MMBtu 3. At the St. Petersburg forum, Russian gas was referred to by a panellist as “the most competitive resource in the world.” Europe may be driving for supply diversity, but, in addition to the pipeline to China, large very price sensitive markets like India are a significant opportunity for Russian gas

  3. Gazprom is visibly part of the gas industry leadership and dialogue, evident by Gazprom’s large team supporting multiple committees in the IGU Triennial. The IGU represents gas producers and consumers from with 140 members representing over 95% of the global gas market. It is in the IGU meetings that gas consumers (from Japan, South Korea, China, Croatia, France, Germany, Spain, Portugal, etc…) and gas producers (from Russia, China, Norway, Iran, U.S., etc…) connect to decide the topics that will be discussed at the next World Gas Conference in Washington D.C. As important, it is in the IGU meetings that relationships at multiple levels in the organisations are developed and points of views are shared. 

In summary, competition among producers, particularly U.S. LNG and Russian gas will heat up, particularly in markets like Europe, China, and India providing diverse and competitive options to consumers who now have the market power (refer to Buyers stand taller and reshape the global LNG market 4). I expect Russian gas to come out fighting bringing to bear its competitive resources, expertise in pipeline and midstream infrastructure, and new innovation in the commercial deals it strikes with its partners and consumers.



3 Tamas Seregi, Accenture Strategy


More on this topic: 
Reflections from IP week: Shaping the gas landscape
Buyers stand taller and reshape the global LNG market
To expand global LNG demand, think small
Gas grows up: Cautiously optimistic?

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