First U.S. Gas Shipment En Route to Europe
April 21 2016 - 2:32PM
Dow Jones News
By Georgi Kantchev and Miriam Malek
A tanker from Louisiana loaded with U.S. natural gas is en route
to Portugal, the first shipment in a trade relationship that could
shake up the European market.
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.
In Europe, American gas will add to a swell in supply in a
crowded market long dominated by Russia. Analysts predict that the
arrival of U.S. 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.
"It's the start of the price war between U.S. LNG and pipeline
gas," said Thierry Bros, an analyst at Société Générale.
The U.S. began selling Gulf Coast gas abroad for the first time
in February, marking its emergence as a major exporter. After a
yearslong effort by Houston-based Cheniere Energy, the first
shipment went to Brazil, with subsequent cargoes heading to
Asia.
Now, Portugal's energy company Galp Energia has bought the first
European cargo from Cheniere's Sabine Pass facility, according to a
person familiar with the transaction. The ship is estimated to
arrive at the Port of Sines in Portugal on April 26, according to
data from the port.
Galp and Cheniere representatives didn't respond to requests for
comment.
Europe is expected to be a big market for American gas. The
shale-gas boom has transformed the energy landscape in the U.S.,
and the country is now expected to become a net gas exporter in
2017.
Cheniere has signed long-term contracts with a number of
European gas companies, including U.K.'s BG Group, which was
acquired earlier this year by Royal Dutch Shell PLC, and Spain's
Gas Natural.
In Europe, U.S. 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 U.S.
competitors.
Russian gas giant Gazprom said earlier this year it wasn't
planning a price war. But if U.S. LNG prices did fall, the company
"would seek to cut its own costs," Gazprom's deputy chairman
Alexander Medvedev said in February.
At current prices, U.S. LNG delivered to Europe would cost
around $4.30 per million British thermal units, according to price
reporting agency Argus. Russia sells its gas to Europe for $5.80,
on average. However, analysts say that Russia could drastically
lower prices in a price war, to below $3.
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 U.S. entry into the market as part of a broader
geopolitical effort to challenge Russian domination of energy
supplies and prices.
The impact of U.S. gas in Europe "will be gradual, but it does
start to change everything," said Trevor Sikorski of London-based
consultancy Energy Aspects. "The new LNG will put downward pressure
on prices, and losing both volume and value could be a hard pill to
swallow" for Russia.
--Chester Dawson contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com
(END) Dow Jones Newswires
April 21, 2016 14:17 ET (18:17 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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