Gazprom Not Planning LNG Price War
February 04 2016 - 1:00PM
Dow Jones News
LONDON—Russia's state-controlled gas giant Gazprom PAO doesn't
plan a "price war" against U.S. exports of liquefied natural gas to
its most lucrative market in Europe, a senior company official said
Thursday.
U.S. LNG suppliers will find it hard to compete in Europe with
Russian gas prices under current market conditions, Gazprom's
deputy chairman Alexander Medvedev said at an investor meeting in
London. U.S. gas must be liquefied, shipped and turned back into
gas, costing more than Russia's product, which is transported by
pipeline.
"There is no need for us to launch any price war," Mr. Medvedev
told investors in London. "We are very relaxed about U.S. LNG,
though very attentive." However, he added that if U.S. LNG prices
did fall, Gazprom would seek to cut its own costs.
European governments have been hoping that U.S. LNG exports, due
to start this year, would help the region diversify its energy
supplies away from Russia. Relations between Russia and the
European Union have soured amid the crisis in Ukraine and western
sanctions.
Gazprom has long been the single biggest gas supplier into
Europe. Last year, Russian gas amounted to almost 31% of European
gas consumption, up from 30.2% in the previous year. Gazprom has
stated that it intends to keep that market share steady for the
foreseeable future.
Gazprom also ramped up exports into the region last year to
158.6 billion cubic meters—an 8.2% increase on the year, partly
replacing declining domestic production from mature gas fields such
as Groningen in the Netherlands.
"The European market is and shall remain the main market for our
exports," Mr. Medvedev said.
Europe accounts for the bulk of Gazprom's profits, helping to
offset the lower revenues the company earns in Russia. Gazprom's
recent pivot to focus on energy markets in Asia is unlikely to
yield significant results there for at least another five years,
analysts say.
Gazprom's defense of its core European market will be of
fundamental importance both to its own financial performance and to
the Kremlin's ability to use gas as a geopolitical tool over the
next few years, said James Henderson, Russian oil and gas analyst
at the Oxford Institute for Energy Studies.
Gazprom could begin acting like Saudi Arabia, the world's
largest oil exporter.
Saudi Arabia has some of the world's cheapest oil to produce and
has shown it so far that it won't buckle even with oil prices 70%
below their June 2014 peak. Faced with higher-cost competition from
the U.S., it has pumped flat out to keep its market share, sending
prices into a monthslong malaise.
"There may be some logic for Gazprom, as one of the lowest cost
suppliers to Europe with spare capacity, in adopting a Saudi-like
strategy to reinforce its long-term competitive advantage," Mr.
Henderson wrote in a recent report.
Write to Selina Williams at selina.williams@wsj.com
(END) Dow Jones Newswires
February 04, 2016 12:45 ET (17:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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