Russian Natural Gas Market / by Norris McDonald

Nord Stream Pipeline2.jpg

Russia is our biggest competitor in the international natural gas market. They are proposing to build Nord Stream 2, a 48- inch natural gas pipeline that will run from near St. Petersburg in Russia to Greifswald in northeastern Germany. It would run under the Baltic Sea parallel to Nord Stream 1, which was built in 2011. Russia is already supplying most of Germany’s natural gas. This pipeline will double the amount of gas Germany can import from Russia. Germany currently uses more natural gas than any other European country and they expect their natural gas demand to increase. This is a major win for Gazprom, the Russian natural gas company.

Gazprom has been providing natural gas to Europe for over 40 years. They are the largest exporter of natural gas to the European market. The US entered this market last year with natural gas shipments Poland. Natural gas demand in Europe is expected to continue to increase.

European natural gas production is decreasing. Most counties have banned or restricted hydraulic fracturing, which is required on almost every well in order to produce natural gas or oil. These countries are turning to Russia for their natural gas needs. Russia, like all countries, fracks almost every well. Mr. Putin will continue to frack and make billions of dollars from Europe. Gazprom’s contracts with its European customers are long term and tied to oil prices.

Shale Crescent

Shale Crescent

America can compete in Europe but Russia has an advantage with their pipeline over our LNG. However, our competition will force Russia to stay competitive, like what happened in Poland when the US started shipping them LNG last summer. Gazprom now has some competition from the USA.

The other problem Europe has by getting gas from Putin and Gazprom is that Putin can apply political pressure, if he chooses, like he did in Ukraine in 2014 and simply close the valve, shutting off their natural gas.

Natural gas prices in the USA are not tied to oil prices. The current Dominion South Pointe price for natural gas in the Shale Crescent USA is $2.40 per MM BTU. This is equivalent to oil at $14.40 per barrel. Oil on the world market is selling for $70 per barrel. (The Parkersburg News and Sentinel, 7/28/2018, Shale Crescent USA)