Trouble between EU and Russia Fails to Create Market for US Natural Gas

May 29, 2014
Investors high hopes of a quick return based on massive natural gas exports to Europe have been severely disappointed as the trouble between the EU and Russia over Ukraine has not produced a market for US natural gas.

There have been hopes that troubles between the EU and Russia over Ukraine would produce a market for US natural gas, most likely in the form of LNG.  We have been skeptical of that from the beginning of the crisis, stating that the Russian oil and gas will flow through the Ukraine pipelines because Russia needs the hard currency generated from energy exports.  That is indeed what is happening.  In fact, shipments are up year-over-year.  Investors in hopes of a quick return based on massive exports to Europe have been severely disappointed. 

Storage levels are healthy inside Europe at 57 percent of capacity.  In addition, the gas is flowing by ship and pipeline, and the world is a relatively calm place at the moment.  US and European firms should expect affordable natural gas prices which will help hold down inflationary pressures and aid in cash flow through the rest of the year. 

Natural gas prices in Europe have fallen to three-year lows, and that means new Europe-based natural gas development projects are not likely to flourish in the current environment either.  High-pressure fracturing technology and equipment suppliers should not expect a surge in sales this year. 

Russia inked a deal to supply China with 38 billion cubic meters of gas annually.  This is not expected to have an impact on prices out of Russia, and thus a negative impact on Europe, given that it is a relatively small amount in comparison to the 170 billion cubic meters currently shipped from Russia to Europe.

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