EU Buyers Turning to Cheaper Pipeline Gas from Russia Over LNG Imports

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Credit: Samuel Bailey / CC BY 3.0

Europe once again dropped their prices on liquefied natural gas for the third month in a row this past August as buyers continue to the Russian oil option fueled via pipelines instead. Buyers appear to be preferring pipeline service over tanker delivered fuel as LNG imports dropped about 3% in August compared to last August’s figures. Simultaneously, pipeline supplies from Russia saw a 20% increase this year compared to last year. In fact, import rates for Russian pipeline natural gas are at the highest level in 2015.

Gas consumption is high in Europe, so it is an interesting country to watch, especially as they do not have many gas reserves of their own. In fact, Europe imports over 70% of the gas that it consumes. It has continued to increase import orders from Russia as contract prices continue to fall along with crude oil delays. On the other hand, traders have purchased more natural gas for LNG during the slump as they anticipate pipeline gas prices will fall even more drastically over the third quarter of this year. They credit the potential for a slump to occur because of the Asian LNG price slump that has already halted Qatar producers’ incentives to send oil eastwards.

In an email note published this week, the head of Asia-Pacific gas, Ashish Sethia, stated that they expected that the natural gas supply would continue to be stable at the current rates for the year’s completion. Sethia added that this implies that shippers will utilize oil-indexed supply, and LNG will continue on the margin. The note was closed with the simple conclusion that LNG import rates will heavily depend on how competitively seaborne gas prices are set over the next two quarters.

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