Eastern European governments are looking to use the prospect of US natural gas exports as a bargaining chip to secure lower prices from Russia’s Gazprom in negotiations over new long-term contracts.
The Ukraine crisis has prompted eastern European nations to intensify lobbying for the US to ease restrictions on gas exports, and on Monday the Obama administration approved its seventh export permit for liquefied natural gas.
Lithuania, Estonia, Hungary and Bosnia-Herzegovina need to negotiate new deals with Gazprom because they have contracts that expire next year, and government officials say a growing US debate over energy exports is giving them new leverage.
"Obviously. It’s happening already,” Jaroslav Neverovic, Lithuania’s energy minister, told the Financial Times. "If you look at what experts are saying, the future is going to be cheaper gas.”
A diplomat from another eastern European country said: "If the export law changes or there is a sign from the Obama administration, it would affect negotiations with Gazprom next year, giving us bargaining power and political leverage.”
US gas production is rising as part of the shale energy boom. But US gas is not currently available in Europe, and countries anxious about their dependence on Gazprom – it supplies 100 per cent of Lithuania’s gas – would like to buy from the US.
Mr Neverovic will testify on Tuesday at a Senate energy committee hearing on US exports. Under current rules exporters need a government permit to sell LNG to countries with which the US has no trade deal.
Asked if his visit to Capitol Hill could itself affect Lithuania’s bargaining power with Gazprom, he said: "Well, if you interpret it that way, I won’t object.”
A person close to Gazprom said the company’s negotiations would be based on the concrete availability of alternative suppliers and noted that Lithuania was yet to sign any deals to buy US LNG.
Mr Neverovic acknowledged that the US could not sell LNG to Europe any time soon, not least because its first export terminal will not open until 2015, but he said liberalisation would send an important long-term signal to markets and gas producers.
Hungary is also anxious about Russia. In prepared testimony for a House energy committee hearing on Tuesday, Anita Orbá́n, its ambassador-at-large for energy security, said: "The only way to limit the monopoly supplier’s ability to exact damage and sow discord through the deployment of the price weapon is to establish alternative supply routes.”
A draft communiqué seen by the FT for this week’s G7 meeting in The Hague says: "We welcome the prospect of US LNG exports in the future since additional global supplies will benefit Europe and other strategic partners.”
It’s not about the market situation changing in one day. It’s rather a process, which is slowly but surely starting
- Jaroslav Neverovic, Lithuania’s energy minister
But a European diplomat said the Obama administration was not yet comfortable with the wording. Environmentalists and US manufacturers that use gas are opposed to more LNG exports, as are their allies in Congress.
America’s Energy Advantage, a group representing chemicals companies and other manufacturers, said the US’s latest export project approval was a "grievous error” that would push up domestic gas prices and put jobs at risk.
Before Monday the US energy department had granted six LNG export permits to five terminals, but they are still being built. The seventh is for the Jordan Cove facility in Oregon, which will supply Asia.
The first terminal due to begin operation, in Louisiana, will not start exporting until the second half of 2015. Terminal owners have promised much of their gas via long-term contracts to consumers in South Korea, Japan and Indonesia, where prices are higher than in Europe.
But Mr Neverovic said: "It’s not about the market situation changing in one day. It’s rather a process, which is slowly but surely starting, and hopefully it will lead to a global gas market”.
The US energy industry has found common cause with eastern Europe. Jack Gerard, president of the American Petroleum Institute, a lobby group, called on President Barack Obama to emulate Ronald Reagan by offering Russia’s neighbours a "positive” vision using US energy. "If the US were to open up its vast reserves and put them on to world markets, I believe it would give [Russian President Vladimir] Putin great pause,” he said.
Lithuania has been one of Gazprom’s most vocal critics in Europe, and its complaints about high prices have helped to spur a European Union antitrust investigation into the Russian gas giant.
(Financial Times, March 24, 2014)
