United States Natural Gas Will Never Weaken Russia's Position

Russia's nationalized Gazprom is accusing Ukraine of faltering on payments for previously delivered natural gas, increasing the threat of a supply disruption to the troubled country and the European Union. Events  this week sparked plenty of commentary on the United States using its vast natural gas resources as a diplomatic weapon to soften Russia's hand.

While the United States is currently sitting on an ocean of inexpensive natural gas, exporting the fuel will not weaken Russia's resource control over Europe for three reasons. First, the U.S. government could cut all the red tape in exporting LNG, but commercial interests are not going to ship to Europe when much healthier margins are made by exporting to Asia. Even if prices skyrocketed in Europe, LNG regasification and natural gas storage is severely inadequacy. Finally, Russian natural gas is produced from conventional wells, making it the cost leader, effectively giving Russia command over market share and holding the winning hand. 

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This segment is from Friday's edition of "Digging for Value," in which sector analysts Joel South and Taylor Muckerman discuss energy and materials news with host Alison Southwick. The twice-weekly show can be viewed on Tuesdays and Thursdays. It can also be found on Twitter, along with our extended coverage of the energy and materials sectors @TMFEnergy..

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  • Report this Comment On March 09, 2014, at 7:41 PM, jaymooney wrote:

    I take issue with points 2 & 3

    Point 2 - US exports will go to the highest bidder - in turn driving down prices in Asia - this will cause some diversion to Europe based on shipping cost differentials. ( after all - all NG would go to Asia the highest price market if not for shipping differentials)

    Point 3 - Yes Russia is a low cost producer - currently charging top dollar for NG - an increase in completion would force a competitive price response.

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Joel South

Joel is a University of Washington graduate and covers energy and materials for The Motley Fool. Be sure to follow The Motley Fool's energy and materials Twitter for all your energy and materials coverage.

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