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United States Natural Gas Will Never Weaken Russia's Position

By Joel South and Taylor Muckerman - Mar 9, 2014 at 2:18PM

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The surplus of natural gas in the United States will be ineffective in strengthening a position again Russia.

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. 

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..

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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