EU starts natural gas price war that will help boost demand

Bloomberg

The stage has been set for a European natural gas price war that will help boost demand and enable both Russia and the US to increase sales to the region.
The battle won’t brutalize earnings too much because gas supply is just so profitable in Europe, where prices are more than double the prevailing level in the US. And those costs probably won’t drop too far because higher carbon allowances and other climate measures are finally making the fuel’s traditional competitor, coal, less attractive.
After last week successfully diluting planned European Union gas-market legislation to include loopholes for a controversial pipeline from Russia, Germany this week promised to build at least two terminals that open its market to seaborne imports, including from the US. The direct competition between the world’s biggest gas producers should help stymie prices to some extent, even as Europe needs to boost imports to meet ambitious climate goals.
“If you factor in the need for Russia to utilize the pipeline and how it will compete with US. LNG and other pipeline exporters such as Norway, then it could set the stage for a price war in Europe in the not-so-distant future,” said Nick Campbell, a director at industry consultant Inspired Energy Plc in England.
Gas prices in Europe are still prevailing at high levels even after falling since September. The cost is usually even higher in Asia, although oversupply there has crimped the premium that region usually offers to draw in cargoes of the fuel in its liquid form.
Representatives of EU governments and the European Parliament approved a revision to gas-market legislation to spur competition. While it included loopholes for Nord Stream 2 pipeline to bring the fuel directly from Russia, bypassing Ukraine’s transport network, it was designed to play suppliers against each other.
The plan will “remove some of the risk” contained in prices because of the prospect of interruptions of supplies via Ukraine, with which Russia is in a territorial dispute, Campbell said.
Russia and the US are vying to supply Europe with cleaner-burning fuel as governments from Berlin to Madrid grapple with coal phaseouts. Vladimir Putin is seeking to buttress one of his nation’s biggest sources of foreign cash while Donald Trump wants to win the US a bigger share of a consumption boom.
Nord Stream 2, a planned 1,200-kilometer (746-mile) undersea pipeline, has sparked controversy. Eastern European countries wary of Russia gained US support in opposing the project, whose chief political champion in Europe has been German Chancellor Angela Merkel. The region’s biggest economy is simultaneously seeking to phase out nuclear power, leaving a further gap for gas to fill.