Contrary to mounting speculation over the impact of action Russia may take to protect its market share, the coal price will be a greater determinant, with as much as half of US LNG at risk of being shut-in at times over the next five years.
We have used our proprietary Global Gas Model to evaluate the outlook for US LNG based on coal and oil price variations as well as Russia's potential export strategies. Russia's export strategy is important, but ultimately US LNG export utilisation will be influenced more by the price of other commodities: US gas, oil and, particularly coal.
US LNG export utilisation will be determined by multiple factors but up to half of export volumes will be under threat at times over the next five years.
Stephen O’Rourke, Research Director of Global Gas Supply, sets the scene: “With European LNG imports, including from the US, set to grow over the next five years, there is much speculation about Russia’s likely response. Will Russia’s gas strategy mimic that of Saudi Arabia’s oil strategy, will it seek to retain market share in Europe, pushing European gas prices to levels that force the shut-in of US LNG exports?”
Noel Tomnay, Head of Global Gas & LNG research says: “Our analysis shows that while Russia's export strategy is influential, ultimately US LNG export utilisation will be influenced more by the price of other commodities: of oil and, particularly, of coal, which will determine European spot prices through coal-gas switching in the power sector.” Meet Noel at LNG 18.
In a low oil price environment
Should oil prices remain low, Russian oil-indexed contract gas will remain cheap and buyers will maximise their offtake of Russian gas. At low oil prices, customer choice rather than strategic Russian decision making would allow Russia to retain over 30% of the circa 490 billion cubic meters (bcm) European market and threaten US LNG export volumes.
In a low coal price environment
If coal prices also remain low, monthly European gas prices could fall to US$3.85/mmbtu, and utilisation of US LNG export capacity could average 85% between 2017-20.
Next in the series: If prices start to rise, will Russia change it's strategy?
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