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Impact of US LNG exports on Russian monopoly

LNG Industry,

The Center on Global Energy Policy has released a new report titled ‘American Gas to the Rescue? The Impact of US LNG Exports on European Security and Russian Foreign Policy’.

The report is co-authored by Jason Bordoff, Founding Director at the Center on Global Energy Policy, and Trevor Houser, Partner at the Rhodium Group.

The Ukraine crisis

As Western governments have responded to Russia’s continued efforts to destabilise Ukraine, the potential for US natural gas exports to inflict economic pain on Moscow and undermine its influence in Europe have made for some eye-catching headlines. To address this issue, the authors have conducted a study that provides an examination of the impact of US LNG exports on European energy security and Russian foreign policy.

Shale gas boom

The US shale gas boom has already helped European consumers and damaged Russian producers by expanding global gas supply and freeing up LNG shipments previously planned for the US market. This has strengthened Europe’s bargaining position, forcing contract renegotiations and lowering gas prices. US LNG exports will have a similar effect.

Policy changes needed

Over the long term, US exports, along with growth in LNG supply from other countries such as Australia, will create a larger, more liquid and more diverse global gas market. This will increase supply options for Europe and other gas consumers, and give them even more leverage in future negotiations with Russia and other producers. Maximising the benefits of this opportunity, however, requires changes in European policy and infrastructure that focus on reducing vulnerability to Russian supply disruption, not only dependence on Russian gas overall.

US terminals

While there are important longer-term benefits for Europe from US LNG exports, they are not a solution to the current crisis. Those terminals already approved will not be online for several years. Terminals pending approval, if constructed, will not be available until after 2020.

Russia to remain dominant

Although US LNG exports increase Europe’s bargaining position, they will not free Europe from Russian gas. Russia will remain Europe’s dominant gas supplier for the foreseeable future, due both to its ability to remain cost-competitive in the region and the fact that US LNG will displace other high-cost sources of natural gas supply. In our modeling we find that 9 billion ft3/d (93 billion m3/y) of gross US LNG exports results in only a 1.5 billion ft3/d (15 billion m3) net addition in global natural gas production.

Gazprom monopoly?

By forcing Gazprom to reduce prices to remain competitive in the European market, US LNG exports could have a meaningful impact on total Russian gas export revenue. While painful for Russian gas companies, the total economic impact on state coffers is unlikely to be significant enough to prompt a change in Moscow’s foreign policy, particularly in the next few years.

The full report can be accessed here.

Adapted from press release by Katie Woodward

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