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Russia’s Gas Future

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Russia’s reserves of natural gas have consistently been used as a bargaining tool in regards to forcing policy. It has been claimed that Moscow has used pressures of gas cut-offs or outright cuts more than 50 times since the end of the Soviet Union, analysts say.

It’s ability to wield energy as a geopolitical tool is now weakening and will likely continue to do so for three key reason: new supplies of gas especially from the United States, the increase in global shipping of gas via LNG tankers and a unifying European gas market.

The coincidental threat to Russia is the US boom in natural-gas production. While US exports of natural gas to Europe and Asia are still four or five years away, questions still remain over how much gas the United States will ultimately export.

LNG cargoes previously contracted to supply the US now supply Europe. With alternative source of supply and at cheaper price the likes of Germany’s EON and RWE, France’s GDF Suez and Italy’s ENI have managed to renegotiate their contracts with Gazprom, the Russian state owned gas producer, negotiating significant price reductions. Thirdly, European countries including Ukraine have started trying to replicate the shale-gas revolution. Chevron and Shell signed agreements in Ukraine to drill for gas. Exxon has tried in Poland and there are attempts to explore in the UK.

With Europe (including Ukraine) accounting for about three-quarters of Russia’s gas exports, it explains Russia’s urge to find new markets in Asia to feed China’s appetite for oil and gas.

Russia won’t lose its energy leverage overnight of course. All these changes in the gas market will take years to play out; some such as European shale-gas production may never fully live up to expectations.


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