US gas exports to Lithuania threatens Russian monopoly

For the first time, US export of liquefied natural gas (LNG) to Europe will be delivered to Lithuania, a shot across the bow in challenging Russia’s land-locked pipelines that supply Europe with a third of its total natural gas. The delivery will head to the Baltic country in February, transported by tanker to custom built terminals. Along with increasing amount of USexports to Europe that will top 60 million tons annually by 2019, the EU sees LNG as a solution to the Russia’s Gazprom dominance at the market. Lithuania signed the US gas deal back in March 2015 to diversify away from a Russian energy stranglehold after the Ukraine crisis. Lithuania’s energy minister had anticipated the trade to expand to Latvian, Polish and Ukrainian markets afterwards.

The European Commission also stated that it will scrutinize expansion of the Nord Stream pipeline project to Germany,part of Gazprom’s plan to boost European sales by direct access to free-traded markets. The new exports are generally expected to decrease prices due to increased competition. According to one estimate, the US LNG exports would save Europe about $20 billion a year on gas import and cost Gazprom the same. In the same line, Lithuania is at the same time using a new LNG terminal as a leverage to negotiate 25% discount on its gas from Gazprom.

Analysts are rather split over the amount of US gas that could reach Europe. But in case of massive US LNG building up in 2017-2018 along with new Australian and Qatar supply for delivery to Europe, Russia has to fight over its market share against high amount of alternative supply. This would imply decreasing spot gas price below $4 per million BTU’s, versus $5.65 now in order to prevail over US imports. Gazprom has not commented on its potential strategy yet, however price dumping against more US gas and low-priced Qatari LNG will erode its revenues in the short-to-medium term according to Russian Academy of Sciences.

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News Briefs:

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  • A Russia-Armenia joint air defense plan shows that Russia has sought further expansion in its zone of “privileged interest” according to Jamestown. As the Armenian side clarified the future regional security incidents might involve not only Russian forces from the base in Armenia but also units belonging to Russia’s Southern Military District in the North Caucasus. The new joint air defense system aims to answer NATO containment policies according to the Moscow-based expert. However, the North Caucasian Russian air forces can only reach Armenia through the third party but no information of engagement of other regional neighbors has surfaced yet, except recent negotiations with Georgia over increased gas exports.
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  • Iran started dismantling nuclear equipment, disconnecting almost a quarter of its uranium-enriching centrifuges in less than a month. The reached July deal considers lifting the sanctions in exchange of Iran cutting down the number of centrifuges in operation from 19 000 to 6 100 and reducing its stockpile of uranium. Only about 5 100 centrifuges are allowed to be used for enriching uranium. In the last month Iran dismissed 4 500 centrifuges from their positions and carried out an annual inventory from all of its enrichment sites, marking the first time when none of the three enrichment plants are operating. The speed of dismantling will define whether Tehran implements the deal before parliamentary elections in February.
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