US surpasses Russia as world’s largest natural gas producer

1/13/2010

US surpasses Russia as world’s largest natural gas producer

The US, with its big gas shale resources, has surpassed Russia as the world’s leading gas producer. The US government’s Energy Information Administration (EIA) said US gas production for the year probably rose 3.7% to 624 billion cubic meters, its highest level of the decade. Russia’s output fell 12% to 582 billion cubic meters last year, the Russian energy ministry said this week.

The US growth trend may indicate that Gazprom will not be able to break into the US market as it had planned, Mikhail Korchemkin, head of East European Gas Analysis, said in a Bloomberg report. Gazprom set a target to take as much as 10% of the US market by 2020 through LNG sales from Arctic plays, Gazprom executive Alexander Medvedev said in June.

In the US, by contrast, lower gas prices last year than in 2008 encouraged the power sector to absorb the booming output from newly developed gas shale deposits. The surprising boost shale gas has given US output has closed the world’s biggest energy consumer to some imports and “created a huge oversupply of LNG in Europe,” Korchemkin said.

The Department of Energy also noted that, “Minimal hurricane disruptions and significant growth in production from onshore shale basins have contributed to the increase in domestic supply.”

Compared with the US, where gas trades on an open market, gas prices in Europe remained relatively high, discouraging fuel-switching. Most Russian gas sold to Europe is subject to long-term price agreements linked to crude prices.

In July, Qatari LNG prices in the UK fell as low as $75 per thousand cubic meters compared with Gazprom prices of between $210 and $220 per thousand cubic meters for countries in the European Union under long-term deals.

Gas deliveries from Norway and Qatar to Europe in the third quarter outpaced European growth in consumption while Russian exports lagged behind, according to the International Energy Agency. European imports from Nigeria fell 38% to 2.1 billion cubic metres in the period, according to the report. Additionally, Turkmenistan’s route to Europe was closed when Gazprom stopped purchases in April of this year.

Gazprom’s share of the European market may fall further as it refuses to show flexibility by giving a temporary price discount to European buyers, Korchemkin said. This may result in Gazprom exports to Europe remaining flat at levels just above contractual minimums over the next five to 10 years while others take advantage of growth, he said.

Russia surpassed the US in gas production in 2002, pumping 539 billion cubic metres versus America’s 536 billion, according to figures from UK supermajor BP.

Russia, which has the world’s largest reserves and a quarter of Europe’s market, led the world in output from 1986 to 1996 and again in 1999, the year after the government defaulted on $40 billion of domestic debt and devalued the ruble.

Russia’s annual output fell 12% to 582 billion cubic metres. Demand for gas in Russia, the world’s largest user of the fuel after the US, contracted last year along with the economy. Prime Minister Vladimir Putin said 30 December that annual gross domestic product declined 8.5%, the most since the collapse of the Soviet Union in 1991.

Despite the decline in output,  Moscow signed deals with China last year for $25 billion of loans to help with oil and gas development, and revived talks over a proposed gas pipeline to China. Russia also started exporting liquefied natural gas (LNG) last year from Sakhalin Island, off its Pacific coast, mainly to Japan and South Korea. Last summer, Kuwait also imported a Russian LNG cargo.

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