When TTIP talks were launched in 2013, Europeans were keen to tap into the United States oil and gas bonanza resulting from the country’s shale revolution to help reduce prices and shake off the continent’s too-heavy reliance on Russian hydrocarbons. But now US shale gas is arrriving in Europe, regardless of TTIP. Politics in member states – from France to Poland – could actually make it more complicated for US gas exporters to enter the EU market. By Iana Dreyer.
The momentum for TTIP is fading. There is increasing talk of the deal being finalised around 2020 – if at all. But will many of the issues TTIP was supposed to resolve still be relevant by then? That is a legitimate question in the area of energy. The dream many Europeans have nurtured of US shale gas arriving in Europe to help undo the grip of Gazprom, the Russian behemoth, over European gas markets is now turning into a reality regardless of TTIP. The question today rather seems to be: do Europeans actually want US shale gas?
In 2013 and 2014, when TTIP talks were in their infancy, oil prices peaking, and the crisis in Ukraine at its height, many pinned hopes on the freshly launched TTIP talks to help bring cheap and abundant shale gas from the US to Europe. Central and Eastern Europeans, who are much more dependent on Gazprom than Western Europeans for gas, are the biggest enthusiasts of the idea.
Sceptics at that time were saying that little US gas would arrive in Europe in any case as American exporters would fetch much higher prices in Asia than in the EU. What is more, the Central and Eastern European markets are still too small and fragmented to be able to absorb non Russian gas.
The EU insisted that regardless of these problems, its point was about global market rules and governance, in other words about making a stand vis-à-vis the Russians and other emerging markets about free and open energy markets. That has been so far the EU’s main reason to seek to include – so far unsuccessfully – a dedicated energy chapter in TTIP.
Beyond governance considerations, the key goal of the EU was at that time to ensure the US lifted an export ban on crude oil as well as its licensing requirements for exports of gas. These measures dated back to the 1970s but were made redundant since the US shale revolution unfolded ten years ago.
Global gas wars
Three years into TTIP negotiations, the world of energy has changed dramatically. Oil prices – to which gas prices are traditionally linked – have tanked. “The gas wars have begun”, Susan Sakmar, a gas market scholar at Houston University said at a recent energy market conference in Poznan, Poland, attended by Borderlex.
Today, Western European gas spot prices stand around US$ 4.6 MMbtu (million British thermal units), and are largely comparable to East Asian prices, which currently fetch around US$ 4.3 MMbtu. The prospect of US gas entering the EU is reportedly prompting the Russian export monopoly Gazprom to consider drastic price cuts in its exports to Europe. “Russia is the main competitor” of US shale gas at the moment, Sakmar explained.
In Asia, the recent economic slowdown in China has seen commodity prices tumble. Also, Australia has recently entered the global gas markets as major LNG exporter. This makes US exports less competitive in the Pacific. US terminals are in their great majority located in the Gulf of Mexico, i.e. on the Atlantic coast, making shipping LNG to Asia a rather expensive proposition in the current price environment.
Fred Hutchinson, Executive Director of LNG Allies, a Washington-based pressure group gathering US gas producers and foreign governments, many of them from Europe, believes “Atlantic gas will remain in the Atlantic”. Given the current market realities, US shale gas producers are in fact rather desperate to find outlets in Latin America and Europe.
The US have been retooling their LNG terminals to boost exports of shale gas. The first shipment by the company Cheniere was authorised in February 2016. Since then the US have made seven LNG shipments, one of them to Portugal in late April. Other authorisations at the Cheniere Sabine Pass are expected soon. The company Cameron LNG is expecting a few authorisations from the Federal Energy Regulatory Commission imminently.
The mood in Washington DC has increasingly turned towards being favourable to exports of hydrocarbons, in order to help boost exports and jobs, but also for geopolitical reasons. In a surprise move, US Congress abolished the long-standing crude oil export ban in December 2015. Some analysts believe the US Natural Gas Act could also evolve in the coming years to liberalise the US’ currently restrictive export licensing regime. Signs are the regulator is accelerating approvals of export licences.
French, German and Polish energy policies steering in other directions
Now the question in Europe seems rather to be: do Europeans actually want more US gas ?
Last week, the French government announced it was seeking was to ban imports of US LNG from shale gas (2/3 of US gas is shalle gas) for environmental and electoral reasons. Contracts EDF and Engie, the two state owned energy giants, have signed with US LNG companies, could be annulled.
Germany, by far Europe’s largest gas market, was never been keen on US gas either. It has never built an LNG import terminal. It is focusing on expanding import of piped gas from Gazprom by expanding its Nord Stream pipeline connection with the Eastern hydrocarbons producer in a project called Nord Stream 2. Few believe Brussels, despite competition concerns, will block a project that upsets so much the Poles and the Ukrainians as it bypasses their pipelines and entrenches Gazprom’s market share in Europe.
Poland, by far Central and Eastern Europe’s biggest market, is in a bind. On the one hand for energy security reasons, it has built an expensive LNG terminal at Świnoujście on the Baltic coast to bring in expensive Qatari gas. On the other domestic political pressures mean Warsaw is currently pushing for CO2-belching coal to continue to dominate the picture in electricity generation and as input in its chemicals industry to save mining jobs in the south of the country.
This raises the question as to whether gas will be competitive in the Polish market at all. Despite the signing of the COP21 global climate deal last December, the current right-wing government in Warsaw appears reluctant to take on climate obligations and switch to gas – the least CO2 emitting of all hydrocarbons – for electricity to curb greenhouse emissions.
So far, pipeline interconnections for gas pipelines in Central and Eastern Europe, crucial elements needed to ensure non-Russian gas gets to countries like Slovakia, Bulgaria or Ukraine, are advancing very slowly. In the short term, the only bright spot in the EU market seems to lie in Sweden and Finland, whose steel industry and maritime fleets are considering greater use of gas and LNG as fuel to reduce carbon emissions and thus comply with COP21 UN climate commitments.
Fred Hutchinson remains upbeat on US gas arriving to Central and Eastern Europe eventually. “The process of accelerating our exports from the United States is going to take about five years or more. That is probably what it will take in Europe to finish the Energy Union”, under the banner of which current efforts to unify the EU energy markets are led.
But that is going to happen regardless of TTIP – which could also finally see light by then, when it’s no longer needed.