American Freedom LNG Competitive vs. Russian Gas

Interesting, I hadn't thought about the LNG challenge from quite this angle.  But competition is generally a good thing.

No, U.S. LNG will not be able to compete with cheaper Russian piped hydrocarbons, but it reduces Russia's hydrocarbon stranglehold on the EU by offering alternatives of LNG imports.  Especially handy for EU if Russia throws another temper tantrum and cuts off piped hydrocarbon supplies in pricing disputes.

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2 hours ago, Tom Kirkman said:

No, U.S. LNG will not be able to compete with cheaper Russian piped hydrocarbons

Sure it can.

First, remember that competition is not merely in price.  It is also in availability, and (as you point out) possibly an alternative in the case that Russia throws a "temper tantrum."  To that, I respond that Russia and Putin NEVER throw temper tantrums, everything he and they do is calculated to gain some advantage.  If you start with the concept that Russia is an existential threat to Europe, and an existing threat to Ukraine, then to deny Russia and by extension Putin himself the hard currency fruits of selling Russian gas and oil is to buttress your own physical security and cut off the funds flows for Russian fabrication of military weapons and the payroll of Russian mercenaries. Now, does that have a monetary value?  I would suggest it does.

Second, take the structure of marginal costing.  If the gas at the wellhead is being flared off, as some is, and instead as part of foreign-policy initiatives to thwart Russian expansionism the govt and the Western companies build pipe to liquefaction terminals to ship otherwise wasted gas to Poland, the cost of that gas now becomes only the additional fractional cost of liquefaction.  The gas itself is "free" in the sense that it was going to be flared anyway.  Then the delivered cost of gas into Poland is the liquefaction costs and the transport costs.  That is going to come in well below current Russian pricing. So even on a cash basis the West can undermine Russian territorial grabs against its neighbors. 

Where this becomes critical is in Estonia and Latvia. These are pushover targets by the Russian Army and have a major incentive to avoid becoming held helpless and captive to Russian land grabs forced by turning off the heat.  They are better off paying whatever it takes to get out from underneath being supplicants to Russian political pressures.  Yet the only way for this to work is for the US oilpatch to understand that they have a contribution to make both to developing their own profits and also Western markets (in the longer run) and Western freedom, because without that, you hve no markets later to sell to.  You cannot seriously think that Putin is not going to invade Eastern Ukraine and the Baltic States when he thinks it is opportune to do so. Because he will. 

So, end game, it does not matter if Russia offers the European nations gas for free.  As far as Europe is concerned, it might as well not exist.  Buying Russian gas is not going to bring Russia into the family of nations any more than buying North Korean coal is going to bring that country into civilization.  To think so is to indulge in fantasy. Europe has to suck it up and get off Russian supplies.  You don't hand the money to buy a gun to a street thug who wants it to go rob and kill you the next time you are in town. 

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