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Trump's boast of massive exports of LNG to Europe being undercut by Russia


PRESIDENT Donald Trump's vision of Europe becoming a "massive buyer" of US liquefied natural gas is likely to crash into the reality that Russia is a cheaper supplier for now.

Europe is consuming record volumes of the fuel delivered by pipelines from its traditional and geographically closer partners, Russia and Norway.

Production has been increasing in both of those countries, and Moscow has been promoting vast fields in Siberia that can ship to Europe at a lower cost than the US.

On top of that, Asia, which buys almost three-quarters of global LNG, lures most of the super-chilled fuel from global plants, including in the US.

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Those factors will make it difficult for US suppliers to get a major foothold in Europe, regardless of what Mr Trump said after his meeting with European Union President Jean-Claude Juncker in Washington on Wednesday.

"It is interesting that we see talk from Trump of tariff-free, free-trade economics, yet in the same breath we see talk of Europe becoming a massive buyer of LNG when ultimately it is dictated by global prices," said Nick Campbell, a director at Inspired Energy Solutions.

Mr Trump and US State Department officials have spent months promoting LNG exports in Europe, raising concerns that the continent faces security risks from drawing more Russian supplies.

They've attacked Russia's latest big gas pipeline, the Nord Stream 2 link that will circumvent the traditional transport corridor through Ukraine in order to supply Germany, Europe's biggest gas market.

Europe's response to the American LNG pitch has been lukewarm. Existing terminals on the continent are underused when it comes to imports for domestic consumption.

European terminal regasification utilisation rates averaged 27 per cent last year, compared with 73 per cent in China, which is acting on its pledges to battle air pollution and reduce coal use.

Supplies that arrive by pipeline from Russia and Norway are more competitively priced - and more abundant.

The Russian pipeline monopoly Gazprom PJSC is confident US LNG supplies to Europe "will never catch up with and will never surpass" Russian gas exports to the region, chief executive officer Alexey Miller said in June.

Russian President Vladimir Putin in May brushed off Mr Trump's challenge, while at the same time tightening his grip on the European market. The economics of the market are working in Mr Putin's favour.

The full-cost-based breakeven price of US LNG supplies to Europe stands now at US$6 to US$7.50 per million British thermal units. That compares with US$3.50 to US$4 for Russia's pipeline gas based on Gazprom's current taxation, according to estimates of Alexander Kornilov, an analyst at Aton in Moscow.

If Europe's spot price remains at current levels or grows, its market will drive more interest from North American suppliers, Mr Kornilov said. However, Gazprom has repeatedly said that Russian gas is above any competition in the European Union due to its low production costs.

Russia will "protect its turf at all costs" because it can undercut other suppliers and US LNG will always be far more expensive, said Manas Satapathy, a managing director for energy at Accenture Strategy. BLOOMBERG

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