Let’s try to avoid “the U word.”
That was the polite suggestion of an IHS consultant Wednesday in ironically opening a panel discussion on Russian gas exports at the IHS CERAWeek conference in Houston, ongoing while the U word–Ukraine–continues to simmer.
“Diplomatic crisis come and go,” Thane Gustafson, senior director of IHS’ Russian and Caspian energy group said and a man who has been commenting on Soviet and Russian energy affairs for many years.
Granted, he apparently was trying to keep his guests out of the hot seat of discussing the fluid and sensitive geopolitical crisis that is the current state of affairs between Russia and Ukraine, a transit country for Russian gas flows to Europe. But, the idea goes to a larger reality for the oil and gas industry. There remains enormous volumes of supplies and increasing demand in an industry that requires long-term investments, and within that universe, suppliers sometime find themselves carefully considering how to react to country conflicts.
One huge long-term investment is the Yamal LNG export project in Russia, the capex of which has been re-estimated at $27 billion. Mark Gyetvay, CFO of Novatek, one of the Yamal LNG partners, noted that its future supply flows to Europe will not compete with Russian gas supplies being piped to the Continent.
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“Where we go west allows us to go where’s there’s no pipeline,” he said during the Russian gas panel. “We’re not actually competing in the Western market with Gazprom.”
European demand for Russian gas can be expected to increase, said Mario Mahren, a member of the board of Wintershall, the Germany company that is partners with Gazprom in the Nord Stream pipeline, which runs through the Baltic Sea from Russia to Germany. Given the access Europe has to Russian gas reserves, “there should be a balance of interests between Russia and Europe,” he said.
Still, Mahren recognizes that what should be isn’t always the case.
“In theory,” European demand and Russian supply should be complementary, he said. “The infrastructure is already there. That’s a perfect basis for working together,” Mahren added.
Europe’s gas imports will rise to 60% of consumption by 2040 from the current 45%, according to ExxonMobil’s 2014 edition of its Outlook for Energy. This statistic was noted by Rob Franklin, president of ExxonMobil Gas & Power Marketing, in a separate address at CERAWeek. That will require a combination of more Russian and Caspian gas imports as well as LNG imports, he said.
The other European perspective on global gas trends is US-centric. Joe Kaeser, president and CEO of Siemens, said the US’ growth in oil and gas supply is driving change in energy flows.
“The US will most likely become the world’s largest oil and gas producer this year,” he said in a keynote address Wednesday morning. “And, it’s a milestone with potentially far-reaching geopolitical implications for other regions” as the US becomes less and less dependent on foreign countries for its supply.
“Today, in Europe, it’s all about going west. The US is once again the place to be. More and more global companies are seeking to enlarge their footprint here,” he said.
The US, given the relatively cheap provisions of feedstock gas for industries–$4-5/MMBtu compared to $11-12/MMBtu in Germany today–is enjoying a “reindustrialization,” he said. Just a few years ago, the picture was different as US gas had become too expensive and petrochemical companies “could not really make a living,” Kaeser recalled. “Back then, no one was making investments in ethylene crackers in the United States. Today, they’d be crazy not to,” he added.
Further to the point about the speed of massive change in the energy landscape, Kaeser said “tectonic shifts sometimes shift back.”
An outstanding question is whether the US would become a major LNG exporter, the Siemens CEO said. Whether the incremental US gas is deployed in domestic manufacturing and/or exported, Siemens–which makes electric turbines, compressors, pipeline and LNG technology–is positioning itself to serve both markets, he said.
In addition to the outstanding question of LNG export levels, “there’s an even louder debate about how to transport energy within the US and around North America once it’s extracted,” Kaeser said. “I didn’t come here to weigh in on those debates. That’s a decision the American people have to make. And we will be prepared for any outcome.”