Russia is 'fearful' of US competition in the European gas market, official says

Key Points
  • Europe can buy its gas wherever it wants but the U.S. should be among the array of suppliers, a top U.S. energy official told CNBC.
  • "We expect that a lot of countries will continue to buy gas from Russia ...(but) there's no competition," Frank Fannon, the U.S. assistant secretary of state for energy resources, told CNBC Wednesday.
  • The U.S. wants to increase its LNG exports to Europe, a region where Russia is the dominant supplier.
The U.S. national flag flies as the liquefied natural gas (LNG) tanker Oak Spirit, operated by Teekay Corp., sits docked with Poland's first import of U.S. LNG at the Gazoport terminal, operated by Polskie LNG SA, in Swinoujscie, Poland, on Thursday, July 25, 2019. More "freedom gas" from U.S. shale basins is earmarked for Europe after the company behind a Louisiana export project expanded a deal with Poland.

Europe can buy its natural gas wherever it wants, including Russia, but there should be more competition among suppliers, a top U.S. energy official told CNBC, adding that Russia was "fearful" of a rise in energy exports from America.

"We expect that a lot of countries will continue to buy gas from Russia," Frank Fannon, the U.S. assistant secretary of state for energy resources, told CNBC Tuesday.

"That's fine, that's great, so long as it's based on a competitive model — is there transparency in pricing, is there even a market, you can't possibly have a market if you have one supplier — that's not a market, there's no competition."

Russia 'fearful of competition' in energy sector, US official says
Russia 'fearful of competition' in energy sector, US official says

The U.S., EU and Russia are engaged in an awkward triangle when it comes to gas with Russia and the EU integrated closely in terms of gas supplies, and the U.S. trying to gain more access to the EU market for its own liquefied natural gas (LNG) exports, or what the U.S. Department of Energy has called "freedom gas."

Being Europe's closest energy giant and neighbor, Russia has naturally become the largest gas supplier to the continent over the years and it has consolidated this position most recently with gas pipeline projects designed to increase its exports to the continent.

One gas pipeline, Nord Stream 2, has proved so controversial to the U.S. that the Trump administration announced in December that it would slap sanctions on any firms involved in finishing (it is near completion) the pipeline.

The pipeline runs from Russia to Germany, via the Baltic Sea floor and through the territories of several other countries. It is owned and will be operated by Russian energy giant Gazprom, which said in January that it would finish the pipeline alone due to sanctions; it is expected to be operation in early 2021.

The U.S. has argued that the pipeline makes Europe less secure and more dependent on Russia for its energy needs but the EU and Russia have deplored the sanctions with the former saying it should be able to determine its own energy policy.

Germany's Chancellor Angela Merkel said that she is "opposed to extraterritorial sanctions" against the project and Russia said it could complete the pipeline alone. It also said that U.S. sanctions were protectionist and just aimed at increasing its own U.S. LNG sales to Europe, a huge potential market for the U.S.

Russia was the largest supplier of natural gas to the EU, both in 2018 and 2019, according to the latest EU data. In the first semester of 2019, Russian gas imports to the EU totaled 39.4%, followed by Norway at 29.6% (and to a lesser extent, Algeria, Qatar and Nigeria). Gas imports in the same period from the U.S. totaled a mere 3.4%.

Egypt and its neighbors will benefit economically from gas, Egyptian minister says
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Fannon said Russia was afraid of U.S. competition on the energy front.

"Russia sees what's coming in terms of the U.S. energy exports, they see the gas prices in the U.S. are tremendously low, they're very competitive, and we're about to double our export capacity of LNG, so they're fearful of competition," he said.

"They see competition coming from multiple sources and they're concerned about that," he said.

He added that competition was ultimately good for European consumers as gas prices would decline.

"What we've seen time and time again is when there's even an optionality to have U.S. LNG or LNG from other sources, it changes the negotiating position vis-a-vis the Russians. Now, Russia has to compete, just by virtue of having an option to import. We've seen this in multiple countries and overnight, Gazprom drops the tariff for gas imports in those countries," he told CNBC's Steve Sedgwick.

"What we want to do is to continue to encourage countries to be open to diversification goals, build the infrastructure necessary to transport energy across Europe and once that happens, even if they choose to purchase from Russia in the longer term, they'll be better for it because their citizens will pay less."