Gazprom to Invest in European LNG Facilities

Russia's gas giant Gazprom and Belgium's Fluxys have signed a deal to cooperate on developing the small-scale market of liquefied natural gas in Europe, to include construction and operation of LNG receiving terminals, LNG bunkering infrastructure and LNG filling stations, the companies said on Tuesday.

"The small-scale LNG is not merely a viable and environment-friendly alternative to the conventional fuel in various branches of the economy, including industry and transport. This is one of key points of natural gas consumption growth in Europe. Development of this segment makes possible for Gazprom to diversify its export potential and boost sustainable supplies of energy resources to European nations," Gazprom said in a statement.

Gazprom signed a similar small-LNG framework agreement with Dutch firm Gasunie in early 2015.

Market observers suggest that with American LNG exports now ramping up at Cheniere's Sabine Pass facility in Louisiana, Gazprom faces new price competition in Europe, where it presently holds about one third of the natural gas market. In addition to new infrastructure investments like those announced Tuesday, analysts suggest that the Russian energy firm may soon engage in fierce price competition to retain its share of sales; Gazprom's ability to control the gas supply has historically been a source of diplomatic leverage for Moscow, making market share important for reasons beyond revenue.

"Some speak martially of the beginning of a price war for market share similar to the approach of Saudi Arabia in the oil market, which leaves the taps on despite a sharp fall in the price," said Gerald Hosp, writing for Neue Zurcher Zeitung. 

James Henderson of the Oxford Institute for Energy Studies has suggested that Gazprom may be well placed to win a price war; unlike Cheniere, it has no need to pay for liquefaction, shipping and regasification for sales into the European market. 

Separately, on Tuesday, TASS reported that Gazprom will hold a small tender for research into existing, foreign offshore drilling technologies, for purposes of "development and creation of underwater equipment . . . for the development of deposits off the Arctic coast by Russian companies." American and European sanctions on the Russian energy sector over Moscow’s involvement in the Ukraine crisis have denied access to imported drilling equipment for the nation’s oil and gas firms, hampering their E&P activity.