Russia’s energy giant Gazprom isn’t very happy with its energy competitors in the United States. The reason? Expanding U.S. liquid natural gas exports to Europe, which is good news for the U.S. and its European allies but not for Gazprom and its Kremlin masters.
Speaking on Monday, Elena Burmistrova, head of Gazprom exports, explained why the end of the coronavirus pandemic offers little cause for optimism. “One of [the challenges] is general oversupply, which we are likely to see in 2021 as well.” Burmistrova continued, “U.S. LNG suppliers have unbalanced the European market and failed to stabilize it.” That’s another way of saying that competition and increased supply drive down prices.
Reuters reports Burmistrova as saying that “exports to the European market (rose) 17% year-on-year, driving gas prices to all-time lows.” But it’s not just the U.S. LNG supply expansion that is causing Gazprom problems. Burmistrova noted that pending U.S. sanctions against Gazprom’s Nord Stream II pipeline are also a major challenge.
Gazprom and the Kremlin’s issue isn’t simply the decline of their once dominant European energy market position. It’s the fact that energy prices are falling to a level at which Gazprom struggles to be competitive. The ancillary effect of these lower prices is thus a lower revenue return for Vladimir Putin’s government. That matters because Putin is heavily reliant on energy exports for his foreign capital generation.
If Russia is unable to maintain its relative stranglehold on the European energy import market, Putin will also find a corollary decline in his ability to extract political concessions from Europe. The nature of the cold European winter is that it affords Putin a means to hold energy hostage to political loyalty. That’s why Nord Stream II is so important to the Russian leader. if the pipeline is completed, it will consolidate his European energy-influence strategy for at least the next generation.
And that’s exactly why the expansion of U.S. LNG is so positive. Not only will this export route keep energy prices low for Europe, it will give European governments the leverage they need to avoid making further concessions to Putin. The U.S. will have an even greater effect here if Nord Stream II is indeed sanctioned into oblivion. That’s something President Trump has been pressuring the Europeans on, but which he should further advance over Putin’s recent poisoning of dissident journalist Alexei Navalny.
Regardless, the top line is positive. Gazprom is struggling, and Europe, NATO, and the U.S. are all better off for it.