Gazprom Increases U.S. Presence

An agreement between Italy’s Statoil and Russia’s Gazprom will give the latter regasification capacity at Chesapeake Bay’s Cove Point LNG terminal for up to twenty years.

Additionally, Statoil will purchase LNG from Gazprom, which will also be sent to Cove Point. The Italian company will also sell other forms of natural gas to Gazprom at various U.S. trading points.

The deal marks progress for Gazprom in widening its share of the U.S. gas market. However, thus far U.S. regasification capacity is vastly underutilized and much of the LNG that has been arriving here has been the result of existing long-term contracts.

LNG prices in the U.S. remain low compared to other industrialized nations that have little domestic gas supply. Even though U.S. rig counts have come down in response to the recession-fueled contraction in demand, incremental increases in price could encourage further domestic production.

Despite the fact that unconventional gas extraction can be costly, it has until now remained less expensive than importing gas in the form of LNG. A November FERC report showed that every potential LNG landing point in the U.S. was priced below the rest of the world.

Economic recovery will make U.S. gas prices more attractive, but recovery in markets that lack the capacity to produce their own gas could mean that U.S. LNG prices continue to look low by comparison.

Return to January 2010 Western Energy News

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