Tag Archives: natural gas

The Russian Economy: Why Natural Resources Are Its Only Hope (Part 2)

This is a continuation of my previous post about the adverse effects that the Russia/Ukraine conflict has had and will continue to have on the Russian economy. I will elaborate on two more of these negative effects and argue that Russia’s natural resource industry is one of the only bright spots in an otherwise grim view of the future for the Russian economy. As a recent Economist article, “From Bad to Worse,” emphasizes, the three most notable negative effects of the Russia/Ukraine conflict are: (1) Sanction tightening, (2) a cut off of foreign lending + investment into Russia, and (3) a fall in the value of the ruble. Having examined sanction tightening in the last post, I will take a closer look at the last two effects in this post.

2.    Cut off of Foreign Lending + Investment into Russia

Political instability in Ukraine is causing foreign investors to doubt whether or not their investments and loans to Russian firms are safe bets. As I have discussed numerous times before in previous posts, availability of credit drives business cycles (both short and long term), so a credit tightening in Russia would have many unfavorable consequences including plummeting asset prices, a drop in productivity, and decreased incomes. Unfortunately, these potential effects are already becoming realities. As the article states,

With capital flight hitting $60-70 billion in the first quarter of this year alone, investment in domestic production—what the spluttering economy needs most of all—will be even harder to come by.

It is worth noting that the main concern is not about existing investments and loans, but new ones. Many of the investments into Russian firms are under long term contracts, which make them difficult to get out of, but new financing is unlikely to come rushing in after the conflict in Ukraine. Although Russian banks have expressed enthusiasm in replacing the role of their foreign counterparts, their ability to do so is doubtful because many of these banks rely on western loans. If further sanctions and investor doubt forces these western loans to stop flowing in, Russian banks may be in an even worse position than the Russian firms relying on foreign imports (discussed next).

3.    Fall in the Ruble

The ruble has plummeted as a result of the conflict in Ukraine. Although there is some argument about whether or not a weak ruble is good or bad for Russia, I would argue that the costs clearly outweigh the benefits. A weak currency makes imports more expensive, and with many Russian firms not only relying on foreign loans, but also on foreign imports of supplies, a weak ruble is not something to celebrate.

In conclusion, I have laid out a detailed summary of some of the negative consequences the Ukrainian conflict will bring upon the Russian economy (sanction tightening, cuts in foreign lending, and a fall in the value of the ruble). Furthermore, I have argued that Russia’s natural resource industry will likely survive these troubles because of two reasons– Europe’s dependence on natural gas and the prospect of new, long term deals between Russia and China.

The Russian Economy: Why Natural Resources Are Its Only Hope (Part 1)

In my last two posts I discussed Europe’s dependence on Russian natural gas and I argued that it is unlikely that this dependence will disappear anytime soon. By focusing on Russia’s prospering natural gas and oil industry I think that the past two posts downplayed the negative effects that the Russia/Ukraine conflict has the potential to bring upon the Russian economy. In this post and the next one I will elaborate on some of these negative effects and argue that Russia’s natural resource industry is one of the only bright spots in an otherwise grim view for the future of the Russian economy. As a recent Economist article, “From Bad to Worse,” emphasizes, the three most notable negative effects of the Russia/Ukraine conflict are: (1) Sanction tightening, (2) a cut off of foreign lending + investment into Russia, and (3) a fall in the value of the ruble.

1.    Sanction Tightening

Although the sanctions placed on Russia as a result of the Ukraine conflict have been minimal (mostly because gas-dependent Europe refuses to risk endangering its natural gas supply), their potential negative effect is magnified by what Alexander Kilment of Eurasia Groups calls the ‘scare factor.’ The scare factor is essentially the idea that trade sanctions cause investors to expect further sanctions and trouble in the future. Shares of Russian companies that do business abroad, especially shares of those with administrative officials whose names are on the sanctions list, have fallen greatly. What makes this even worse is that the effects of the scare factor have been hitting the Russian economy where it hurts most: its energy companies. As the article states,

Shares in Novatek, a gas producer, fell sharply when the restrictions were announced, on fears it might struggle to do deals with foreign partners or raise capital abroad because Gennady Timchenko, a friend of Vladimir Putin’s named on the American sanctions list, owns 23% of the company and sits on its board.

The article suggests that this effect could spread to other large Russian energy firms such as Rosneft (an oil company) if the American government sanctions Igor Sechin, Rosneft’s current boss.

Even given these potential drops in shares, however, I have confidence that Russian energy firms will thrive. Apart from the European dependence reason I have discussed in previous posts, another key international player has entered the Russian energy game as a result of the sanctions: China. China is taking advantage of the sanctions by urging Russian firms to sign long term trade contracts that would quell some of China’s ever-growing natural resource demand. Gazprom, for example, is on the cusp of signing a deal to sell gas to China. In the next post I will elaborate on the other two negative effects: cuts in foreign lending and a drop in the value of the ruble.

Why economy of scale failed?

Economy of scale is the advantage that firms obtained though increasing the scale of production or operation. Under economy of scale, enterprises have less product marginal cost and more outputs, thus there will be less fixed cost per unit because the fixed costs will be separated to more products. This advantage helps firms to improve efficiency and earn more profit.

However, this rule in economy is not fit in natural gas industry in US.

Reported in WSJ, A new breed of Energy Company is a hit with investors using a mantra long scorned in the oil-and-gas business: Small is beautiful. Actually many years ago, energy firms in US still believed in the economy of scale. At that time the Shale Boom happened thus gas extractors hunted for more and more large scale gas fields. They believed that more reserves and production they owned, the lower their marginal cost and more profits would they have. However, we all know what happened next, the huge amount of natural gas reduce the prices dramatically without much changes in marginal cost. Those big gas companies earned revenues that cannot even cover their marginal costs.

Now the investment opinion is reversed. Investors trust that the “quality” is more important than “sheer number”. This is to say, they gave up the old believes of economy of scale, now the cost of certain gas extractor is more notable. “It’s quality over quantity. We don’t have one million acres and we don’t strive to have one million acres,” says Daniel Rice IV, the 33-year-old chief executive of Rice Energy Inc.

The good news is that US government is preparing for its natural gas export terminals. According to WSJ, the Obama administration’s approval of a seventh application to export natural gas. Some lawmakers agreed with such a decision because the domestic natural gas companies are hungering for increasing in natural gas prices. The exportation can decrease the domestic supply thus raise the prices. Others who disagree this decision said that some jobs could be affected, also the domestic electricity price could also raise.

The reason why economy of scale failed in this market is that supply exceeded demand, so the effective choice for gas companies is to reduce their supply. Reported in WSJ, natural-gas prices on Thursday posted their biggest one-day gain in two months after a smaller-than-expected increase in U.S. inventories reignited fears that supplies are too low. This fear was caused by two reasons: first after this long winter, the gas supplies appeared to be scarce; second the export plan made gas supplies to be less than expected.

It’s essential for those firms to find a way to earn profits and make their business sustainable. We can wait to what will happen in the future about this industry.

Europe’s Thirst for Russian Gas: An Addiction Unlikely To Wane (Part 2)

This post is a continuation of my previous post about Europe’s dependence on Russian natural gas. After reading a recent Economist article, I am convinced that Europe’s addiction to Russian gas will remain strong in both the short and long term. The combination of (1) an already developed infrastructure, (2) a lack of viable alternatives, and (3) a growing European demand for gas reveals that a large enough economic incentive can successfully overshadow political conflict. Having analyzed the infrastructure point last time, I will elaborate on points 2 and 3 in this post.

2.    Poor Alternatives

Even if European leaders were to overlook the infrastructure problem and tap into all the alternative sources of natural gas at their disposal, they would only have enough to cover about half of Europe’s gas demand. In order to see this more clearly I will elaborate on the main alternative sources Europe could use and the problems associated with each one:

  • Gas from other European countries (i.e. Norway, Netherlands, Britain): Although Norway and the Netherlands combined have enough gas to provide about one eighth of Europe’s yearly gas demand, environmental concerns (carbon emissions and earthquakes) and negative public opinion create domestic political barriers.
  • Shale Gas from European countries: Although tapping into local supply provides an effective hedge from international political risk, the problem with local shale gas is, once again, environmental. Many countries, such as France, the Czech Republic, and Bulgaria have banned shale gas extraction.
  • Gas from Africa (i.e. Libya, Algeria): These sources have generally been unreliable due to political unrest and increased local demand. As the article points out: “Italy’s imports from Libya, once a reliable supplier, were down by 11.9% in 2013; supplies from Algeria (where local demand is booming) were down by 40%.
  • Liquefied Natural Gas (LNG): The main problem with LNG is its inelastic supply. Due to the cost of the plants that liquefy the gas and the steadily growing demand from China and Japan, Europe would not be able to attain the LNG for a reasonable price.
  • Shale Gas from America: The lack of U.S. export facilities means that there would be large startup costs to begin importing, and even once the facilities were built, Europe would have to compete with the high prices China will be offering for the shale gas.

An interesting statistic to conclude and drive the point home: if Europe were to employ all of these alternative sources it would not only be short about half of its demand, but it would also spend $50 billion more on gas per year!

3.    Growing European Demand For Gas

The final argument is a short, but important one– European demand for gas is expected to grow for the next ten years: According to AT Kearney, a consultancy, imports are set to climb from 327bcm today to 413bcm in 2020.” A growing demand for gas would mean that gas from alternative sources would be even more expensive, making Russian gas that much more attractive.

In summary, the past two blog posts have developed a detailed argument for why European dependence on Russian gas will remain strong despite political concerns in Ukraine. The already developed infrastructure between Russia and Europe, the unjustifiably high cost of alternative gas sources, and a growing demand for gas has put European leaders in a tough position– a strong and expanding Russia is not in their best interest, but Russia’s cheap gas has chained Europe’s leaders onto the political sidelines until an economically viable alternative is found.

Europe’s Thirst for Russian Gas: An Addiction Unlikely To Wane (Part 1)

The Russia/Ukraine conflict has been a topic of growing concern for the Western World in the past month, especially for Europe. Vladimir Putin has discovered a chink in his western neighbors’ armor and is now exploiting it to his advantage. Europe’s severe dependence on Russian natural gas, a majority of which is supplied through the Brotherhood pipeline that runs through Ukraine, has allowed Putin’s annexation of Crimea to go largely unpunished. If Russia were to suddenly cut off the supply of gas to Ukraine, European gas prices would skyrocket, hurting households and firms across Europe– a risk that European leaders are unwilling to take. Even though Putin has little incentive to cut supply off in the long term (the EU’s purchases of Russian gas make up 3% of Russia’s total output), it is not stopping him from using it as an effective short-term threat while the conflict with Ukraine unfolds.

In a previous post, I discussed some of the potential long-term effects of the crisis, predicting that Europe will make an effort to rely less on Russian gas in the future by increasing demand from alternative sources (Norway, Algeria, and LNG). However, after reading a recent Economist article,  “Conscious Uncoupling,” I am convinced that Europe’s addiction to Russian gas will remain strong in both the short and long term. The combination of (1) an already developed infrastructure, (2) a lack of viable alternatives, and (3) a growing European demand for gas reveals that a large enough economic incentive can successfully overshadow political conflict.

1.    The Infrastructure Problem

The transportation of gas from one region to another requires a significant amount of infrastructure. Everything from pipelines to processing plants to storage facilities need to be built and then maintained regularly. An already developed natural gas transportation infrastructure between Europe and Russia is the primary reason Europe will continue to buy Russian gas. It is simply too costly for European countries to stop using the already built pipelines, especially when, as is the case for Lithuania, Estonia, and Latvia, these pipelines are the country’s only source of natural gas:

natural_gas1

Adding to the infrastructure argument is that even if Russia were to completely cut off supply to the Brotherhood pipeline, its workload would likely be redirected to other pipelines that run from Russia to Europe. As I mentioned in my previous post on this topic, the Nord Stream pipeline through the Baltic Sea to Germany and the Yamal pipeline through Poland and Belarus offer the EU alternative methods of importing gas from Russia.

Furthermore, many alternatives to Russian gas, such as American shale gas, face infrastructure concerns as well. As the Economist article points out, investors may be wary of the large, potentially unjustified startup capital necessary to begin importing shale gas into Europe:

Private-sector investors may be chary of putting money into costly terminals that risk not being used if Europe slips back into accepting more cheap Russian gas.”

And even if European demand for shale gas was guaranteed, lobbyists in the U.S. government could attempt to stop the export of shale gas in an effort to keep domestic prices low.

In the next blog post I will analyze two other reasons for Europe’s long term dependence on Russian gas: a lack of economically viable alternatives and a growing demand for gas in general.

The Foil to Russia’s Energy Stranglehold (Part 1)

The biggest global issue so far this year just may be Crimea’s vote to secede from Ukraine and the following annexation of Crimea by Russia.  The large global powers of the United States and European Union have been unable to stand up to Russia mainly because Russia supplies Europe  with the majority of their natural gas.  The problem with natural gas is that it is difficult and costly to transport and store.  While the US is on pace to become a net exporter, current regulations prohibit the US from exporting large quantities of natural gas even though the supply of natural gas is set to outpace demand in the US in the near future.  Like the US boom in energy production, Europe also has the potential to follow in the US steps.  Europe, like the US, have large reserves of shale gas below England and continental Europe.  While its projected reserves are less than the US, 470 trillion cubic feet vs 567 trillion cubic feet, it could still power a majority of Europe for decades.  While Europe’s shale reserves could relieve Europe of Russia’s stranglehold, its been very difficult for governments to allow for exploration and extraction.  Many of the national governments want to begin fracking, but many local governments have stalled the implementation of these policies.  The policy implementation issues are exemplified in Germany and Poland.

Germany is a country that is caught in a vice right now.  It relies on Russian natural gas for a third of its energy usage and at the same time, they are beginning to phase out nuclear energy and trying to shift towards renewable green energy.  While Germany has seen a large increase in green energy, it is still too expensive and recently Germany has reduced their ambitious plan of having green energy supply 35% of energy usage by 2020.  Many opponents want the German government to look at more renewable energy sources instead of moving towards fracking which I just don’t see as a viable option.  Renewable energy is still too costly and it would increase energy prices for consumers which could lead to voters wanting to shift back to Russian gas which is significantly cheaper.  One potential solution could lead to Germany building more storage containers for liquified natural gas, allowing for more natural gas imports from the United States, Qatar and other countries.  One of the main problems I have with this is that this relies on other countries policies.  As mentioned above, the US would have to remove regulations prohibiting large scale exportation of natural gas before it could export to Germany.  Opponents of fracking believe that it is out of step with Germany’s current “green revolution”.  Unfortunately, Germany’s “green revolution” hasn’t necessarily been successful.  Energy prices are rising in Germany and one of its largest “success” stories is solar energy, which only accounts for 5% of Germany’s energy usage.  Germany has also built more coal power plants in the past few years, further illustrating their shift towards providing cheap energy instead of clean energy.  My next post will focus on Poland and the growth of the shale boom and how it will change Europe and Russian interactions.

Japan seeks more control over gas pricing

LNG, short for Liquefied Natural Gas, is the artificial-converted liquid form of methane for convenience of storage and transportation. Over long-distance transmission, LNG is more efficient and economical than pipelines. After transported to certain destination, LNG will be retransformed into gas form and used directly or transported through pipelines.

As the world largest LNG importer, Japan inlets about 40% of total global LNG production, primarily from Malaysia and Indonesia. Last year the number hits a new record to 87.49 million tonnes, which is a reflection of soaring demand of LNG under the calamitous Fukushima nuclear plants failure in 2011. As a result, natural gas in Asia also hit a record last year.

Under situation like this, Japanese firms acted positively to seek for more say over the pricing of this crucial fuel. Comparatively, as I said before in my past blog, Japanese firms paid about $18 per million British thermal units, almost 5 times as that in the U.S. ($4 per mmBtu). One reason of this, as mentioned above, is the ever-rising demand for LNG in Asia (Korea is the second largest LNG import nation while China lies in the third). Another reason is the unsound spot market for LNG. According to WSJ, Japan’s government sees the creation of an accurate measure of the fuel’s value as a necessary step in making progress toward launching futures contracts by March 2015, a goal it announced last April.

As a clever move favored by Japan government, this plan has several potential benefits:

Benefit 1: help to smoothing price fluctuation. This is the main reason behind. Currently the natural gas prices expectations are uneven among suppliers and consumers. From the suppliers’ point of view, the impact of Fukushima disaster has its long-lasting effect over the domestic demand of LNG import. Also for security reason, Korea is shifting its reliance on nuclear generation plants to more LNG exporting. Thus the prices of natural gas have a strong upward trend. However, the recent launched natural gas exporting plan in US acts opposite to it. As I mentioned in my past post, US natural gas generators has less profitability now, so they have to increase export to reduce domestic shale gas supply. Also an Australia LNG project is under construction by Inpex, the largest Japanese gas distributor. If this planned LNG projects in Australia come on stream as scheduled, Australia will overtake Qatar as the world’s largest LNG supplier by 2020. All suggesting a future boost of natural gas supply in Asia, which implies a downward prices trend. Binding the downward trend and upward trend could cause a fiercer price fluctuation and loss for both suppliers and consumers. The establishment of LNG future market could flatten such volatility with the power of gas contract.

Benefit 2: With higher demand for LNG, surging gas prices drag consumers away to alternatives. Under that, coal import and consumption has been increased over the recent years, causing a serious environmental pollution in Japan. The development of new spot and future gas market can help to reduce price and then air pollution from burning of coal.

Benefit 3: The final goal is a healthy global natural gas market like crude oil market. It will definitely benefit world-wide consumers and global environment.

Global Warming is Fighting Back

Yesterday, the UN released a report on global warming that said that the world is not prepared for the extreme weather and other challenges.  The report says there is high risk level for diseases in Africa, increased wildfires in North America, and decreased food production and starvation in South America.  The effects of global warming on the economy is believed to be significant.  A rise of 2.5 degrees could lead to a lose of .2%-2.5% of income for the global economy.  The reports states that developed countries need $70-$100 billion a year to fund the methods required to offset the impact of climate change.  The future isn’t the only thing that is worrying scientists.  This past winter has been one of the coldest ones on record in the US.  This has not only effected agriculture but also the energy industry.  The average temperature for the winter was 6 degrees colder than normal.  The chilling effects of the weather saw natural gas prices skyrocket and natural gas supplies fall to lows not seen since 2001.  In order for natural gas supplies to regain the necessary amount before next winter, producers are going to have to increase extraction of natural gas.  This is going to cause the producers higher costs because it will cost more to extract more natural gas and the price of natural gas is going to fall as less of it is used during the spring and supplies increase.

Unfortunately for natural gas producers, the costs mentioned above aren’t the only ones caused by global warming.  Global warming has impacted many of the materials used in fracking, making it more expense to extract and more difficult to extract larger quantities.  One of the key components to fracking is a certain type of white sand located in Wisconsin.  The sand is used to open the cracks to allow oil and gas to flow up to the surface.  The recent winter freeze though has made it extremely difficult to extract and transport.  One of the major issues is that both sand and cement producers use the same freight system and because both of these industries are booming right now, there aren’t enough freights to ship the necessary amount of  sand.  This has led to costs to transport sands to be predicted to be 12% higher.  The average price of sand drilling is expected to rise from $56 from $50.   Frack sand prices is predicted to continue to increase for the next three years, continuing to support higher natural gas and oil prices.

(revised) US’s outlook for Natural gas exporting

The current conflict in Ukraine is attracting a lot attention. Weeks ago, in order to against the counter force from EU countries, Mr. Putin played his trump card: raise the natural gas price in Ukraine. As a big country that riches in all kinds of natural resources especially energy, Russia has been holding the pipelines that transfer natural gas into EU and making the dominate strategy in this game. It is reported that more than 30% of gas in EU is provided by Russia.

So far the west have threated to commit sanctions on Russia’s action of occupying the Crimea region, however due to the problem of natural gas, those commitments are more like to be non-credible threatens. The head countries in EU like UK and German are bounded by such a concern, and the graph below from NYT can shows that major buyers of the Gazprom – Russia’s largest state-owned natural gas company.

0305-for-webGAS-artboard_1

We can see that German and Britain are in the list. Actually according to this article in WSJ, Six countries in Europe import 100% of their gas from Russia, and an additional seven rely on it for at least half. It is beyond doubt that Russia has its considerable influence on the attitudes of the EU countries on this affair. U.K. Foreign Secretary William Hague said European nations may need to “recast their approach” to Russian energy purchases if the crisis isn’t resolved.

Also reported in WSJ, Obama’s government is taking measures to curb the Russia’s stranglehold over EU’s natural gas supply. US is currently one of the biggest natural gas production nations in the world due to one of its most advancing tech in this field names fracking. The strategy is increasing natural gas exporting to EU from US thus undercut natural gas imported from Russia. Compare to Russia, US has big cost advantage. As the graph from BP’s official site showed below, natural gas price keeps falling over recent years in North America. The price in US is far lower than that of Asia and Europe.

In this strategy of US, big oil and gas production firms like ExxonMobil benefit a lot from it, while environmentalists and small manufacturing companies strongly oppose such a claim. In my point of view, it is unstoppable for US government to apply this strategy.

There are several reasons why US didn’t doing so in the past:

1, Exporting more natural gas will increase the price of it in US. Currently the natural gas price in US is almost 1/5 of that in Japan, which is a big advantage for US manufacturing industries that rely heavily on gas as raw material. More export means less gas available in US, and the price will likely rise.

2, Protecting domestic natural resources and environment. Natural gas is a crucial strategic resource that its export needs to be limited. Also the large-scale exploiting of gas can cause severe environment problem.

3, Technology limitation. Since the gas exploiting technology in the past is not so advanced, the available gas reserves were bounded. People were afraid of gas shortage once they export more natural gas to foreign countries.

However, the current situations are changed dramatically. So it’s a good time for US to develop its gas export industry for several reasons:

1, Boom in natural gas reserves. Thanks to the new tech named “fracking”, now there are more gas available underground that can be exploited and meet the exporting need.

2, Increase domestic gas price. Because of the increase in gas reserves, now the prices are too low to let gas production firms making profits. Economically, it is needed to increase export to raise domestic prices and develop gas transmission infrastructures.

3, Curbing Russia’s power over EU. The political pressure in Ukraine is the main push force for US’s decision of increasing gas export.

Overall, the US strategy is a good news for the reason that it may help a lot to the establishment of the global natural gas market, which will benefit the people around the world and accelerate the process of clear energy movement.

 

Conflict in Crimea: Impact on the EU Energy Market in the Short and Long Term

The recent conflict in Ukraine took an interesting turn today when the Crimean parliament formally applied to join Russia and separate from Ukraine. Many facets of the Russian, Ukrainian, and global economies have been affected by the crisis in Ukraine, but one industry that has gotten a lot of attention in particular is energy, and for good reason. Given the EU’s dependence on Russian natural gas (a majority of which is supplied to the EU through the Brotherhood pipeline that runs through Ukraine), the quickly escalating tension between western leaders and Mr. Putin have raised concerns about the supply and price of natural gas. A sudden jump in gas prices would hurt households and companies across the EU, but as a recent Economist Intelligence Unit report, “Ukraine: The energy impacts,” indicates, the energy risks for the EU are less troubling than they first appear.

The report reveals that EU reliance on Russian natural gas has steadily declined since the mid 1990’s. Due to past pricing disputes with Russia in 2006 and 2009 the EU has made a strong effort to substitute its Russian natural gas consumption with alternatives such as liquefied natural gas, coal, and renewable energy. Furthermore, the EU has been looking to other countries for its natural gas needs. Although Russia still accounts for roughly 30 percent of the EU imports of natural gas, Norway and Algeria are starting to play a larger role. As seen by the following bar graph showing the distribution of EU natural gas imports in 2011 and 2012, Russia’s market share is decreasing:

                                                            Distribution of EU Natural Gas Imports by Country 2011-12

Although gas and alternative fuel prices may rise slightly, the report emphasizes that the short term effects on the EU’s natural gas supply will not be too worrisome due to three main reasons:

  1. The Existence of Other Pipelines from Russia to the EU: The Nord Stream pipeline through the Baltic Sea to Germany and the Yamal pipeline through Poland and Belarus offer the EU alternative methods of importing gas from Russia, making the threat of a pipeline shutdown in Ukraine less scary. Mr. Putin could still, in principle, cut off or tighten supply to the EU as a political tool, but as the next reason explains, he is unlikely to do so.
  2. Russia’s Dependence on EU Natural Gas Demand: The EU is one of the largest buyers of Russia’s natural gas, and therefore significantly contributes to Russian GDP (about 3% of total output). Mr. Putin is unlikely to cut off or tighten supply for too long because the costs of such an action would not outweigh the possible political gains.
  3. Timing (End of a Mild Winter): Because the crisis comes at the end of a comparatively mild European winter, the EU has had time to stockpile significant natural gas reserves, which could, by themselves, be used to supply the region for a two months at least.

The long term effects are likely to involve an EU effort to rely even less on Russian natural gas. Some potential effects that the report mentions and I have brainstormed are:

  1. Increased EU Demand for Norwegian and Algerian Gas: I would argue that EU demand for Norwegian gas especially will increase because it provides the EU an effective hedge from political risk. Although Norway is not a part of the EU, it is very closely associated with it and is much less likely to stir up political conflict compared to its larger competitor in the East.
  2. Increased EU Demand for LNG: Liquefied natural gas is the EU’s most readily available alternative to Russian natural gas, so it is probable that it will start importing more of it. It is even possible that the U.S. shale gas industry stands to benefit from this shift, but this is only realistic in the very long term because building the infrastructure necessary to export LNG to Europe would take a while.