Analysis Of The Effects Of Shale Gas To Euro-Russian Natural Gas Trade

Due to the limitation of technique and related conditions, the large-scale exploration of shale gas is lagged far behind our knowledge of the resource. The breakthrough in technology, especially the advent of horizontal drilling and hydraulic fracturing, facilitates the exploration of shale gas in North America. As the vanguard, U.S. becomes self-sufficient in natural gas consumption and is well adapted to the new role as an exporter. In2009, U.S. has outstripped Russia to be the top natural gas producer in the market. The world natural gas supply and demand structure has radically changed recently, and the conductive effects have been seen on the Euro-Russian gas trade. In which aspects will shale gas shape the gas trade between Europe and Russia?Europe, as the second largest natural gas market, will see its demand curve keep rising. Gas imports occupy nearly a quarter of European gas supply, of which Russia is the leading exporter, while one third of Russian gas exports target Europe. Despite the fact that hubs are experiencing booming, long-term gas export contracts pegged to oil prices are still prevalent in the market. Europe and Russia are interdependent with each other in natural gas cooperation from the Cold War to the present. The direct effect of shale gas to Euro-Russian natural gas trade has been a boost of supply of liquefied natural gas in Europe, due to the reason that Middle East and North Africa countries such as Qatar switch their target market from America to Europe, followed by a fall of spot price. The diversification of natural gas supplies and a hike of liquefied natural gas weakened Russia’s status as a main gas supplier and gradually transformed Europe to a buyer market. Consequently, Russia has been forced to negotiate about the pricing mechanism and take and/or pay obligation in the long-term contract with European partners, and a portion of Russian gas supply to Europe is priced on the basis of the spot price, which is much lower than that in the original contract. Implicit impact of shale gas lies in the possibility that Europe might begin to extract its own shale gas and further change the Euro-Russian gas trade structure. Europe, of the similar reserve with U.S., stimulated by the decline of local production and the necessity of diversification, is willing to develop shale gas projects and is capable of fulfilling this aiming. Poland, estimated to possess6%of global shale gas storage, has announced its strategic decision to exploit shale gas. So long as Europe succeeds once in shale gas commercial exploitation, or makes a breakthrough in technology, or alleviates public concern about the eco-damage by hydraulic fracturing, shale gas, as a strategic element, will push EU one step closer to gas self-sufficiency, thus further squeezing the scale for Euro-Russian gas trade.Shale gas is not an economic choice for Russia as current gas production can meet its domestic consumption and export demand in the short to middle term. Nonetheless, Russia has altered its attitude towards shale gas to confront the impacts on the global energy structure and established measures accordingly. As EU capitalizes on the shale gas revolution to reduce its dependence on Russian gas, Moscow is devoted to the construction of liquefied natural gas projects and targets Asian markets.