U.S. Dethroning Russia as Gas King

Russia has all but lost its title as the world’s biggest producer of natural gas to the United States, and Moscow appears unlikely to reclaim the No. 1 spot until Gazprom manages to capture new foreign markets.

Gas output dropped 12 percent to 582 billion cubic meters last year as demand in the key market, the European Union, slumped amid the economic crisis and an influx of cheaper supplies, the Energy Ministry announced late Monday.

The United States is set to top that figure because of booming shale gas production, the U.S. Energy Department’s Energy Information Administration said last month in the latest available statement on the matter. U.S. producers were expected to pump 624 bcm last year, it said at the time.

Russia may remain dethroned until at least 2015, said Andrew Neff, an energy analyst with IHS Global Insight consultancy in Washington.

European demand will not recover immediately, while it will take time for Gazprom, the state-run gas export monopoly, to access new markets, he said.

“It’s not going to happen with Asia in the short term and not going to happen in North America because of shale gas in the next five to 10 years,” Neff said.

Noel Tomnay, head of global gas at consulting company Wood Mackenzie, agreed that Russia had little chance of reclaiming the first spot soon.

“It’s inevitable that the U.S. will continue to be a larger producer than Russia in the next few years,” he said.

Efforts to supply gas to new markets are essential for Russia to regain its leadership in the industry, they said. Potential customers include China for pipeline gas and countries in Asia or the southern Mediterranean — such as Spain and Portugal — for liquefied natural gas, or LNG, they said.

LNG is gas chilled to a liquid for transportation by tankers.

Gazprom’s plans to take a share of the U.S. market through LNG supplies look unlikely, Tomnay said.

“Russian LNG projects will struggle to be competitive with indigenous gas,” he said.

Russia has been the No. 1 natural gas producer for seven years, since 2002, according to BP statistics. It also led the world in output from 1986 to 1996 and in 1999.

Hard-hit Ukraine is probably the biggest single disappointment for Gazprom’s sales last year because it vouched to import just 33.5 bcm, down from the regular annual 55 bcm. Gazprom’s sales probably contracted by a total of 60 bcm in Eastern and Western Europe and by another 20 bcm at home, Tomnay said.

Gazprom made some progress in diversifying its markets last year, starting shipments of liquefied natural gas to Japan, South Korea and the United States as part of the Sakhalin-2 project.

In addition, Gazprom reinvigorated its talks with China to build pipelines to supply gas to one of the world’s most energy-hungry economies. The talks had been stymied for several years because of disagreement over the gas price and are expected to move slowly, if at all, now as well.

Despite the drop in its own output, Gazprom agreed to buy as much as 30 bcm of gas from Turkmenistan this year in what analysts say is an effort to maintain its grip on gas supplies from Central Asia.

Degenerating gas production may be a blow to Russia’s prestige as a leading energy power, but it was softened by the country’s rise in the international oil hierarchy last year after it surpassed Saudi Arabia as the world’s largest oil producer. Saudi Arabia, a member of the Organization of the Petroleum Exporting Countries, cut output last year in line with OPEC efforts to maintain crude prices.

Russia pumped 494.2 million tons of oil — including gas condensate — last year, up 1.2 percent from the previous year, the Energy Ministry said in the announcement. Saudi Arabia produced 397 million tons of oil, without gas condensate, according to the International Energy Agency.