The myth of cheap Russian gas

Pylons and drilling rigs on Bovanenkovo gas field in Russia
The desolate Arctic landscape of Gazprom’s Bovanenkovo gas field on the Yamal peninsula, 4,300 kilometers away from West European customers (source dpa)
  • Russia’s gas output costs are rising as it switches to fields in the Far North
  • These costs are not reflected or recovered in current end-user prices
  • U.S. shale gas and LNG exports are becoming a cost-effective alternative

A frequent but unquestioned claim about the controversial Nord Stream 2 (NS-2) gas pipeline and the latest round of American sanctions against Russia is that Russian natural gas is much cheaper than that of rival suppliers. This particularly applies to liquefied natural gas (LNG) exports from shale producers in the United States.

According to this argument, the European Union should leave it to the market price to determine which gas suppliers European importers choose. But Russia’s cheap gas from its mature fields in Western Siberia are rapidly dwindling, while output from the new gas fields in the Yamal peninsula must be heavily subsidized to offset higher production and transport costs. This question is far from academic at a time when gas prices in Europe and Asia are declining rapidly, and the LNG exports from the U.S. are getting cheaper.

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