Gazprom's East-West Piped Gas Conundrum

Copyright © 2023 Energy Intelligence Group All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited.

Gazprom doesn't seem able to achieve simultaneous piped gas pricing wins in China and Europe -- likely an effect of LNG competition on both ends of the pipe. Gazprom’s average export price for its pipeline gas was only slightly higher in China than in Europe last year, the company revealed. But now the Russian state-run company sees Chinese prices down to levels that can hardly justify the costly Power of Siberia gas pipeline project, while in Europe prices have gone high enough for Gazprom to expect a financial recovery to pre-crisis levels. Power of Siberia Gas Prices Down Gazprom generated 44.3 billion rubles, or some $616 million, in revenue from pipeline gas exports to China in 2020, CFO Famil Sadygov told a press briefing this week. The company plans to double export revenue in China this year, Sadygov said. The growth will be driven by the planned ramp-up of supplies via the Power of Siberia pipeline, while the average export price may decrease. Power of Siberia exports started in late 2019 and should reach a plateau in 2025 (LNGI Apr.20'21). Gazprom exported 4.1 billion cubic meters to China via Power of Siberia last year, which puts the average export price at around $150 per thousand cubic meters. That is only slightly higher than Gazprom’s average export price in Europe of $134/Mcm in 2020, which dropped from $203/Mcm in 2019. That is not as high as Gazprom had expected when signing the 38 Bcm/yr oil-linked Power of Siberia contract with China in 2014 amid oil prices above $100/bbl. Given that the Power of Siberia project cost was estimated at $55 billion, including upstream development, many experts have doubts about the profitability of Gazprom’s exports to China. The price is even lower now. It was around $120/Mcm in February-April and remained lower than the price of rival supplies from Central Asia. This year, Gazprom plans to supply 8.5 Bcm via Power of Siberia, Sadygov said, referring most likely to the take-or-pay volumes accounting for 85% of this year’s contracted volume of 10 Bcm. European Gas Prices Up European spot prices meanwhile are high, largely due to low stocks and limited supply, which boosts Gazprom’s revenues after a disastrous first half of 2020. European storage had 33 Bcm less in active gas as of mid-June than a year ago, Gazprom said. The company benefits from the slow injections as this should keep demand and prices high in the next several months (LNGI May20'21). “The pace of injections into European underground storage keeps stagnating,” Gazprom said in a statement, pointing to the fact that of 66 Bcm withdrawn during the winter only 13.6 Bcm has been injected back into storage as of Jun. 14. Gazprom was losing competition to LNG amid record-low spot prices in Europe a year ago. But now it enjoys strong export growth as low stocks push spot prices too high for LNG imports to compete with Gazprom’s long-term contracts. LNG imports are below May levels so far in June, which pushes spot prices further up. Spot prices exceeded $10 per million Btu at key European hubs like the UK’s NBP, Dutch TTF and Germany's NCG as of Jun. 15, up from below $2/MMBtu a year ago, Energy Intelligence estimates. This exceeds the prices in the winter month of February this year by $100/Mcm, or $2.80/MMBtu, Gazprom said, suggesting that next winter the prices should be even higher because over the past five years peak winter prices at NCG were 118%-494% higher than peak June prices. Gazprom exported 92.3 Bcm to Europe and China in the first 5½ months, up 26.7% on the year, the company said. In particular, exports rose in Turkey (191.3%), Germany (41.8%), Italy (16.4%), France (16.6%), Romania (240.8%), Poland (19.7%), Bulgaria (47.2%), Serbia (134.6%) and Greece (25.7%), Gazprom said. In the first 15 days of June, Gazprom exported 8.1 Bcm, up some 21% on the year, Energy Intelligence calculates. Vitaly Sokolov, Moscow

Gas Supply, Gas Prices
Wanda Ad #2 (article footer)
Azerbaijan's Socar has signed a contract to supply 100 million cubic meters of natural gas to Hungary in the fourth quarter of this year.
Mon, Jun 5, 2023
A pair of European firms plan to build a large synthetic natural gas plant in what could be a first step in transforming the US gas pipeline grid and LNG export sector.
Fri, Jun 2, 2023