Gazprom Export Eyes More Gas Auctions This Year
Gazprom Export will hold further gas auctions this year, CEO Elena Burmistrova said on the sidelines of the Flame Conference in Amsterdam May 10. She did not say where they would be, but said the aim ultimately was to dispose of 10% of Gazprom's export volumes through this mechanism, which has already been tried and tested twice: first in Germany and second on the Belarus-Lithuania border. Further auctions could also be in regions far removed from liquid hubs, such as southeast Europe.
Auctions are one way of selling winter optionality, with the bulk of the company's exported gas sold on long-term contracts. End-users as well as suppliers are able to bid for the gas. There was no sign that Gazprom Export would move towards hub pricing in these contracts, although Gazprom Marketing & Trading does buy and sell spot gas at hubs for deliveries in northwest Europe.
Instead, the hybrid contracts seem destined to remain in place, as they protect customers from volatility through a mix of oil indexation and hub pricing, she said.
Pricing and contract models are very important, she said in her speech, posing the question of how to extract gas on a long term basis at a time such as now, when gas prices are too low to support the investment in production and transport, and at the same time protecting the consumer. She said UK or Dutch hubs met Gazprom's liquidity criteria, and hub prices anyway had an 80% correlation to oil index prices.
Demand Builds on Transport, Power
Gazprom sees gas demand rising in Europe to meet two requirements related to decarbonisation, a requirement under the bloc's emissions-reduction goals: transportation running off LNG and CNG; and power generation. Road and waterborne transport demand could add 45bn m³/yr to demand, she said, citing double-digit growth in CNG demand in Poland and the Czech Republic; and its own bunkering plant at Rostock is nearing completion, she said.
Combined heat and power and combined-cycle gas turbines could need another 35bn m³/yr. So far the carbon price is far below what is needed to drive power plants to run on gas, although the UK has unilaterally put in place a carbon price floor, which works when the gas/coal price difference from generation is narrow enough, so there has been a small increase in gas demand from the power sector this year.
The company believes an additional 110bn m³ will be needed by 2025 and more than 250bn m³ more by 2035, which will require new transport routes. "Domestic production in the EU is falling; gas is the closest fossil fuel there is to green energy and Russia will need new routes for gas in the coming decades," she said. She said that was one of the reasons for building Nord Stream 2, which would be funded by private money in the west. Part of its role will be to replace gas lost by the cap lowering Groningen production in the Netherlands. "This will be the gas that in five-ten years will cover this supply," she said of NS2, adding that the pipeline was a commercial project with a sound business model behind it.
William Powell