Gazprom to benefit from its uncertainty strategy
The transit deal signed in December 2019 between Gazprom and Naftogaz provides for 40 bn m³ transit volumes for 2021. As the 40bn m³ should be at a uniform rate of 110mn m³/d, any lower historical flow cannot be mitigated by higher contracted flows. For higher flows, Gazprom needs to book additional capacity to the operator Gas Transmission System Operator of Ukraine (GTSOU), as it did last year. But Gazprom seems, so far, unwilling to do so, with transit volumes via Ukraine capped at the maximum contracted allowances. The swing in exports is done via all other routes.
Gazprom is now benefiting from higher prices but seems reluctant to pay for additional capacity in Ukraine in order to benefit also from increased volumes. It could be viewed as a way for Gazprom to show the importance of Nord Stream 2…
The coronavirus-impacted-demand will continue, until EU manages to vaccinate its population, to restrain Europe demand, but the worst is now over as we are now used to living with the virus. It is going to be very interesting to see, once the coronavirus crisis is over, how European citizens will behave in relation to energy and way of life… Could Europeans decide to enjoy life and dismiss their leaders' promises of achieving a cleaner world via legal, administrative and regulatory constraints? EU voters will probably not have read – and still less agreed with – the just-out EU Ten-Year Network Development Plans storylines where one of the only two energy scenarios for 2030-2050 is based on “a decrease in individual mobility”. Does it mean keeping the actual coronavirus travel restrictions forever?
With CO2 prices (EU ETS) now setting new records and close to 50€/t, we are entering a new world where most coal-to-gas switching can, like in the UK in 2016-2018, be achieved in the next 2 years, as markets are always more efficient that policies… This could translate in a boost in European gas demand as we get out of the Coronavirus pandemic.
Storage reached its peak on 11 October 2020 with 95.7% full, slightly lower than the record high reached in 2019 (97.8%). On 16 April, Europe’s gas storage was at its lowest (28.9% full) before a delayed injection period. The late cold spell and limited Russian flows are pushing storage in the lower part of the 2015-2019 historical range.
In April, LNG send outs were in Europe up by 18% vs last month and close to last year record level as Europe needs to refill its storage.
With so much more storage to fill, will Gazprom continue to limit its flows via Ukraine to avoid booking extra capacity at the expense of more LNG berthing in Europe or will it react? The economically rational answer should be to supply more needed gas but the uncertainty strategy is providing added benefits. Even if Gazprom were to book more capacity in Ukraine, the company has an even bigger market power by deciding when to go ahead. Gazprom, as the ultimate timekeeper, will decide alone when to take traders and LNG producers by surprise…
May 4, 2021
Advisory Board Member, Natural Gas World
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 As defined by Sadek Boussena and Catherine Locatelli in 2017 in “Gazprom and the Uncertainty of the European Gas Market: Towards a Market Share Strategy?” available in French at https://journals.openedition.org/rei/6513