Gazprom's Export Monopoly: Is it Negotiable?
Gazprom’s plans to build Nord Stream 2 have come under pressure from eastern EU member states who want Russia to continue to flow gas through Ukraine.
Moreover Nord Stream 2, says the European Commission (EC), is also incompatible with EU regulations and with its Energy Union, which is aimed at diversifying away from Russia.
This means some compromises will be needed to ensure the 55bn m³/yr project under the Baltic Sea gets the green light on terms acceptable to Gazprom and its partners: Austrian OMV, German BASF and Uniper, French Engie and Anglo-Dutch major Shell.
One solution that might be welcomed by the pro-competition EC would be if Moscow ended Gazprom’s export monopoly, to allow other companies to ship gas through Ukraine.
This has never made sense to Russia in the past, when gas prices have been higher. Selling more gas would not bring the government as much revenue as before, as the competition would erode the price.
However with oil prices low, the difference between spot and oil indexed prices means that Russia has less to lose now, and it could be a way for Russia and the EC to both claim a victory, if it were to be one of the remedies for allowing Nord Stream 2 to be built on commercially acceptable terms.
Speaking to NGE April 28, James Henderson of the Oxford Institute for Energy Studies said that this solution does have legs, given the low gas price, and that it was a live issue in Russia, if not at the highest political level. “It could make sense politically and strategically,” he said. “There is limited downside for Gazprom in terms of volume and price.”
Rosneft and Novatek have made big inroads into the domestic market and so they do not have that much spare gas for sale abroad. “They are already at the limits of their capacities,” he said, so the downside is limited unless they invest heavily upstream, while it would show that Gazprom was facing up to EU realities by not acting as an export monopoly.
Novatek on April 27 reported Russian gas production and purchases of 17.2bn m3 in 1Q2016 – up 1bn m3 year on year – of which 12.1bn m3 was equity gas production.
Henderson pointed out that Gazprom has already made concessions to European market rules by its use of gas auctions and its adoption of spot price linkage, so conceding its export monopoly could be a loss of face.
Another problem is that if Gazprom does not want to take Ukrainian transit risk, then why would any other company? “They cannot be forced to do what they do not want to do,” he said.
The European Commission’s probe into allegations that Gazprom has acted anti-competitively in central and eastern Europe meanwhile drags on with no signs of a settlement.
Novatek’s Swiss subsidiary, Novatek Gas & Power, is already trading gas in western Europe, buying and selling gas at hubs, which Gazprom also does through Gazprom Marketing & Trading. It has a long-term contract to sell 1.9bn m³/yr to German utility EnBW.
William Powell