Gazprom Receives 36% of Europe, LNG from Yamal Sold to the US & Spain

New Year brought good news to suppliers and producers of Russian gas. According to the 2017 results, Gazprom broke the historic record of gas exports to occupy 36% of the European market. At the same time, the first deliveries of LNG from Yamal went to Spain and the US, where Russian gas had not previously been supplied.

Last year, Gazprom broke the historic record of gas exports to Europe and, according to operative data, increased it to 193.9 billion cubic meters. “This is 14.6 billion cubic meters (8.1%) higher than the previous maximum reached in 2016,” said the head of the Russian holding, Alexei Miller.

Indeed, no other supplier, including Norway and Algeria, was able to so significantly increase exports in such a short time.

According to web portal ICIS, an energy business information service from the UK, the share of Gazprom in the European market had increased to 36% by the end of 2017. The second largest supplier was Norway, which gave as much as it could, providing 24% of the EU's gas needs, despite domestic production in 2017 not exceeding 23%.

“The situation in 2018 will largely depend on fluctuations. The growth in LNG supplies from the Asia-Pacific region and Latin America are still more attractive than Europe, and therefore they do not yet threaten the positions of Gazprom in the market,” analysts of the Russian Finam Investment Group stated.

Deputy Director of the National Energy Security Fund (NESF), Alexei Grivach, says that future gas supplies to Europe depend on the dynamics of energy prices and the energy policy of the EU and the European Commission.

"If the installation to refuse coal is logical from the point of view of environmental policy, then in the medium term, Europe needs 200-300 billion cubic meters of additional imports,” the expert said. In his opinion, these volumes can be provided only through the mobilization of all sources. “And it's absolutely impossible to do this without Russia. Practice shows that in conditions of fair competition our gas has an advantage.”

Meanwhile, Poland has reduced the import of "blue fuel" from Russia. According to PGNiG (Polskie Górnictwo Naftowe i Gazownictwo, the leader in the Polish natural gas market and a listed company operating in exploration for and production of natural gas and crude oil) reports for the first half and the third quarter of 2017, by October 1, the company had imported 7.1 billion cubic meters of gas from Russia, 600 million cubic meters less than the same period of 2016. The share of Gazprom in Poland's imports decreased from 90% to 71%. The remainder was covered by gas supplies for spot contracts from Europe and LNG from Qatar (16%).

The increase in Poland's purchases of non-Russian gas is said to be a policy, not an economy, although in his last interview, the Vice-President of Polish state-owned PGNiG, Maciej Wozniak, said that Warsaw is ready to buy Russian gas, but under normal market conditions. Yet PGNiG is not satisfied with the fact that, for example, German companies work with Gazprom on more favorable terms. For example, according to PGNiG, in June 2017, for neighbors it cost $ 219 per thousand cubic meters, and in Poland - $ 241.

However, Poland is unlikely to achieve the conditions received by German companies as they not only buy more Russian gas, but they participate in Gazprom's transport and production projects. Further, the German companies do not put at risk projects of the Russian holding company in Europe and do not shout about the threats of dependence on Russia.

According to the 2017 results, Germany accounted for 27% of Russian gas imports and delivered 53.4 billion cubic meters comparable to the capacity of "Nord Stream" of 55 billion cubic meters. Together with the increase in supplies to other Nordic countries, the Netherlands (up to 4.6 billion cubic meters), France (up to 12.3 billion), Denmark (up to 1.75 billion), and stable demand in the UK (about 18 billion), the need for Nord Stream-2 is becoming even more urgent.

The same situation can be seen in the southern direction, where the Turkish Stream is being built. Turkey increased import of Russian gas from 24.7 billion cubic meters to 29 billion cubic meters last year.

"Growth across Europe is very significant. In just three years, the volume of supplies from Russia to the EU increased by 33 billion cubic meters. The availability of additional infrastructure significantly increases the reliability and flexibility of supply and reduces the likelihood of price shocks, such as those we see now in the northeast of the United States, where the price of gas is ten times higher than the price level in other regions of the country, in Europe and even in Asia,” Grivach noted.

The reverse situation occurred with the second batch of LNG from Yamal. On December 29, the Boris Vilkitsky gas carrier delivered it to the Chinese state-owned company CNPC in Rotterdam. However, LNG was not sent to China. As journalist Zog Weyler wrote on Twitter on January 2, the Russian liquefied gas was reloaded to the Clean Ocean tanker and headed for the Spanish Mugardos LNG terminal, which is located in the north-east of the country at the Ferrol port.

In December, gas prices in Spain were also high, but lower than in Asia ($ 10 for MBTU vs. $ 11 for MBTU [Editor’s Note: MBTU is a standard unit of measurement for natural gas and provides a convenient basis for comparing the energy content of various grades of natural gas and other fuels}. However, the cost of shipping to Spain from Rotterdam is much lower.

According to Marine Traffic, the Clean Ocean tanker unloaded in Ferrol and is now docked at the port waiting for further instructions.

The international consulting agency Timera Energy considers the Yamal LNG project one of the most promising in the world. If the Yamal LNG cannot compete with Qatar's liquefied gas, it will freely compete with the American, analysts say. A total of 16.5 million tons of LNG (about 23 billion cubic meters) are planned to be supplied annually by the project of three stages of “Yamal LNG”. Most of the gas was contracted by the Yamal LNG participants themselves - Novatek (50.1% in the project), French Total (20%) and China's CNPC (20%). In addition, Gazprom and Spanish Gas Natural Fenosa are to buy 2.5 million tons annually.

Yamal LNG is one of the few successful projects in the Russian Arctic. This is also a demonstration of successful international cooperation.

In addition to Yamal LNG, Novatek is also planning to implement the Arcticovatek LNG-2 project on the Gydan Peninsula. Its capacity is 20 million tons, and the price is $10 billion. The difference in cost with the first LNG project is that the company plans to build gravity platforms on which a modular plant for liquefying gas will be located.

Dimitri Dolaberidze

15 January 2018 19:03