Page 78 - RusRPTAug20

Gazprom has fully returned a USD 1.606bn overpayment to Polish PGNIG for gas purchases from the Russian gas monopoly, ​in line with the ruling by the Stockholm Arbitration Court earlier this year, Interfax reports. However, Gazprom is continuing to appeal the court’s decision, according to a statement from the company. We remind investors that, at the end of March, the Stockholm Arbitration Court supported the change in the price formula in PGNIG’s gas purchasing contract with Gazprom. The change is to apply retroactively to deliveries since 1 November 2014, and Gazprom had to pay USD 1.5bn in compensation for excess payments for gas in the past. Thus, the payment follows the Arbitration Court ruling and is unlikely to come as a surprise for the market, we believe. Nor is this likely to affect Gazprom’s P&L or dividends, since Gazprom has already booked the respective reserve for this lawsuit.
Gazprom has rearranged its export gas flows to Europe, Vedomosti reports​. The gas giant halted deliveries through the Yamal-Europe pipeline, so European consumers had to use gas from storage instead, according to the paper. The company also stopped gas deliveries to Turkey through the Blue Stream pipeline and is now only making deliveries to the country though the Turk Stream pipeline, although that entails paying export duties (deliveries through Blue Stream are exempt from all customs duties). At the same time, the utilisation of the Nord Stream pipeline stood above 100%, with Gazprom delivering 30.43bcm via this route in 1H20. Our View: Deliveries through the Nord Stream pipeline entail the lowest transportation costs of all European export routes available for the company (close to $20/kcm vs. the average across all other routes of $47/kcm in 4Q19). Therefore, Gazprom raising its utilisation of the Nord Stream pipeline above capacity is quite reasonable, in our view. We note that pipeline utilisation stood at 111% on Vedomosti's numbers (actual volumes in 1H20 at 30.43bcm vs. half-annual capacity of 27.50bcm). Lower gas deliveries through Blue Stream might be explained by Turkey’s increased purchases of LNG, as spot LNG prices in 2020 to date have been much lower than Gazprom's oil-linked contract prices, which resulted in a 17% y/y drop in the company’s exports to the country in 1Q20.
Gazprom’s average export price fell to USD 94/kcm in May, ​Interfax reports, citing data from the Federal Customs Service. In April, the realised export price stood at USD 109/kcm. The export price of USD 94/kcm in May was slightly below our 2Q20F forecast of USD 103/kcm for all export routes on average and USD 97/kcm for Europe excluding FSU. Still, it was 85% above May spot prices (TTF averaged just USD 51/kcm; see our Russian Gas – Spot gas in Europe breaks abysmal lows, of 21 May). Nevertheless, we keep our forecast for the quarter given that gas prices recovered in June from their record low May levels, with average spot prices standing at USD 62/kcm for 2Q20 (see our Weekly Oil Flow, of 6 June). We calculate that, given one of the lowest possible transportation costs to Europe of USD 20/kcm (through Nord Stream) and export duty of 30%, the export netback could have been USD 46/kcm in May. After subtracting the MET (some USD 15/kcm in May, we calculate), this does not cover lifting and domestic transport costs (around USD 7/kcm and USD 30-35/kcm, respectively, on our numbers), making the gas business marginally profitable at the operating level. At the same time, lifting and domestic transport costs cannot be considered when calculating a company’s marginal economics, we believe. However, we note that 2Q20 gas prices were comparable with the incremental cash costs for Gazprom.
Domestic gas tariffs remained unchanged on 1 July, Interfax reports. At
78​ RUSSIA Country Report​ August 2020 ​ ​www.intellinews.com