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European gas demand still weak Further Russian losses
European gas demand remains subdued, despite Gazprom Neft has become the latest Russian oil
the slow easing of COVID-19 lockdowns. Rus- and gas producer to post a net loss for the first
sian gas flows via the Yamal-Europe pipeline that quarter on low prices and ruble devaluation.
runs through Belarus and Poland to Germany Rosneft and Novatek also slipped into the red
slumped to zero last week, with the continent’s for similar reasons.
gas storage levels at an unprecedented high for While blessed with low production costs,
this time of year. Russian companies are having to cut their cap-
Russia’s Gazprom, by far Europe’s biggest gas ital expenditure to protect their earnings, much
supplier, has also cut shipments via other routes, like their international peers. After all, the profits
including Ukraine. But its ship-or-pay transit of state firms serve as a key source of revenue for
deal with Kyiv means it will pay to pump 65 bcm the Russian government. VTB Capital (VTBC)
of gas through Ukraine’s pipelines regardless of expects Gazprom Neft to reduce its full-year An investigation
whether it actually sends that much. Norwegian overall capital expenditure by around 25% from
gas supplies to Europe were below the five-year its initial guidance, to RUB335bn ($4.8bn). has cast doubt
average last month but are now at normal sea- Despite the market collapse, parent company on Gazprom’s
sonal levels. Gazprom is counting on strong gas demand
Meanwhile, US lawmakers are seeking to growth in the long run. It recently launched the ability to
impose additional sanctions on Gazprom’s Nord planning phase for a second pipeline to China,
Stream 2 gas pipeline to Germany, in a last-ditch and also revealed last week it had resumed devel- deliver on its
attempt to prevent the project’s completion. US opment studies for the offshore Shtokman gas
Senators Ted Cruz, a Republican, and Jeanne field in the Russian Arctic – a project it tried to existing supply
Shaheen, a Democrat, are reported to be plan- advance for more than a decade before shelving commitments
ning to introduce a bill this week containing new it in 2013.
measures. Gazprom’s reappraisal of the high-cost and to China
Further US pressure is unlikely to make a challenging project is oddly timed, given that
difference at this stage. Sanctions imposed by global gas prices are at their lowest level in
Washington last December led to Swiss-based decades.
contractor Allseas abandoning the pipeline, with An investigation by Russian news outlet
just 6% of its offshore section left to complete. Lenta.ru has meanwhile cast doubt on Gaz-
Russia is preparing to finish the job with its own prom’s ability to deliver on its existing supply
pipelaying vessel, which is currently moored at a commitments to China. The report claimed the
German port. company risked losing $20bn and would strug-
It is therefore hard to see how additional gle to fulfil its 2014 supply deal with China’s
sanctions could thwart construction. CNPC after overestimating the capacity of its
Washington could threaten measures against production sites in Eastern Siberia.
companies hoping to buy gas supplied by Nord In Kazakhstan, Chevron has announced that
Stream 2. But Germany would strongly oppose 20,000 workers, or two-thirds of the workforce,
such a move, viewing it as US interference in at the giant Tengiz oilfield will be demobilised
what Berlin has insisted is “a purely commercial following a COVID-19 outbreak. The move will
project.” likely affect work on an expansion project, which
is already running a year behind schedule.
If you’d like to read more about the key events shaping
Europe’s oil and gas sector then please click here for If you’d like to read more about the key events shaping
NewsBase’s EurOil Monitor. the former Soviet Union’s oil and gas sector then please
click here for NewsBase’s FSU Monitor.

P8 www. NEWSBASE .com Week 22 04•June•2020