Page 8 - FSUOGM Week 39 2021

FSUOGM COMMENTARY FSUOGM

that supply away from European markets, lead-
ing to a triple whammy in gas supplies.
“With declining indigenous production in
Europe and limited availability of LNG owing
to the strong pull from premium markets in
Asia, the European gas market is a case in point.
Europe now demands greater flexibility from
suppliers, in both price and the ability to swing
gas deliveries,” says Yermakov, adding that Rus-
sia’s ability to add that extra flexibility may have
been largely used up.
“Many European analysts and market watch-
ers expected that Russia as the largest swing pro-
ducer and exporter would value an opportunity strongest position to react to changes in demand.
to expand its market share, at least in the short Previously the swing supplies would be sent
term, and quickly respond to a higher call on gas via Ukraine, but Russia’s pipeline network is
in Europe in 2021,” Yermakov said. changing.
And Russia did, with recent reports showing New pipelines have come online in the last
Russia’s gas exports to Europe (including Tur- two years -- Nord Stream 1 and TurkStream –
key) up almost 20% y/y in the first half of this and it is not a coincidence that these two coun-
year. “But this has proved to be insufficient to tries also took the biggest increases in Russian
address a sudden void in Europe’s gas balance. gas flows west this year. Germany would have
Gas storage levels in Europe are at historical lows taken even more – enough to avoid the current
at the start of the heating season and gas prices supply crisis – had Nord Stream 2 been com-
have been testing record levels,” says Yermakov. pleted as scheduled at the end of last year.
LNG could ease the pressure but Russia is still Nord Stream 1 utilisation amounted to 58.7
not producing enough to meet the demand. In bcm, 58.5bcm, and 59.3 bcm in 2018, 2019,
2020, Russia became one of the ‘Big Four’ global and 2020 respectively (exceeding the name-
LNG producers, and production has increased plate capacity of the pipeline by 6-8%). This was
from 10mn tonnes per year after the Sakhalin helped by the start of the EUGAL pipeline that
plant went online to 30mn tpy now. But that is allowed Gazprom to overcome the regulatory
still dwarfed by Qatar, the world’s biggest pro- restrictions imposed on the full use of the OPAL
ducer, with 125mn tpy. pipeline.
The distribution of Russian LNG exports in Gazprom launched its new 31.5 bcm Turk-
2020 was skewed in favour of Europe (18.35mn Stream pipeline in January 2020. Russian gas
tonnes) at the expense of Asia (11.25mn tonnes) exports via TurkStream amounted to 13.5 bcm
due to the disappearance of the usual Asian pre- in 2020 (43% utilisation of 31.5 bcm combined
mium. Sakhalin LNG stayed in Asia but deliv- capacity of the two strings). It is expected to
eries from Novatek’s Yamal LNG mostly ended ramp up utilisation with the redirection of
up in Europe. deliveries to Serbia and Hungary away from the
Overall Europe already has fairly diversi- Ukrainian route when the pipeline connections
fied gas supplies. Gazprom’s share of European to these countries become fully operational.
gas consumption peaked at 36.6% in 2018, and With the two new forks to Russia’s gas pipe-
Russia’s overall share (for both pipeline and line delivery trident to Europe – Nord Stream 2
LNG) reached 39% that year. Russian pipeline in the north and TurkStream in the south – the
gas market share returned to its more ‘normal’ biggest loser has already been the central prong
32.4% in 2020 as Gazprom had to accommodate that goes via Ukraine.
the inflow of global LNG during the first half of In 2018 Gazprom transited 86.8 bcm via
2020 as well. Ukraine using about 65% of Ukraine’s available
Exports to the three largest purchasers of transit capacity to Europe that year. In 2019 Rus-
Gazprom gas in Western Europe were up in the sian gas transit through Ukraine rose by 3%, to
first six months of 2021 compared to the same 89.2 bcm. But under the new deal with Ukraine
period of 2020: an increase of 8.7 bcm in Ger- the annual booked capacity for 2020 was 65 bcm
many (up 43%), up 1.4 bcm in Italy (up 14%) and in 2020, falling to 40 bcm a year until the deal
an increase of 9.9 bcm in Turkey (up 209%). Rus- expires in 2024. In 2020 the actual transit via
sian pipeline gas exports to China continued to Ukraine was 55.8 bcm, but Gazprom had to pay
ramp up according to plan and are set to amount for the full 65 bcm anyway under the terms of
to 10 bcm for the full year of 2021. the new deal.
“Total exports to Western Europe and Turkey The deal specifies equal daily bookings of
grew to 77.2 bcm, up 17.1bcm or 29% year-on- 178.1mn cubic metres per day in 2020 and
year. This was, in fact, higher than in the pre-cri- 109.6 mcm per day in 2021-2024. The bonus
sis first half of 2019,” says Yermarkov. for Ukraine is Gazprom agreed to take-or-pay
terms: Russia has to pay for the capacity even if it
Pipeline switches doesn't use it out to the end of 2024.
Russia remains Europe’s swing supplier, in the “So far in 2021 the daily average transit flows

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