Page 4 - FSUOGM Week 50 2021

FSUOGM COMMENTARY FSUOGM

Rosneft within grasp of gaining

access to European gas market

Rosneft appears to have convinced the government to support its bid

RUSSIA ROSNEFT, Russia’s largest oil producer, now volumes on the spot market. The company’s
looks to be within sight of gaining access to Rus- exports slumped sharply in November, despite
WHAT: sia’s gas export pipelines, breaking Gazprom’s earlier expectations that it would ramp up ship-
Russia’s government long-held monopoly. While both state-owned ments during the month.
has invited proposals enterprises that should, in theory, be working
for allowing Rosneft to purely in the interests of the Russian state and Obstacles
send its gas to Europe via its people, Gazprom and Rosneft represent dif- And here Sechin has stepped in with a solu-
pipeline. ferent factions of the Russian elite, and have long tion. Rosneft is willing to send up to 10bn cubic
clashed for economic and political dominance. metres per year of gas to the European market,
WHY: By finding an entry into the European gas mar- utilising spare supply in Western Siberia. This
The company has been ket, Rosneft would score a major victory in this would help to ease supply shortages while also
lobbying for this right for contest. providing a means of using more of Nord Stream
many years. 2’s capacity. But it is still far from a given that the
Gas export aspirations company’s bid will be successful.
WHAT NEXT: Not satisfied with its leading position in the Rus- For starters, Gazprom will use all its power to
There are likely concerns sian oil sector, Rosneft has aspirations to build up block Rosneft from using Nord Stream 2, aware
that Gazprom may not a major gas export business. But over the years, that if the company gains access to one export
be able to meet demand actual progress towards this goal has been limited. pipeline it may gain access to others as well. Ros-
alone. Rosneft has struggled, so far in vain, to advance neft controls substantial reserves of associated
LNG export projects. And despite aggressive gas at its oil projects in Eastern Siberia, but local
lobbying by the company and its politically pow- demand is limited and infrastructure scarce. As
erful CEO Igor Sechin, the government has so far such, it has long coveted Gazprom’s Power of
opposed its bid for access to the lucrative European Siberia pipeline as a means of dispatching these
gas market. The government reasons that it would supplies to the fast-growing Chinese market.
make no sense to allow Russian gas suppliers to Secondly, there could be other ways that
compete with each other overseas, as this would Gazprom can overcome EU regulatory hurdles
drive down prices and, in turn, cause government at Nord Stream 2. It could, for example, sell its
revenues to shrink. gas to its European partners inside Russia, who
In recent months, however, there have been would then send the gas that they now own
indications that Moscow may finally be warm- through Nord Stream 2 to Germany. It is possible
ing to the idea. In November, Russian Energy that the EU could argue that such an arrange-
Minister Nikolay Shulginov said his ministry ment does not comply with spirit of EU law even
supported Rosneft’s bid, but would leave it to the if it complies with the letter, however. After all,
company and Gazprom to make arrangements. the pipeline will still be carrying only gas from
Why this shift in position now? The EU has a single Russian supplier, even if it has passed to
applied its energy market rules to Nord Stream other hands before entering the pipeline.
2, and here is where Sechin sees an opportunity. Thirdly, given that Putin requested propos-
The Rosneft chief understands that if and when als by March, Rosneft is unlikely to be granted
the pipeline is permitted to start flowing gas, access to the European market this winter, by
after what is expected to be a lengthy certifica- which point market circumstances may be very
tion process, EU bundling rules may create prob- different. What has so far been a relatively cold
lems for Gazprom, given it is both the pipeline winter could turn warmer. The risk of shortages
and the only Russian company allowed to use its could disappear, defeating Rosneft’s logic. Gaz-
capacity. prom would also have time to bring more wells
Sechin is also looking to take advantage of the on stream and increase its deliveries. Interestingly,
current tightness of the European gas market. A while some accuse Gazprom of intentionally
sharp rebound in demand over the summer has withholding some gas supply to jack up prices and
pushed wholesale prices on the continent up to put pressure on European regulators to let Nord
record heights, and with winter approaching Stream 2 to start up, one would assume that Gaz-
and storage levels low, there are justified fears prom would send whatever spare gas it has to fend
of shortages. While Gazprom continues to fulfil off the Rosneft threat. Yet the company could be
its contractual obligations, the Russian supplier under instruction from the Kremlin to hold those
is either unwilling or unable to provide extra supplies back, if that narrative is to be believed. ™

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