Page 101 - RusRPTDec20

increasing Russia’s exports for gas significantly, they also involve developing an entirely new industrial cluster in the Murmansk region and tens of thousands of jobs – analysts do not expect Gazprom to have any success with this lobbying effort.
Poland asks​ ​Gazprom​ for contract price review and wants to end oil-price linked pricing. ​Poland asks for contract price review. Vedomosti reports Poland’s state-owned energy company, PGNiG, has asked Gazprom to review the pricing formula in its 9.8bcm/yr gas contract.
A review is likely but may lead to small drop in average delivered price in the short-term. Under the terms of Gazprom’s export contracts, either side can officially request a price review once every three years under the aegis that the market situation has changed. If the two sides cannot reach an agreement after an appropriate period of time – it can take years to go through the full process – the matter can ultimately head to the Stockholm arbitration court for settlement.
There has been a steady stream of such review requests by Gazprom customers over the last decade, dating back to the onset of the first LNG Glut in 2009.
Cumulatively, this has resulted in a massive change in Gazprom’s contract structure: Once almost exclusively oil-linked, with an average ‘slope’ of over 12% (that is, in a $50/bbl oil price environment, the gas price per contract would be $50 x 12% = $6/mcf or c$212/mcm), by 2015, the average slope for Gazprom gas delivered to Europe had been reduced to c10%. From 2015 Gazprom reluctantly began moving clients towards hub-based pricing links.
Gazprom’s contract portfolio delivers probably less than 20% of its gas sales purely via oil linked prices, with spot and futures sales accounting for over 50% and hybrid spot/oil mechanisms making up the balance.
In that light, PGNiG’s c10bcm/yr contract likely makes up a large amount of those remaining oil-linked volumes. Although currently spot prices in Europe are likely above oil-linked prices, for much of 2020 the situation was reversed and the second LNG Glut will likely persist until 2023, we think, implying that a price review – or conversion to hub-based prices – seems likely, and will likely result in a small reduction in Gazprom’s average delivered price in the short term.
A lowering of Poland’s oil-linked price for Gazprom’s gas – or conversion to hub-based prices – seems likely and will likely result in a small reduction in Gazprom’s average delivered price in the short term.
Shell sues Poland over fines,​ G​ azprom​ wants price rise. T​ he conflict
101 ​RUSSIA Country Report​ December 2020 www.intellinews.com