Page 106 - RusRPTAug21

9.1.1b Oil and gas sector news
In a setback for Russia’s gas pipelines to Germany, Europe’s top court July 15 ruled that Gazprom must cut in half its gas volumes through Nord Stream 1 to German’s OPAL pipeline.
The pipeline which runs from the Baltic to the German-Czech border, Reuters reports from Brussels. Under the EU’s Third Energy Package, the other half of Nord Stream 1 must be allocated to other shippers, according to the Luxembourg-based Court of Justice of the European Union.
Settling a five-year legal fight initiated by Poland, this court ruling is expected to also apply to Nord Stream 2, and its German onshore extension, EUGAL.
The OPAL (36bcm/y) pipeline, along with NEL (20bcm) and EUGAL (55bcm/y), are the onshore continuation of Nord Stream (NS) in Germany. EUGAL is also part of the onshore infrastructure planned for the launch of Nord Stream 2 (NS 2).
Limiting the use of OPAL’s capacities would mean it was not possible to use both NS and NS 2 at full capacity (55bcm/y each), when the latter is launched.
We estimate that the combined volumes of both pipelines (to recap, in our model we launch NS 2 at full capacity in 2023) would have to be reduced to some 97bcm. Given the moderate European demand for Russian gas that we forecast in 2023-25F (of ~198-200bcm) and Gazprom’s ship-or-pay contract with Ukraine for 40bcm by 2024, full utilisation of both the NS and NS 2 pipelines only appears in our model in 2025F (when the rigid 40bcm transit contract with Ukraine expires).
As a result of the OPAL limitations, around 13bcm of gas in 2025 might be rerouted to Europe via Ukraine (instead of NS or NS 2) where the cost of transit is about twice that for NS currently. This creates a 1.5% downside risk to our forecast of the company’s 2025F EBITDA. If Gazprom is further limited by being permitted to use only 50% of Nord Stream 2, then 28bcm might be rerouted to Europe via Ukraine, with a 3% effect on EBITDA.
Gazprom ’s gas exports beyond the FSU near record levels YTD in 2021. Interfax reported. Gazprom’s gas exports reached 107.5bcm in the first 6.5 months of the year vs the record-high 108.9bcm in 2018 – Gazprom’s best export year ever and a year in which Gazprom exported a total of 201bcm to the ‘Far Abroad’. 2021 is shaping up to be a very good year on both price and volume. We have written extensively about the rapid rise in European hub gas prices this year, which at well over $400/mcm are now at levels only seen once in history, in 2008. We have written less about volumes, partly as the rebound
106 RUSSIA Country Report August 2021 www.intellinews.com