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Gazprom, like Europe, is rushing to fill Russia’s domestic storage facilities with enough gas to get through the winter: in September Gazprom had 25bn cubic metres in storage out of the total of 75 bcm it needs during the cold months.
Russia is suffering from the same supply and storage problems as Europe which has put added pressure on its ability to supply Europe with gas. Rather than
gas as they could ahead of a potential energy crisis that could have been caused if their transit deal had not been renewed at the end of 1999.
“In 2020 the gas glut in Europe emerged even before the full extent of the COVID-19 threat became obvious. The global gas market had been oversupplied for some time due to the emergence
of new LNG supply during 2018-2019
by 46 bcm, or 6.2%, on the year before. Gazprom took the brunt of the blow and absorbed almost all of the reduction, taking its production down to 455 bcm (a fall of 47 bcm year on year, or 9.3%) while the other gas producers in Russia keep increasing their production steadi- ly. At the same time, Russia reduced its gas purchases from Central Asia.
Facing shrinking and uncertain demand during 2020, Gazprom laid the founda- tions for the current supply crunch by also drastically reducing the pumping of gas into its domestic underground gas storage facilities by 20 bcm, down 38% y/y to 33 bcm.
As it turned out, Russia’s national sup- plier Gazprom signed off on a new tran- sit deal at the last minute that commits the Russian gas giant to send 40 bcm via Ukraine’s Druzhba pipeline until 2024.
Bounce-back in 2021
The bounce-back started in the spring of this year as the market switched rapidly from overabundance to tightness. In Europe, a long cold spring extended the heating season, while the re-opening
of business activity boosted economic growth. European gas demand rose robustly, by almost 25% y/y in the sec- ond quarter alone.
At the same time, indigenous European gas production declined more than 10% y/y in the first six months of this year, with Norway, the UK and the Nether-
“Gazprom’s ability to act as the swing supplier is limited, as it is running up against its practical ability to increase production or export volumes any further.”
cutting supplies, as bne IntelliNews has reported Gazprom is currently produc- ing record amounts of gas and exporting record amounts.
Taken all together, the falling produc- tion at European and key Russian fields, the problems of switching gas from the northern pipeline system to the central one and the idle state of Nord Stream 2 have combined to limit Gazprom’s abil- ity to act as the swing supplier, as it is running up against its practical ability to increase production or export volumes any further.
The bottom line is: all the governments say there will be enough gas for the winter. Naftogaz announced that it is ready for winter with just over 18 bcm in storage – sufficient for the winter and likewise Rus- sia and the EU have also just about enough to get through; plus the EU has a fall back on LNG imports to make up any shortfall, although all the swing supply in LNG has been drawn off by Asia, where the prices are even higher than in Europe.
What everyone is afraid of is if there is another cold winter like last year’s, fuel supplies will be very tight and prices will remain at record highs.
Gas glut in 2020 pushed prices and production down
In 2020 gas prices crashed as both Rus- sia and Ukraine built up as much stored
from projects, which took investment decisions in the mid-2010s. These supply additions entered the market at a time when global demand failed to meet growth expectations,” says Yermakov.
At the end of December 2019, an end-of- year record of 91.5 bcm – 20 bcm higher than at the end of 2018 – was in storage. As the coronacrisis began to unfurl the oversupply problem was only made worse, which led to record amounts of gas in storage by the spring of 2020. Gas prices tanked.
Faced with low prices and low demand in 2020 Russia cut back its overall production that year to 693 bcm, down
Russia's gas output by quarter, 2015-2021 (Bcm)
Source: OIES research
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