Page 4 - FSUOGM Week 01 2021

FSUOGM COMMENTARY FSUOGM

The FSU oil and gas

outlook for 2022

We take a look at the industry’s outlook in Russia and other former Soviet
Union countries during this period of unprecedented volatility

FSU THE end of the coronavirus pandemic is not yet energy market is in dire straits. Storage volumes
in sight and neither is the turbulence underway are at an unusually low level for the time of year,
WHAT: in the global oil and gas markets. In this first posing the risk of shortages later this winter. In
There was significant issue of FSU OGM in 2022, we take a look at the the near term, Gazprom and other suppliers
volatility in oil and gas industry’s outlook in Russia and other former will continue to profit financially from the sit-
markets in 2021. Soviet Union countries during this period of uation. And the company may well fast-track
unprecedented volatility. investments in additional supply, including at
WHY: the Kharasaveyskoye field that is currently on
Demand has rebounded A crisis only beginning schedule to start up in 2023.
sharply with the There has seemingly been no ceiling to European
economic recovery. spot gas prices in recent months and this volatil- Nord Stream 2’s fate
ity is set to persist well into 2022. The crisis has It seems clear that Nord Stream 2’s launch
WHAT NEXT: grown more acute as Gazprom, Europe’s biggest should not be expected any time soon. Germa-
The volatility in gas gas supplier, has cut deliveries drastically since ny’s energy regulator has ruled out the pipeline
prices looks set to persist November. starting to flow before the process of certifying
well into 2022. Without access to Gazprom’s internal data, its operator has been completed, and it does not
it is impossible to say for sure whether the Rus- expect to reach a decision on that before July at
sian company is holding back supply to push up the earliest.
prices – something it has been widely accused of It is also unclear how Gazprom will over-
doing – or whether it has simply reached its max- come potential issues with the pipeline’s com-
imum production capacity. However, Gazprom’s pliance with EU energy rules on unbundling,
management offers a compelling reason why we third-party access and other requirements.
should believe the latter explanation. One possible solution that has been proposed is
Gazprom’s top executives argue that the allowing Gazprom’s domestic rival Rosneft use
extremely high prices that the market is cur- Nord Stream 2 to send its own Siberian gas to
rently experiencing are not in its long-term Europe, which might alleviate EU competition
interests. It is true that the company is on track regulations. Rosneft has been lobbying for years
to post all-time record profits this year thanks to for gaining access to Gazprom’s export pipelines,
the conditions on the market. But these prices but it now looks closer than ever before to suc-
are also resulting in demand destruction as ceeding. Russian President Vladimir Putin has
energy consumers opt against investments that even invited proposals for how the delivery of
would result in higher gas usage – whether a new Rosneft supplies to Europe could be arranged.
gas-fired power plant or a fertiliser complex that Still, Rosneft’s victory is not assured. Gazprom
uses gas as its primary feedstock. High gas prices will likely fight hard to ensure that its monopoly
may also encourage Brussels and European gov- over Russia’s pipeline gas exports is maintained.
ernments to move more aggressively away from While Germany’s past government led by
the fuel in favour of cleaner alternatives such as Chancellor Angela Merkel was firmly support-
renewables and (eventually) hydrogen. ive of Nord Stream 2, the position of its succes-
Whether the criticism is valid or not, Gaz- sor, which took office in early December, is less
prom has also sustained significant reputational clear cut. While the new chancellor, Olaf Scholz,
damage because of perceptions that it has caused has expressed support for Nord Stream 2, some
or at least exacerbated the energy crunch. It is other members of his government, which con-
therefore in the company’s interest to send as sists of Social Democrats, Greens and Free Dem-
much gas as it can to counter this narrative, ocrats, have differing opinions. German Foreign
which could spur efforts to diversify away from Minister Annalena Baerbock has long opposed
Russian gas through the construction of new the pipeline. She has said the pipeline only ben-
pipelines and regasification facilities to obtain efits the Putin regime, destabilises Ukraine, con-
alternatives. tradicts EU climate change targets and clashes
In any case, it is clear that the European with Europe’s geostrategic interests. Whether

P4 www. NEWSBASE .com Week 01 05•January•2022