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Natural gas becomes costlier than oil: VTBC

PERFORMANCE NATURAL gas is becoming more expensive prices – although for ESG-concerned investors,
than crude oil in terms of barrels of oil equivalent it might be the preferred stock in the Russian
(boe), VTB Capital (VTBC) said in research on energy space thanks to the company’s plans
August 2, following months of restricted supply for hydrogen, blue ammonia and green LNG
and unusually high demand. production.”
The Moscow-based brokerage noted that this Gazprom has faced criticism for withhold-
was the first time that gas had exceeded oil in cost ing some supply from the European market,
save for in trading during the turbulence of the exacerbating the price spike, in order to put
2008 global financial crisis, and in a single day in pressure on EU decision-makers to approve
2018 amid plunging temperatures. Gas prices at the Nord Stream 2 pipeline. But some specta-
the TTF hub in the Netherlands, Europe’s biggest tors have blamed Ukraine’s offer of inadequate
gas trading platform, have now reached $83 per transit tariffs that have prevented the Russian
boe, which is 9% higher than oil, which is at $76 company from sending as much gas as it would Asian gas
per barrel. like.
Unlike in previous instances, VTBC said it Gazprom raised its gas production by nearly markets
believed the premium of gas over oil was more 18% to almost 279bn cubic metres between Jan-
sustainable this time around. This is because of uary 1 and July 15 this year. It estimates that its typically offer
low levels of gas storage, with storage facility uti- European customers accounted for the largest
lisation at 23% and 17% below multi-year aver- share of that incremental supply, increasing pur- LNG exporters
ages in Europe for dry gas and LNG respectively. chases by over 24% to 107.5 bcm. a premium,
The climate agenda, which has led to the accel- There are also suggestions that Gazprom
erated phase-out of coal, is also an important might be contending with a supply crunch of its and this has
consideration. own, with its production capacity already at full
Asian gas markets typically offer LNG utilisation. The company has not commissioned exacerbated the
exporters a premium, and this has exacerbated any major new green fields in Western Siberia
the price spike in Europe. VTBC estimated that since 2018. These leaves the company reliant on price spike in
LNG deliveries to Europe were 26% lower in July its large but mature fields such as Bovanenkovo Europe.
than in June, which in turn saw a 32% decline on the Yamal Peninsula to meet the demand
from the level in May. The future curve, it said, surge.
suggests that the European spot price might Gazprom’s next key new project is Kharas-
reach $480 per 1,000 cubic metres in the second aveyskoye, located not far from Bovankenovo.
half of the year. The field is due on stream in 2023 and is expected
“This implies a dividend yield of almost 18% to flow 32 bcm per year at its first-phase capac-
for Gazprom for 2021,” VTBC’s analysts said. ity. Development drilling at the site kicked off in
“Novatek benefits less from the stronger gas June last year.™

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