Page 6 - EurOil Week 33

EurOil COMMENTARY EurOil

Gazprom’s European exports

plunge, boosting China’s appeal

The Russian gas giant’s sales to European buyers tanked in the first half of the

year, a result that will likely strengthen the argument for the construction of a

second export pipeline to China

GLOBAL GAZPROM’S revised plans to export 166.6bn (as per Kommersant), although above its cash
cubic metres of natural gas to Europe this year breakeven of c$75 per mcm (our estimate),” BCS
WHAT: appear to be in trouble after a dismal first half Global Markets said in a note.
Gazprom’s gas exports that saw the Russian gas giant produce less than It added: “By our forecast, Gazprom will likely
to Europe fell 18% y/y to half that figure. report $5bn of European export revenues in each
78.94 bcm. The company is under a unique set of pres- of the 2nd and 3rd quarters of 2020 including
sures, the likes of which it has never faced. The trading revenues, the lowest in over 15 years.”
WHY: coronavirus (COVID-19) pandemic derailed BCS GM noted that while hub prices in July
The COVID-19 pandemic global demand earlier this year and Gazprom’s and August had improved, they were still low
coupled with rising major buyers in Europe are still struggling to find and pointed to the Netherlands TTF hub’s c$94
competition depressed their feet. per mcm as an example.
the major’s sales. The situation reinforces the case for an The investment said it expected the gas mar-
expansion of export capacity targeting eastern ket to return to balance by 2023, with even 2021
WHAT NEXT: markets, with China already witnessing an eco- looking “much better than 2020”.
Russia may be more nomic recovery. While the Chinese demand out-
receptive to Chinese gas look remains uncertain in the short term, with Demand suppression
price demands in future some industry watchers projecting flat demand Europe acted as a sink market for surplus LNG
negotiations. growth for this year, the longer-term prospects over the winter of 2019-20, but since then stor-
for supplies to the Asian giant are far stronger. age capacity has filled. COVID-19 not only hit
demand, but did so at a time when it was already
Sales pressure weak as a result of mild winter temperatures. (See
Gazprom revealed on August 13 that its gas next story)
exports to Europe, including Turkey, shrank by Now hopes of a looming recovery are being
18% year on year to 78.94 bcm from 96.43 bcm tempered by warnings that such a revival could
in the same period of 2019. be slower to materialise than expected. In the While the
The slump in shipments showed up in the short term, recovery hopes also hinge in part on
company’s export revenue, which plunged 51% the next winter being a cold one, which is by no European market
y/y to $11.3bn in the first six months of this year, means guaranteed. is experiencing
Kommersant reported last week, citing Federal In late July, Austria-based OMV said that
Customs Service data. European storage was about 80% full as of the a gas glut,
Gazprom has already reduced its export tar- end of June – a record high for that time of year.
get once this year, trimming its projections by While some improvement in demand was seen Gazprom believes
16% y/y in April. towards the end of the second quarter, it was still
“Our volume figures for export are at the level nowhere near 2019 levels. demand will start
of 166.6 bcm and the average annual price fig- The Oxford Institute of Energy Studies recovering from
ure is $133 per 1,000 cubic metres,” Gazprom’s (OIES), meanwhile, noted that gas injection
Finance and Economic Department head, Alex- rates into European storage facilities in June, at the third quarter.
ander Ivannikov, said at the time. 7.8 bcm, were actually down both y/y from 13.4
While the European market is experienc- bcm and compared with the five-year average of
ing a gas glut, Gazprom believes demand will 10.9 bcm for 2015-2020. This was attributed to
start recovering from the third quarter. Market factors including storage operators injecting less
observers are not so confident. gas as tanks approach capacity, as well as lower
“June data affirms gas markets remain out LNG imports to the continent over the summer.
of sync with oil markets. The reported $82 per The outlook for the remainder of 2020
mcm average selling price is below Gazprom’s remains highly uncertain, however. As well
accounting breakeven level of c$100 per mcm as the weather, other factors coming into play

P6 www. NEWSBASE .com Week 33 20•August•2020