Page 19 - RusRPTJun20

be stalled this year, as Russia will be putting out fires, some of, which could have easily been avoided.
2.8 ​ ​Gas prices falling towards zero
Gas prices in Europe have fallen four-fold and could go negative in May. Gazprom faces the loss of half of its export earnings. ​A month after the price of WTI oil fell to negative values, traders predict a similar situation with gas prices in Europe, Reuters writes. Gazprom sells its gas at prices higher than European spot prices, but even this situation threatens him with the loss of half of export earnings.
Gas prices in Europe are dropping rapidly due to weak demand ​amid continued quarantine restrictions, increased supply of Qatari LNG and renewable energy, Reuters writes. On the European gas reference market, the Dutch TTF hub, the price of the contract for next day delivery on May 22 fell by 20% to a new historic low of € 2.50 per megawatt-hour of energy. This is less than $ 26.4 per thousand cubic meters, RBC calculated. Back in late March, the price of gas at European hubs was $ 95–100 per thousand cubic meters.
Some of the traders surveyed by Reuters believe that the cost of European gas contracts by the weekend of May 30–31 will drop to zero or go into minus. ​According to forecasts by Refinitiv analysts, available gas storages may be full by the end of July. On May 22, gas storage capacities in Europe were 70% full compared to 56% a year ago, RBC reports data from the Gas Storage Europe association.
Gas suppliers are not going to reduce production - the cost of its recovery may be too high. On May 22, Qatar Petroleum, the world's largest producer of liquefied natural gas (LNG), said it would not reduce gas exports to Europe. At the same time, there are no signs of an improvement in the demand situation, one of the traders told Reuters.
Unlike oil, gas prices in Europe have already gone into the red. ​In 2006, the price of gas in Britain became negative after the opening of the Langeled gas pipeline from Norway against the background of almost full filling of world storage facilities.
Thanks to long-term contracts with opaque formulas linked to oil and oil products prices, Gazprom sells gas for export at prices higher than European spot prices​. In 2019, this premium was $ 35–47 per thousand cubic meters. In 2020, Gazprom is counting on an average annual price of $ 133 per thousand cubic meters. The real average export price in March was $ 125.
According to Interfax estimates, the cost-effective level of gas sales to Europe for Gazprom is at $100​. Economically, Gazprom’s deliveries to Europe are profitable as long as the price of an additional 1,000 cubic meters is more than $ 50-60, said Fitch’s senior analyst Dmitry Marinchenko to RBC.
To reduce the damage from falling prices, Gazprom began to reduce supplies to Europe​. In January-April 2020, they have already decreased by 21.4% compared to the same period last year. But, if LNG supplies from Qatar continue to grow against this background, the reduction will not stop the price reduction - the situation will be the same as on the oil market before the April OPEC + deal, Thierry Brough, a professor at the Paris Institute of Sciences Po, a gas market specialist, told RBC.
At the end of April, Gazprom estimated its loss in export revenue due to a fall in prices of $ 19bn ​- a nearly double drop compared to 2019. As a result, the company's investment program can be reduced by 20%.
19​ RUSSIA Country Report​ June 2020 ​ ​www.intellinews.com