[Premium] Gazprom's Record Sales Leave No Room for Spot Auctions

Russian gas export giant Gazprom decided not to hold any spot gas auctions this year as it had already sold as much as as it could for the coming year, the boss of Gazprom Export Elena Burmistrova told NGW on the sidelines of the European Autumn Gas Conference in Milan November 7.

Customers have been buying more gas this year than last, extending their volumes on long-term contracts, meaning that the record set last year of about 179bn m³ could this year reach 195bn m³ (using Russian measurements), she said, meaning that there was less gas left over for other sales.

For the last portion of this year Gazprom has been granted significantly more capacity in Opal, a 36bn m³/yr gas line running south from the Nord Stream landfall, allowing more exports.

In past few years, it has released small amounts of gas for delivery into the Baltic states and central Europe but not selling all the gas on offer. This summer though the company had already sold more gas to its long-term buyers, she said. So there was not any point in reserving some more for the auction.

She also told NGW that there was no decision yet on whether to restructure the company's gas trading arrangements, such as creating a trading company that would be active on the European hubs, as has been reported. That is just an idea at the moment, she said, and has not yet had the seal of approval of Gazprom CEO Alexei Miller.

She told the conference in her speech that the preferred way of selling gas was long-term contracts, with a hybrid price based on a mix of oil and hubs, but that it would be foolish not to make additional sales efforts such as through Wingas and Gazprom Marketing & Trading.

Customers like long-term contracts too, she said, citing the example of Croatia, which has just signed a long-term contract, seven years after the last one expired. "Long-term oil is definitely not over yet," she afterwards told interviewer James Henderson, director of the natural gas research programme at the Oxford Institute of Energy Studies. "Germany is one of the most liberalised markets, and yet even there we have some oil-indexed contracts. Customers are able to hedge their oil risks," she said.

With regard to market share, she said Gazprom was happy with meeting 33.1% of gas demand in Europe (including Turkey) and this year's expected 34%. This compares with 30.1% in 2014. And she would like it to grow further, as the company sees Europe's gas demand rising by 50bn m³/yr by 2025 and by 75bn m³ a decade later. "I am cautiously optimistic: I think the market will grow and that our share will grow," she told Henderson.

US LNG has so far been less competitive, she said, pointing to the low utilisation of European LNG terminals in northwest Europe, typically running at about a third of their capacity. US exports were not profitable in Europe; they merely helped the seller to minimise its sunk costs in the US, she said. US exports made more commercial sense in Asia and Latin America. She said the European and the Asian gas markets followed different paths, although others at the conference had demonstrated very close correlation between the two regions.

Yamal LNG to start December

December marks the end of Gazprom's export monopoly: according to Total's vice-president for trading, Jean-Pierre Mateille, the first cargo of LNG will leave Novatek's terminal in Yamal, northern Russia that month. The market is expecting at least a third of the output to go to Europe and that assumption is factored into the price at the hubs, he said. Prices will only change if it does not turn up then, he said November 6. 

He further said that the LNG market was at the beginning of a period of very fast change, and he hoped the geopolitics, particularly of the Middle East, would be more predictable as the region had the potential to be very disruptive in the long-term.

Burmistrova told the conference that the Russian energy minister Alexander Novak had recently ruled against ending Gazprom's monopoly on pipeline exports, although observers expect some of the Yamal LNG to end up competing with Russian pipeline gas in Europe.

William Powell