Russia's Q1 Exports Up, Revenues and Margin Down
Gazprom’s income from exports fell 29% in Q1 2016 year-on-year, despite selling more gas, the Russian Federal Customs Service reported, while a company official said there was almost no benefit now from exports versus sales at home.
The Russian gas export monopoly earned $8.515bn in the first quarter from exporting 18% more gas, or 51.1bn m³, compared with last year's 43.3bn m3 export total.
Natural gas exports to the European Union and Turkey rose by 30% to 40.4bn m3 in 1Q 2016 while exports to the former Soviet Union fell 13% to 10.7bn m3. The Russian gas export price stood at around $166/'000 m³ ($4.61/mn Btu), down from last year's $265/'000 m³ ($7.36/mn Btu)
The deputy chairman of Gazprom's board Valery Golubev announced on May 12 that Gazprom faces difficulties with implementation of the investment program for 2016. He said that the profitability of exports is almost equal to the gas sales domestically. Gazprom plans to invest more than $22bn in gas, oil, electricity as well as heat generating projects in current year.
Gazprom sold 45.3bn m³ in Germany during the 12 months of 2015, an all-time record, representing an increase of 17% (or 6.6bn m³) over 2014. On May 12 though the Russian gas giant said its sales to Germany during the first four months of 2016 increased even more, by 19% (or 2bn m³ extra), compared with January-April 2015.
German statistics in March showed that 2015 gas re-exports by Germany grew by 35% to 30bn m3; analogous data for 1Q 2016 is not yet available.
Nord Stream 2 Talks
The export monopoly used the increase in its sales to Germany to justify Nord Stream 2 in a press release, although it has other means of delivering gas to Europe, such as Ukraine.
Following a meeting between CEO Alexei Miller and Germany's Economy and Energy Minister Sigmar Gabriel in Berlin May 12, it said they agreed that the proposed new subsea gas pipeline would not only improve the reliability of gas deliveries but also facilitate the development of the European gas market, in the light of increasing demand for Russian energy products in Europe.
Miller also met the chairman of Austrian energy company OMV, Rainer Seele, that day. Gazprom said the meeting addressed a wide range of issues, including, Russian gas exports to Austria, the asset swap, and oil supplies. "Emphasis was placed on the cooperation between the parties within the Nord Stream 2 project," it said. OMV has a 10% stake in the project, while two German companies Uniper and BASF hold 10% each.
Gazprom regularly issues statements about the topics that senior executives have discussed during meetings with government or corporate officials, often without commenting on the outcome.
On May 10 in Strasbourg, several members of the European Parliament in a debate about Nord Stream-2 voiced their misgivings about the project. EU energy and climate change commissioner Miguel Arias Canete told them that the project "would likely change the current set-up of the gas market" and that the commission had contacted the German authorities to get all the necessary facts to assess the project.
Ukraine transit 'expensive'
Transit fees across Ukraine make that route “significantly more expensive” than Nord Stream 1, according to James Henderson of the Oxford Institute of Energy Studies.
Speaking at the Flame conference in Amsterdam May 10, he said deliveries through Nord Stream, from extraction in Siberia to the end of the line, cost Gazprom $4/mn Btu.
Russia will be prepared to adopt a Saudi strategy towards the price, he said, with volume being maximised to defend market share against US LNG imports. The decline in the rouble helps in that regard, he said. “The question is who can survive the longest?” The time-lag effect in oil-indexed contracts, which act as the ceiling in this oversupplied market, mean a further dip in prices in the coming months, taking them lower than the short-run marginal cost – the sum of gas costs and the operating expenses – of US LNG. Gazprom has already developed production capacity at the Bovanenko field which has not been used to the extent envisaged.
William Powell