Does LNG Threaten Russian Supplies to Europe?

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1 Does LNG Threaten Russian Supplies to Europe? Sergei Komlev Head of Contract Structuring and Price Formation Directorate Gazprom Export IEA workshop on Eurasian gas markets Paris, April15 th, 2016

2 Europe as Battlefield for Additional Volumes of Imported Gas Bcm According to consensus forecast, additional demand (2015 base year) for imported gas is: 104 bcm by bcm by Production forecasts spread Production consensus forecast Consumption forecasts spread Consumption consensus forecast Updated: March 2016 Note: Natural gas European demand and production gap is the difference between demand consensus forecast and production consensus forecast. Definition of European countries slightly differs from one forecast to another. For the purpose of comparison all forecasts and scenarios are restated on compound annual growth rates. Source:Gazprom Export 2

3 Competition will be Especially Strong Prior to Market Niche Opening after 2025 Supply and Demand in Far Abroad Europe New opportunities for Russian gas will open after 2025 with the emergence of an uncontracted volumes niche. Depending on the forecasts this niche will be from 30 to 80 bcm/year in 2025 and from 90 to 150 bcm/year in Current share is fully protected by take-or-pay provisions in the LTCs of Gazprom. * Volumes of American LNG include all quantities with presumed European destination plus 50% quantity with flexible destination ** Taking into account new contracts of Shah Deniz II Consortium with Turkey and EU countries *** FID projects Source: Dutch Ministry of Economic Affairs, ENTSOG, European Commissions, IEA, IHS, national statistics, PIRA, Wood MacKenzie. 3

4 Global Arbitrage Opportunities Drive Flows of Flexible LNG Market Share of Short-Term and Spot LNG Deliveries by Region LNG Deliveries by Contract Duration Note: LTC deliveries under long-term contracts with duration of more than 4 years; STC deliveries under spot and short-term contracts (duration of less than 4 years) Source: GIIGNL 4

5 Asian Premium as Global Dispatcher of LNG Flows (1) Asian Premium In February 2016 Asian Premium increased to $0.9 MMBTU compared to -$0.7 MMBTU a year earlier. Oil-Indexed LNG Prices were $8.6 MMBTU in February 2016 compared to $14.2 MMBTU in February 2015 Source: Bloomberg, customs statistics of Japan and South Korea, Platts 5

6 Asian Premium as Global Dispatcher of LNG Flows (2) Asian Premium Directs LNG Deliveries in and out of Europe High Asian Premium as Driver for LNG Re-Loads from Europe Source: Bloomberg, GIIGNL, customs statistics of Japan and South Korea, Platts 6

7 Asian Premium as Global Dispatcher of LNG Flows (3) Qataris LNG Deliveries Qataris Exports by Destinations Qataris deliveries to Europe depend on the size of Asian premium Note: LTC deliveries under long-term contracts (duration is more than 4 years); STC deliveries under spot and short-term contracts (duration is less than 4 years) Source: Bloomberg, customs statistics of Japan and South Korea, GIIGNL, Platts 7

8 Asian Premium is Here to Stay for Years Ahead Due to Differences in Pricing Mechanisms Source:Gazprom Export 8

9 Overcontraction on the European Markets Creates a Downward Pressure on Prices Source:Gazprom Export 9

10 LNG Deliveries to Europe Increased Marginally by 3.1 bn in 2015 LNG Deliveries to Europe by Country 1-4Q Q bcm. % Qatar % Algeria % Nigeria % Norway % Trinidad and Tobago % Peru % Yemen Oman % Equatorial Guinea Total % Source: Bloomberg, IEA, Gazprom Export 10

11 Sales to Europe Will Not Compensate Full Costs for Off-Taker of LNG from USA Terminals Henry Hub based cost for Europe (per MBTU): 115% HH + $ tolling + $0.60-0,79 transport + $0.40 regas; NBP forwards as of March 2016; Henry Hub based cost for Asia (per MBTU): 115%HH + $ tolling + $ transport + $0.40 regas; NBP forwards as of March 2016; Asian Proxy (MBTU) = 13.5% x Brent (lag 4M) Full costs of US LNG delivered to Europe are higher than European hubs prices on a forward curve. Sales to Europe will not compensate full costs of the off-taker from the US LNG terminals. Source: Bloomberg, Cheniere Energy, IHS, Wood MacKenzie 11

12 THANK YOU FOR YOUR ATTENTION! Moscow, 04 April из 21