Russian Pipeline Gas: Problem or Part of the Solution? Sergei Komlev Head of Contract Structuring and Price Formation Directorate Gazprom Export* Flame, Amsterdam, May 14, 2018 *Views expressed in this presentation are the author s sole responsibility and do not necessarily represent that of Gazprom Export
Diversification Away From Russia At Any Cost The EU should reduce its energy dependency on Russia, but the EU should not back out of the mutual partnership. Günther Oettinger, European Commissioner designate for energy policy, January 14, 2010 Time and time again, the clear feeling from Russia is that they are irreplaceable and can do what they want We can get away from you; We can live without gas from Russia; It will be costly, difficult; it will take 10 years. But we can do it. Vaclav Bartuska, Ambassador -at- large for Energy Security in the Czech foreign ministry, May 26,2009 ZMB 2
Gazprom s Market Share In Europe Is On A Rise Course European Gas Supply/Demand Balance 100% 90% 80% 4% 8% 8% 17% 13% 10% 3% 5% 9% 8% 11% 11% 10% 11% 70% 30% 27% 26% 30% 60% 31% 33% 34% 50% 40% 30% 52% 20% 53% 52% 56% 53% 48% 47% 10% 0% 2011 2012 2013 2014 2015 2016 2017 Indigenous production Gazprom export LNG Other Imports In Europe Gazprom s share in consumption was 34.2% in 2017 versus 27.3% in 2011 or up by 7 percentage points Pipeline gas is the main source for meeting growing demand for the imported gas Despite having modestly increased in 2017, LNG supplies to Europe still remain significantly below the 2011 record level Source: PJSC Gazprom, Eurostat, National Statistics, IEA, IHS Markit ZMB 3
European Natural Gas Demand Recovery 600 500 400 300 200 100 0 European Gas Balance, bcm* 551,4 542,1 540,5 47.5% 46.5% 47.7% 485,6 506,8 44.6% 47.9% 541,8 51.9% 568,3 53.6% 52.5% 53.5% 52.3% 55.4% 52.1% 48.1% 46.4% 2011 2012 2013 2014 2015 2016 2017 Indigenous production Imports (+balance of storage) Consumption Source: IEA, Eurostat, National Statistics, IHS Markit * Hereinafter except as otherwise noted: European countries with Turkey (excluding CIS and Baltics) GCV = 8,850 kcal/cm, t = 20 C Gas demand recovered above 2011 level due to: Broader use of gas in power generation Drop in demand for coal Economic growth in leading European gas markets Growing demand and declining indigenous production over the last four years led to increased import requirements Gazprom met two-thirds of the incremental demand growth in 2017 and proved its ability to fill in any additional supply/demand gap ZMB 4
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 mmcm/d Russian Pipeline Gas is the Major Source of Volumetric Flexibility for Europe 800 700 2005-2017: 89-234 mmcm/d seasonal swing range 713.4 mmcm/d 600 1998-2004: 68-121 mmcm/d seasonal swing range 500 400 300 200 Source: IEA, ENTSOG ZMB 5
Amplification from Minimum Daily Deliveries is up to 255 mmcm/d* Source: ENTSOG, Gazprom * Estimated as the difference between the highest daily deliveries in each month and minimum daily deliveries in May 2017 ZMB 6
LNG Deliveries to the European Market in Q1 2018 were Down Q1 2017 Q1 2018 change (bcm) change (%) Qatar 5.1 4.9-0.2-3.9% Nigeria 3.5 3.7 0.2 5.7% Algeria 4.0 3.7-0.3-7.5% Russia (Novatek) 0.0 0.8 0.8 Norway 1.3 0.8-0.5-38.5% Trinidad and Tobago 0.2 0.7 0.5 250.0% Peru 1.0 0.4-0.6-60.0% USA 0.8 0.4-0.4-50.0% Angola 0.3 0.1-0.2-66.7% Equatorial Guinea 0.2 0.1-0.1-50.0% Despite growing gas demand in 1Q 2018 (+0.9 bcm or +0.5%) LNG deliveries to the European market fell in 1Q 2018, being attracted by other markets with higher margins Dominican Republic 0.1 0.0-0.1-100.0% Lithuania (re-export) 0.0 0.0 0.0-100.0% TOTAL 16.4 15.7-0.7-4.3% Source: IEA, ENTSOG ZMB 7
Asian Seasonal Price Premium Serves as the Main Attraction for Spot LNG Sources: Bloomberg, Interfax-GGA, Customs Statistics of S. Korea ZMB 8
Incremental Demand For LNG In Jan.-April. 2018 Came From Asia Net LNG Demand Increase in Jan-Apr 2018 vs. Jan-Apr 2017 14 12 10 8 6 12,9 4 2 0 0,2-0,5-0,4-2 -2,2-2,2-4 Asia North America Middle East Latin America* Africa Europe Source: IHS Markit * Excluding Mexico ZMB 9
bcm bcm LNG Ignored Demand Hikes in Europe in January-April 2018, While Dedicated Pipeline Gas Did Not 8 6 5,1 5,8 4 LNG Deliveries to Europe, bcm 5,6 5,7 5,3 5,2 4,6 4,3 2 0 January February March April 25 20 15 10 5 0 19,1 Source: IEA, ENTSOG Gazprom Export Deliveries to Europe, bcm 19,7 17,3 16,3 17,4 15,6 15,8 January February March April 2017 2018 17,2 ZMB 10
Another Advantage Of LTCs Over Spot Deliveries: Linkages To Longer Term Forward Contracts Provide With Price Stability Abnormally cold weather in February-March 2018 caused day-ahead price hikes Source: Source: Gazprom export based on Bloomberg data ZMB 11
Although Correlation of Gas Prices with Coal Price Increased Positive Price Spreads Between DA and MA Prices Point to Emerging Gas Deficit * At the basis of daily quotes ** Quotes with delivery in the same month are used Source: Gazprom Export ZMB 12
USD/mcm USD/mmbtu Gazprom s Market Share Is not a Threat to Competition in the EU due to Real and Virtual Competition with the American LNG 350 300 250 200 150 100 50 0 10.0 9,00 8.5 8,00 7.1 7,00 6,00 5.7 5,00 4.3 4,00 3,00 2.8 2,00 1.4 1,00 0 0,00 US LNG breakeven prices (full cycle costs) US LNG short-run marginal costs (excl. tolling fees) TTF Month Ahead and Futures Germany border price (BAFA) Prices of US LNG deliveries to Spain (Cedigaz) Prices of US LNG deliveries to Italy (Cedigaz) Prices of US LNG deliveries to UK (Cedigaz) Source: Bloomberg, Cedigaz, IHS Calculated on the basis of Henry Hub Futures prices, P = HH * 115% + X where X costs of liquefaction, shipping to Europe, regasification
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