Gazprom sells gas to Europe at below cost, and it remains only to hope that the liquefied gas from the US and other countries also will be sold below cost, and to wait, while competitors go bankrupt, unable to withstand a price war
No matter how they say Russian officials about the plans to export gas to Asia and even to withdraw volumes of gas sales to China to supply indicators to the West, without the development of exports to Europe of the future “Gazprom” can be forgotten.
The Asian direction of gas export from Russia has a number of very unpleasant disadvantages in comparison with Europe. The total capacity of the pipeline that is now going to the West, more than twice the amount of supplies, while Gazprom plans to pave and lay there all new and new routes. Europe is a diversified market, in which the Russian supplier is not dependent on the dictates of one or two consumers. At the entrance to the existing gas pipeline system “Gazprom” the accumulated production potential, which is more than 200 billion cubic meters a year exceeds the volume of all gas sales “national treasure”. Besides, in the West signed numerous contracts with customers for the period until 2035 and beyond.
None of this in China not visible. There not built enough pipelines to deliver on the promise to level the volume of Eastern deliveries with a volume of West. There is neither prepared for exploitation or the necessary infrastructure. There is no certainty that the Chinese need as much Russian gas as they want to sell them gazpromovtsev. In any case, Beijing is constantly responding unequivocal refusal to requests to participate in the financing of the Russian gas projects. And the main thing – gas prices in Asian markets over the next five to ten years should be kept at a level not justifying the costs on Russia for its extraction and transportation.
That’s only in the European direction, “Gazprom” all is not well. To begin with, that predicted by the leadership of the company’s growth in gas consumption in the EU was not so high. Indeed, own gas production in Europe is declining steadily, but imports declining even faster, as demand from 2010 decreased by 20%. From 299 billion cubic meters in 2010, net imports fell to 219 billion in 2014, a slight increase of this indicator in 2015 the overall trend is not yet broken.
About the fictitious growth of demand for Russian gas Gazprom executives report with an eye on the figures of the last quarter of 2014, when supply to Europe was drastically reduced to a political decision of the Kremlin in retaliation for the sale of gas from the EU to Ukraine. Comparison with microscopic levels of exports in the period looks impressive but the reality doesn’t reflect.
According to experts, Statoil, up to 2040 the demand for gas in the EU will be reduced to 0.4–1.6% annually. In General we can accept the predictions of experts who evaluate a niche for new gas supplies to the EU in 2035, with capacity from 40 billion to 70 billion cubic meters. However, it is unknown what proportion of this niche will block the import of liquefied natural gas and how much will add to the Russian supplier.
The price of liquefied natural gas promises to be highly competitive for at least the next ten years. Began to understand it in Moscow. If earlier Gazprom’s advocates at international conferences pushed one idea: “monopoly is good and competition is bad”, now with pseudo-scientific slides they are trying to prove that Russian pipeline gas is cheaper than the American liquid.
Let’s do the math. In August of this year the average price of gas that Gazprom sells in Europe under long-term contracts tied to the price of petroleum products, amounted to approximately $150 per thousand cubic meters ($4.16 per million British thermal units – BTU). Transactions on the spot market was cheaper.
According to the head of the company East European Gas Analysis Michael Korchemkin, the delivery of Russian gas to Germany via the pipeline “Nord stream” costs $0.92 per million BTU, transportation from Western Siberia to the entrance to the “Nord stream” in the area of Vyborg is still at $1.45 to 1.54, the export tax takes another $1,53, and the cost of production ranges from $0.88 to $1,08 per million BTU. In sum, the cost of gas when you receive it in Germany is estimated to range from $4,78 to $5,07 per million BTU. This amount does not include certain expenses such as interest on loans, the establishment, social responsibility, investing in projects that have not yet arrived (and unlikely ever will), and some rate of return the company must provide.
Anyway, it turns out that “Gazprom” already today, without waiting for the us shale gas sells in Europe at a loss. It remains only to hope that the liquefied gas from the US and other countries also will be sold below cost, and to wait, while competitors go bankrupt, unable to withstand a price war.
And this war is not far off. According to conservative estimates, the supply on the world market of liquefied natural gas by 2020 will increase by 50% compared with 2014 levels. Projects started and mostly funded in the period of high prices, come on line and provide overproduction, which has already provoked dumping. We see from the US went rapidly increasing in the volume of export flow of liquefied natural gas at prices that did not cover its production, liquefaction, transportation and regasification. A product that cost the seller $6 or even $7 per million BTU, is, for example, in South America at a price of $5.50, and in Portugal and the UK even cheaper. The task is to compensate for at least part of the costs of the project liquefaction and, of course, to win the market niche in the future, when prices may increase.
Is it possible to predict someone’s win in the price battle? Probably not. Yes, against “Gazprom” is working and a huge oversupply of liquefied natural gas worldwide, and measures of the European Union on the diversification of suppliers, and the company’s reputation as a political instrument of the Kremlin. However, the Russian export monopoly and there are significant advantages.
First, it is the potential of a ready to use crafts, which would be enough to supply another Europe, if there had been enough customers. Secondly, Gazprom has the infrastructure to deliver gas to Europe, the capacity of which used less than half. And third, the political leadership of Russia will not leave in the lurch “national treasure.” It is not excluded tax and other benefits that will be brought to bear to support Gazprom in its struggle against competitors.
The analysis of fundamental factors in the European gas market, suggests that until 2035 the Russian deliveries should retain about 30% of the gas consumed in the EU. In absolute terms, the volume of deliveries is difficult to predict because of the conflicting forecasts of demand in Europe for energy and ratio of energy resources in the balance of the EU.
