Russia’s Gazprom confirms plans of 183bcm gas exports to Europe in 2021

LONDON (ICIS)–Russian producer Gazprom plans to send 183billion cubic metres (bcm) to Europe in 2021, Gazprom said in a conference call on Tuesday.

This is the higher end of the 175-183bcm bracket the producer had already forecast in April.

Gazprom’s production target for 2021 is set to rise to a ten-year record high of 510bcm, the company also said in its conference call.

The Dutch TTF and German NCG October ‘21 contract had jumped by over €2.7/MWh by 16:30 London time on Tuesday and by almost another €2/MWh by 11:00 on Wednesday, ICIS assessment showed.

This 183bcm target would mean a 6bcm increase from Russian piped volumes sent to Europe in 2020. Before the pandemic, Gazprom had planned to send 200bcm/year to Europe, its main export market. But the pandemic-related drop in demand forced the producer to revise down its 2020 and 2021 targets.

The 2021 target is irrespective of the launch of Nord Stream 2, a 55bcm/year pipeline directly connecting Russia and Germany initially planned for commissioning in late 2019. One of the two 27.5bcm/year legs of this pipeline is already finished and undergoing pre-commissioning works while the second one is still under construction. This pipeline may carry 5.6bcm in 2021 , Gazprom announced in August.

PRICE CONCERNS

Morten Frisch, Senior Partner of Morten Frisch Consulting said Gazprom might be having gas production “bottlenecks” and is therefore unable to meet the longer term target of exporting 200bcm/year to Europe.

“Based on the current level of gas prices in Europe and also prices going forward to April 2022, it is my view; Nord Stream 2, its certification, commissioning and start of commercial operations have become a bit of a “red herring”. Clearly, Gazprom wants to cash in on the current very high gas prices. Just look at their Q2 2021 result!” Frisch said. “However, when reading between the lines of messages coming out of Moscow it is also my perception Gazprom likely will try to avoid using additional Ukraine transit capacity as much as possible – interruptible and too expensive,” he added.

Industry experts say, however, that high prices could hurt gas’s position in Europe in the long term.

“Any flows via Nord Stream 2 would be the cherry on the cake,” said a Germany-based trading source. Prolonged sky-high natural gas prices could lead to a sustained fuel switching – a switch from gas to coal in the short term and from gas to more renewables and batteries in the long-term, which could make natural gas even more vulnerable to bad publicity especially in Germany, he added.

“Given the phase-out of three German nuclear plants at the end of 2021, including one plant in already electricity-starved southern Germany, I truly believe we will see some sort of concession from the German authorities in the near term,” the source said, adding that “otherwise we might see severe problems this winter.”

A gas-to-oil switch could also happen, although a gas-to-coal switch would happen first and for much more capacity, according to a western-Europe-based trader.

TRANSIT ROUTES

The 183bcm target being irrespective of Nord Stream 2’s commissioning indicates that volumes that may flow via the pipeline this year could be rerouted from other routes. This would most likely be from the Yamal-Europe pipeline going via Belarus and Poland or from the Ukrainian transit corridor. This is because the other supply route, the Russia-Germany direct Nord Stream pipe has been optimised even above its 55bcm/year design capacity since 2018 and does not involve transit fees unlike the other routes.

“There is not much hope for additional volumes to be transmitted via Ukraine,” said a Ukraine-based analyst.

A western-Europe-based trader said the market might face another strong correction. “I will not exclude an extreme panic selling momentum if more supply will be showing in Europe, either Gazprom supplies or even LNG cargos,” the trader added.

High demand and prices in Asia attracted LNG cargoes which cut LNG supplies to the EU and the UK to around 57.4bcm in January-August 2021, compared to an average of 69.5bcm for the same period in 2019 and 2020, data collected by ICIS showed.

Meanwhile, Gazprom’s piped supplies to the EU and the UK rose to 97.2bcm in that period, up from 93.1bcm in 2020 but down from 117.9bcm in 2019.