The President of Russia Vladimir Putin and Chairman of the Board of “Gazprom” Alexey Miller (left to right)
Rosneft and NOVATEK want to export gas to Europe. Letters with the request to allow them to do it, even though the export monopoly of Gazprom, Rosneft President Igor Sechin and Chairman of the Board of NOVATEK Leonid Mikhelson sent to the Kremlin last year. RBC got acquainted with their contents, and also found the reaction of Gazprom and President Vladimir Putin.
NOVATEK vs Gazprom
In early March, “Vedomosti” said that the Chairman of the Board and co-owner of NOVATEK, Mikhelson encroached on export monopoly Gazprom. At the request of Putin, the energy Ministry considered the possibility to allow the Swiss trader NOVATEK Novatek Gas & Power Gmbh (NGP) to supply European consumers with gas in Arcticgaz (joint venture of NOVATEK and “Gazprom oil”). To formally break the monopoly of Gazprom, Michelson has agreed to supply gas through “Gazprom export”, but “daughter” monopoly purchasing it from Company at the price of export netback (sales price minus transportation costs). “Gazprom” has increased the export: by the end of 2015 NGP has contracted to 3.1 billion cubic meters of gas, of which only 0.7 billion cubic meters of Russian origin. In the case of the implementation of the scheme the trader could buy the entire volume of gas in Russia.
Gazprom sharply opposed the proposal of Michelson, told RBC two sources in the company. According to them, in February the CEO of Gazprom Alexey Miller has written to the presidential administration response to the proposal of Novatech. This letter States that a trader NOVATEK acquires gas from the German company E. ON, which, in turn, buys it from “Gazprom”, says a source familiar with the contents of the letter. If allowed to export gas in Arcticgaz, “Gazprom” will lose the customer, procuring over 2 billion cubic meters, and there will be a gap in the single export channel. “It will benefit other market participants from among the independent gas producers”, — retells the interlocutor of RBC abstracts Miller. Ultimately, this will lead to a drop in the price of Russian gas on foreign markets, he concludes.
Representatives of Gazprom and NOVATEK declined to comment, a representative of E. ON did not respond to a request RBC. Putin spokesman Dmitry Peskov refused to comment on the official correspondence of the chief.
Rosneft vs Gazprom
Before company’s request to allow the export of pipeline gas appealed to the Russian President of “Rosneft”. About it told RBC three sources in Rosneft and two sources in “Gazprom”. According to two interlocutors, Sechin in October 2015, it sent a letter to Putin with the request to allow Rosneft to export 7 billion cubic meters of gas to Europe without intermediaries for the sale of British BP. Last year “Rosneft” has signed with a foreign company, a Memorandum of understanding, involving the sale of Russian gas on the condition that Rosneft will have the right to export, they say.
Press Secretary of “Rosneft” Mikhail Leontyev confirmed that Rosneft has a European buyer, ready to purchase gas to Rosneft, if it will receive permission to export. According to him, the Governor really has repeatedly asked the President to allow Rosneft to export gas. But the expected volume of deliveries, the buyer’s name and other details of the letter Leontiev did not disclose. “We are ready to supply gas to a single system on terms equal to that of monopoly, the main thing is to monetize its delivery and to do so by law. If NOVATEK will give a permit to export gas, we also want to get,” he said.
A BP representative declined to comment.
Among the arguments Sechin — the lack of “Gazprom” the opportunity to seriously increase our exports to Europe because of the bad reputation of monopoly in the EU, litigation, and antitrust investigation against the company two tell the interlocutor of RBC. According to them, Sechin asks Putin to approve the amendment of the law on gas export, the independent producers had the opportunity to directly sell fuel to foreign customers.
But Miller has criticized this attempt to break the monopoly of “Gazprom”, the letter to Putin in November 2015 (RBC got acquainted with the text). Sechin’s proposal on the sale of 7 billion cubic meters of gas outside the single export channel is not based on a serious analysis of the European market, indicates Miller (see incision). In his opinion, additional volumes of Russian gas will only worsen the position of “Gazprom export” not only the market, as well as arbitration proceedings. The thesis of the inability of Gazprom to increase its presence in the European market Miller categorically rejects. He recalled Putin from International energy Agency, according to which the share of Gazprom on the European market for five years — from 2010 to 2014 has increased from 23% to 30.2%. In 2015, the company increased gas export to far abroad by another 8% to 159.4 billion cubic meters, while its share in Europe reached 31% — a record for the last ten years, told investor Day in new York in early February, the Deputy Chairman of “Gazprom” Alexander Medvedev.
Conclusion Miller: to destroy the existing system of a single export channel, more serious arguments, but a desire of one company to increase their income. “The exit alternative to Russian suppliers of natural gas (as with state participation and private) throughout Europe will lead to a breach of the management of supplies of Russian pipeline gas to Europe, to the inevitable decline in natural gas prices, and, consequently, to reduction of receipts in the budget of the Russian Federation”, — said the head of “Gazprom”.
“Unfilled” niche export due to the fall in gas production in the Netherlands and the UK will appear on the European market no earlier than 2025, says Alexei Miller, in his letter to the President. “Based on conservative assumptions that traditional exporters (Russia, Algeria, Libya) will keep the supplied goods at the level of 2015 (these three countries were sold in Europe in 2015 202,4 billion cubic meters — RBC), strong contractual commitments from other vendors to fully close than 2022-2025 years all the needs of Europe, including those arising as a result of falling domestic production of gas, as Europe continues to reduce its consumption,” he says. According to “Gazprom” from 2010 to 2014 gas consumption in Europe fell by 20%, averaging 4.2% annually. In addition, gas prices under long-term contracts now include not only oil production indices, and spot component. “In this situation, the opportunity to sell additional volumes of gas to gas traders on hubs exist, but these sales usually only lead to the creation of a surplus of supply over demand, and ultimately to the degradation of price,” writes Miller. And the assertion that “Rosneft” will not make a competition “to Gazprom” in Europe, unfounded, said the head of “Gazprom”. “The emergence of additional gas will inevitably lead to competition between Russian suppliers that does not meet the state interests of the Russian Federation. Major players, which refers to “Rosneft” as a counterparty of his talks, just waiting for the opportunity to play on the contradictions between the Russian manufacturers”, — concluded the head of the gas monopoly.
And what of Putin?
“Any decisions on this account were not accepted”, — Peskov commented on the agencies treatment of NOVATEK in early March. Sources RBC, close to the presidential administration, said the decision on whether to allow NOVATEK or Rosneft to export gas, is not accepted. “The President promised to think about it, though, and said that now is not the time for such radical steps,” says one of the interlocutors RBC.
An energy Ministry official said that the Ministry’s position on both queries is not yet formed. The Ministry has asked the presidential administration more time to assess the impact on the pricing of Russian gas on foreign markets.
According to the head of the national energy security Fund Konstantin Simonov, Putin is not allowed to liberalize the export pipeline due to adverse market situation and the reluctance to destroy a single export channel. “None of the countries-exporters of gas from Norway to Qatar is not allowed competition between national companies in the market of export of gas to Europe” — indicates the expert. As NOVATEK and Rosneft, which promises to replace the foreign gas company in Russia, pursuing primarily its own commercial interests”, — said Simonov. He recalled that the independent gazoprovoda already hard pressed by Gazprom in the domestic gas market and achieved the export liberalization of liquefied natural gas (LNG) from 2013.
Diversification of suppliers would lead to the expansion of sales of Russian gas to Europe, says the partner of consulting company RusEnergy Mikhail Krutikhin. “The decline in the European price for imported gas is due to additional inflows of LNG to the world market and falling oil prices. It can not be avoided, but to win new market share by liberalizing pipeline gas exports from Russia would be real,” he said.