The building of Gazprom in Moscow
The Polish state oil and gas company PGNiG has no plans to renew long-term contract with Gazprom for the supply of Russian gas, which expires in 2022. This was stated by Reuters, the Commissioner of the government of Poland on issues of gas and energy infrastructure Piotr Naimski.
“We will strive for a situation where a long-term contract becomes a thing of the past. If the price of Russian gas is quite competitive, we do not exclude that we will buy it, but definitely not under long — term contract,” Naimski said.
According to the IMF, in April the Russian gas at the German border was $128 per thousand cubic meters 1 According to the calculations of the Director of East European Gas Analysis Michael korchemkina, the price for Poland may be about $150 for 1 thousand cubic meters at standard reporting “Gazprom”.
PGNiG wants to diversify sources and supply routes of imported gas in Poland, told RBC in the press service of the company. In the short term, PGNiG will focus on LNG imports from Western and Northern Europe, and in the future intends to use the gas pipeline between Poland and Norway for gas supplies from the Norwegian continental shelf. According to the company, the Russian gas supplied at the prices significantly higher than gas prices in other markets of Europe.
“Gazprom” has no plans to take any action in connection with this statement, said Tuesday the Deputy Chairman of Russian gas monopoly Alexander Medvedev.
In search of a replacement
The contract between PGNiG and Gazprom was signed in 1996. It provides for the supply to Poland to 10 billion cubic meters of Russian gas annually. In 2015, according to “Gazprom” in Poland was supplied with 8.9 billion cubic meters. m. According VYGON Consulting, Poland is 50% dependent on Russian gas, another 34% (about 6 billion cubic meters) provides its own production, it buys from the rest of Germany (13,2%) and other European countries.
Russian gas to Poland has already been trying to substitute liquefied natural gas (LNG) from Qatar and Norway. C Qatargas Qatar Polish company signed a contract in 2009. May 23, PGNiG announced a decision to purchase the first batch of LNG from Norway’s Statoil. The volume of the first party, which is expected in June, — 140 thousand cubic meters of LNG (corresponding to 84 million cubic meters of gas).
Poland is more profitable to buy Russian gas under the scheme “virtual reverse”, that is to buy it in the UK and Germany at lower prices and take away from the transit pipeline Yamal — Europe (through Poland to these countries), says Mikhail Korchemkin. This is allowed by the rules of the European Union and much more profitable: prices in Germany are lower due to the good relations between Moscow and Berlin, says the expert. The total volume of gas export “Gazprom” will not be reduced, but the monopoly will lose money on each 1 thousand cubic meters. m for $25.
Deputy Director of gas market national energy security Fund Alexei Grivach believes that to be replaced in 2023 the entire supply to Poland of Russian gas through LNG will be impossible. In his opinion, the liquefied gas even in the future will be more expensive than pipeline. He stressed that now Qatari LNG for Poland is 1.5 times more expensive than pipeline gas. According to Grivach, the solution to Poland’s political background — it’s cheaper to buy Russian gas, not to overpay for more expensive LNG.
The issue price
In may 2015, it became known that PGNiG filed a suit against Gazprom and Gazprom export” in the Stockholm arbitration court with the purpose to achieve lower prices for Russian gas. The lawsuit was filed after negotiations with “Gazprom” about reduction of prices, which began in November 2014, have not yielded results. The fact of filing a lawsuit does not mean the suspension of talks, said Medvedev may 31. According to him, the decision on non-judicial settlement had already been prepared in the past year, however, was not executed as required, and then in the Polish company changed direction. In the summer of 2015, PGNiG CEO Mariusz Zawisza confirmed that negotiations with “Gazprom” at the price of moving on, despite the arbitration process. In December Zawisza resigned, but the representatives of PGNiG still made a solution out of court. “Next week we [the General Director of “Gazprom export”] Elena Burmistrova new round of talks [with the Polish side],” said on Tuesday Medvedev.
In 2011-2012, PGNiG has already had legal proceedings with “Gazprom”. The parties signed an additional agreement to the contract, and in PGNiG told that the price will not decrease by more than 10%. Later, Poland declared that it would achieve greater discounts.
Who is looking for a replacement to “Gazprom”
Apart from Poland there are at least three buyers of Russian gas who want to reduce purchases or to abandon gas “Gazprom”.
At the end of March 2016 “Naftogaz of Ukraine” has announced no plans to resume purchases of Russian gas from April 1. The decision of the “Naftogaz” explained that the gas price proposed by Gazprom for the second quarter of 2016, “exceeds the proposals of the European suppliers.”
In August 2014, one Lithuanian company Litgas has signed a five — year contract with Statoil for the supply of 540 million cubic meters of LNG per year, which will cover about 16% of the country’s needs. “Gazprom” has described this contract as “non-economic decision.” Previous to the agreement, Lithuania is 100% dependent on Russian gas supplies. In 2015 “Gazprom” has put to this country of 2.2 billion cubic meters.
In December 2015 Bloomberg with reference to sources reported about the plans of Turkey to establish gas supplies from Israel and to reduce its dependence on Russia. Turkey imports approximately 98% of natural gas, of which Russia accounts for 56% (by the end of 2015, according to Gazprom, it has gained 27 billion cubic meters of gas). In 2016, Gazprom canceled the discount of 10.25% for Turkish companies and cut supplies to the country. In March representatives of the Turkish companies did not exclude the court from Gazprom, but in the end the matter was resolved in mid-April, supplies were restored in full.
Turkish President Tayyip Erdogan previously said that Ankara will find a replacement to Russian oil and gas in Qatar and Azerbaijan. In early December, Turkey and Azerbaijan agreed to accelerate construction of TRANS-Anatolian gas pipeline (TANAP). The launch of TANAP, which is part of the southern gas corridor, was originally planned for 2018.
In the next 3.5 years “Gazprom” expires contracts with Bosnia, Slovenia, Czech Republic, Estonia and Hungary, estimated by Vygon Consulting analyst Maria Belova. According to “Gazprom”, in 2015 in these countries were delivered to 11.4 billion cubic meters of Russian gas (current average price of gas is about $1.5 billion), or 7% of gas deliveries in the far abroad in 2015. The largest is the Hungarian a contract under which monopoly in 2015 made up 5.9 billion cubic meters.
Now on the market in oversupply, and demand is growing slower than expected, says analyst, “Renaissance Capital” Ildar Davletshin. “If by 2022 oversupply continues, Gazprom will have to reduce prices so that they are competitive,” warns Davletshin. In 2009, as the analyst, contract prices of “Gazprom” were three times higher than spot, but now they are almost equal. According to “Renaissance Capital”, this year due to the excess gas on the market and increasing competition “Gazprom” will lose $5 billion EBITDA.
Partner of consulting company Mikhail Krutikhin believes that due to the fall in oil prices, “Gazprom” sells the gas at a loss. He predicted that in the next two years gas prices fall to $120-130 per 1 thousand cubic meters. m due to additional LNG from Canada, Australia, Africa and USA. “Gazprom” will be forced to engage in a price war to lower prices to at least not to a larger share of the gas market in Europe,” warns the analyst.