Gazprom collapse

Gazprom was faced with a collapsible process of reviewing price formulas according to European long -term contracts. At the end of February, the Polish oil and gas company PGNIG announced the filing of a lawsuit in Stockholm arbitration in order to force Gazprom to revise contract formulas and lower prices. Earlier, similar processes were initiated by the Italian Edison, which eventually succeeded, and the German E.on. And only by them the stream of European customers of Gazprom, requiring price reduction, is not limited.

The lips of the Deputy Chairman of the Board of Alexander Medvedevin an interview with Financial Times, the Russian gas monopolist has already announced that he had revised the price formulas towards a decrease for a number of major buyers: French GDF Suez, German Wings, Italian Eni, Slovak SPP and Turkish Botas. And from the Gazprom quarterly report it follows that similar consultations are held with a wide range of other European companies: German E.on and RWE, Anglo-Council of Shell Energy Europe, Austrian Centrex and GWH GASHANDEL, Dutch Gasterra, Danish Dong.

This is the complete collapse of the Gazprom marketing policy, which suggested the rate exclusively on the long -term contracts of the Beri or Pay and the Deaf defense of the price formulas tied to oil quotes.

The world has changed

For the past 15–20 years, the gas market has changed greatly , losing all connection with oil pricing. OECD countries massively ceased to use oil refining products in the electric power industry in the 70s-80s, in the wake of the Arab oil embargo of 1973. The interchangeability of two types of fuel was actually completely lost then.

Then came the era of liquefied gas (LNG), which increased the flexibility of the choice of the supplier. Even later, the shale, which is widespread and can serve as a local source of energy for a large circle of emergency control countries, reducing the need for imports. And so it has already happened in North America, which had a direct impact on the main Gazprom market - Europe. Demand for LNG in North America was overvalued. And its volumes prepared by exporters near the United States were redirected to the European market, which increased competition and created an excess of gas supply.

But Gazprom completely overslept the rapid growth of the production of liquefied gas (the company has not built a single plant for the production of LNG, its only enterprise of this kind - a plant selected from SHELL in Sakhalin), and the Slantsy Revolution. Moreover, in recent years we have witnessed the stubborn and rather funny public denial of Alexei Miller the importance of the influence of shale gas on the world market.

The company was absorbed by the plots with the construction of new expensive pipe “flows” and the protection of long -term contracts “Beri or Pay” as the only possible mechanism for gas trade. Under this, the rhetorical base was also appropriate. So, in April 2009, President Dmitry Medvedev published a document entitled “Conceptual approach to the new legal base of international cooperation in the field of energy”, where it was very seriously said about “transparent and predictable sales” as one of the “key aspects of global energy security”. They tried to sell this Gosplan's nonsense to European partners as an alternative to the energy charter .

Meanwhile, the European market changed, became more competitive. The role of sport trade grew. Additional pipeline jumpers were built that increased the maneuverability of market trade in Europe and ensured the possibility of delivering LNG from Atlantic terminals to the eastern areas. The capacity of underground gas storages increased sharply, reducing dependence on Gazprom supplies in peak winter months. Finally, the question inevitably began to arouse the penetration of LNG into the territory of the former undivided rule of Gazprom - to Eastern Europe. The construction of terminals for Import LNG began to be discussed and at different speeds to implement Croatia, Romania, Poland, Lithuania.

Collapse in Western Europe

The consequences were extremely serious for Gazprom. In recent years, the difference between the prices of gas supplies to European consumers under long -term contracts of the monopoly and the prices of the spot market began to reach dozens of interest. Even now, Russian gas costs it in the area of ​​$ 440–450 for 1000 cubic meters. And taking into account the current Brent prices, $ 120 per barrel, according to the formula, its price may exceed $ 500 per 1000 cubic meters. And in the spawn market, prices are held in the area of ​​$ 325 and, according to forecasts, will remain in the range of $ 300–350 for a long time.

The consequence is the loss of positions in the market. In Pikovo for Gazprom in 2007, the volume of supplies to the EU-27 countries reached 146 billion cubic meters, and its share in the European Union market exceeded 30%. By 2010-it decreased to 26%. In Russia, it is believed that the volume of natural gas consumption in the EU-27 fell due to the crisis. It is not entirely true: in 2010, compared with 2007, it grew by 2.4% (the data source- BP Statistical Review of World Energy ). The absolute volume of Gazprom sales to the European Union countries (not to be confused with the total statistics on the “far abroad”, which includes not only the EU countries) fell by almost 18 billion cubic meters and is kept at 128 billion cubic meters a year over the past three years.

In important markets, Gazprom’s position was melted with catastrophic speed. For example, in 2007, Gazprom sold over 4 billion cubic meters of gas in 2007, almost nothing has been supplied in recent years at all. Russian gas was almost completely replaced by imported LNG through the terminal in Zebrugg. Deliveries to France and Italy collapsed by about 30% to the peak level. Last year, Gazprom sold 26.6 billion cubic meters of gas to these two countries (most likely, this figure would be even lower if he had not had to compensate for the temporary stop in Libya), while in 2005-35.2 billion.

A similar story with Great Britain: with a general increase in gas demand in the local market in 2007-2011, Gazprom's volume of supplies decreased from 15 to 8 billion cubic meters per year. It is not surprising: in 2009-2010, the average price of Gazprom sales to the far abroad, according to the company itself, was about $ 300 for 1000 cubic meters, and the price of gas in the British market (Heren NBP Index)-$ 173 for 1000 cubic meters in 2009 and $ 230 in 2010. It is clear that with such a breakdown of prices from Gazprom gas, buyers will refuse.

While Gazprom had to sharply rebuild its marketing policy, learn to trade in the spawn market, increase the share of spot sales, and go out with the initiative to revise outdated price formulas under long -term contracts,, on the contrary, with amazing stubbornness, defended his unsuitable for new market conditions, and therefore a doomed mechanism. The result is a strategic market loss and lost time. And the revision of contract formulas in a judicial proceeding or under the threat of court claims means the absence of a spare option in the pocket.

Market loss takes place not only in the European Union. Today, you can look at the results of the Gazprom cavalry exercises in a retrospect at the fast and hard rise of gas prices for the countries of the former USSR. According to the monopoly itself, in 2010, the average gas price for the countries of the former USSR amounted to $ 231.7 for 1000 cubic meters against only $ 60.7 in 2005. Not bad? But at the same time, sales were steadily reduced and in 5 years decreased by almost 10% (just above 70 billion cubic meters against 77 billion in 2005). The largest consumer-Ukraine-has already announced its intention to reduce the consumption of Russian gas to 27 billion cubic meters this year against almost 38 billion in 2005. In Latvia and Estonia, Gazprom sales for the same period were reduced by 60% (!), The markets of Azerbaijan and Georgia were completely lost.

Who will give Miller a textbook

Gazprom managers seemed to have not read textbooks on economics. Do they really not know that too high the price can only be profitable in the short term - especially if the buyer has an alternative? Today, the situation for the monopoly is as follows: in the highly competitive market of Western Europe, Gazprom has no prospects for expanding sales. His gas is simply uncompetitive. In the market of Central and Eastern Europe, where competition penetrates more and more, while stagnation is observed, and in a number of important buyer countries: Austria, Hungary, Romania-we see a steady reduction in sales. In general, the prospect of the appearance of alternative gas sources (imported LNG, own shale gas) creates a bad disposition for Gazprom.

Only the situation in Turkey looks good: at the end of 2011, additions to long -term gas supplies, which provide for some increase in supplies, were signed with the Turkish Botas. True, after the previously announced refusal of Turkey, to extend the contract for the supply of Russian natural gas on the Western Route through Ukraine, Romania and Bulgaria, Gazprom, apparently, provided the Turkish side with significant discounts on the price of gas.

Finally, the market of the former USSR, where with a competitive environment the most difficult thing is still under control-but there is also no growth of sales there, on the contrary, the importing countries are trying to reduce consumption under pressure from high prices. The key question is how and when it will reduce consumption of Ukraine (more than half of the post -Soviet gas sales market). There are opportunities for this - and shale gas, and the development of new Black Sea gas fields, and energy conservation.

Against this background, Gazprom builds ambitious and expensive pipelines. Why, after all, their demand under a huge question, as never before? Before the survival of the implementation of these projects, it is time to seriously analyze the current market situation, the marketing prospects of Gazprom. And recognize mistakes of recent years, in the end.