Dumping time

On June 7, Kyiv turned to Gazprom with a request to resume gas supplies. Gazprom was just waiting for this

Exactly a week before, on May 31, it became known about Poland's intention to stop buying Russian gas after 2022. Warsaw believes that it is easier and cheaper to buy gas on the free market. And then suddenly an old client appeared at the Russian monopolist, who agreed to purchase, albeit a small, but still a solid part of the gas, for which the department of Alexei Miller could not find buyers.

Gazprom has unclaimed production potential at the fields developed for the future, and this potential can be estimated at 225 billion cubic meters per year - one and a half times more than all of Western Europe is able to buy in Russia. Naftogaz Ukrainy's proposal came at the right time… Only in the current market conditions this deal does not make any commercial sense for Russia.

Gazprom is already trading gas in Europe at a loss, and further losses will only multiply. According to the International Monetary Fund (IMF), in March, April and May, a company received an average of $128 per thousand cubic meters of gas delivered via Nord Stream to the German border, although the minimum profitability price for such deliveries fluctuated around $150.

The global gas market is showing all signs of overstocking, and in the medium term, the growing overhang of supply over demand is fraught with a price war between suppliers for buyers — and the battles of this war will probably be sharper than the current fights on the oil front.

The low cost of oil, at which long-term contract formulas are indexed, has brought contract prices to near parity with spot transaction prices on European trading floors. The decisive factor was the sharp fall in the price of liquefied natural gas (LNG), and here growth or at least stabilization is not to be expected. By 2020, the current LNG production potential, estimated at about 330 million tons per year, will be replenished with another 150–160 million tons per year from Australia, the USA, Canada, Iran, Mozambique, Angola, Russia and other countries.

Gazprom is already trading gas in Europe at a loss, and further losses will only multiply

Australian liquefied gas suppliers, who counted on prices of at least $400 per thousand cubic meters five years ago to ensure the profitability of new projects, are now selling their products in Japan and China for $130. Australian gas will soon force out competitors from the Pacific Basin, and they will rush to Europe, where they will arrange a dumping battle for consumers. There are analysts who predict prices of less than $110 per thousand cubic meters.

One of the consequences of such a development of events is the victory of gas carriers over giant gas pipeline projects (although with Gazprom they were often political rather than commercial without competition). The second consequence is the advantage of low cost suppliers.

By the way, the Russian gas exporter has a good position here: in addition to the unclaimed production potential, it has a well-developed transport infrastructure and state support. It can be expected that Gazprom will be able to withstand the price war for quite a long time, suffering from losses and expecting gas prices to rise. True, the wait is likely to be long.