Low oil prices allow Gazprom to hold a share in the European market, but competitors also have a window of capabilities

Over the past year, Gazprom increased gas exports to Europe by 12.5% ​​to 179 billion cubic meters. Since the fall of 2016, the state -owned company several times updated records for the volume of menstruation and daily supplies to the far abroad. The reason for the demand for Gazprom exports was severe frosts, the high competitiveness of Russian gas and the lack of alternative suppliers of this scale in the European market.

“Exporters of LNG, such as Norway, have exhausted their capabilities and cannot increase prey more,” explains Alexei Belogoryev, deputy director for energy and finance.

But the key factor that played an increase in European demand is low oil prices, because of which the average annual cost of Russian gas was at $ 165 per thousand cubic meters, says Sberbank CIB Valery Nesterov. “A few years ago, $ 400 per thousand cubic meters and above was considered a good price. Of course, European citizens tried to stock up on cheap gas, especially since it will soon rise in price after oil. ”

For the Russian side, the situation does not look so rosy: an increase in export supplies does not compensate Gazprom by a sharp drop in gas prices. The level of annual production dropped to the minimum values ​​in the history of the company, and the financial situation has noticeably worsened. “Previously, Gazprom generated significant free cash flows - the funds that remained after the trustees and could go to dividends and other needs,” says Nesterov. “In the period from 2013 to 2015, the company's net profit decreased from $ 36 to $ 13 billion.”

Thanks to the low debt load, the developed transport infrastructure and the great potential to reduce Gazprom costs, it has a sufficient supply of financial strength for the years in advance, analysts say. The question is whether the state -owned company can continue the implementation of their large investment projects, who often do not have great commercial meaning.

Geopolitical pipes

Today, the Gazprom project is a priority for Russia - the North Stream 2 gas pipeline, which, like the first Nord Stream, should go along the bottom of the Baltic Sea to Germany. If there is a Ukrainian route, he will not be in demand, said Mikhail Krutikhin, partner of Rusenergy: “Over the past 4-5 months, Gazprom has intensively increases transit through Ukraine, which actually confirms the advantage of this route, which is cheaper and more efficient.” All cases of interruption in Europe take place due to political decisions of Moscow, and not through the fault of the Ukrainian side, Krutikhin believes.

Another important dispute concerns the degree of wear of the Ukrainian gas transmission system. The European Commission is considered a transit route: according to the regulator estimates, in the coming years, Ukrainian opportunities will remain at the same level. Gazprom claims that after 2020, the throughput of Ukrainian gas infrastructure will decrease by 60%. Alexey Belogoryev says: “If you take the position of the European Commission, then the Nord Stream 2 is just an excess capacity that is not due to new demand. But Gazprom also has its own significant arguments, at least thanks to awareness - developers of all Ukrainian pipelines are now working in Russia. And then a tiny gas pipeline is necessary. ”

The new gas pipeline may be profitable, provided that project financing with the participation of foreign partners and Western banks, as well as when it is completely loaded, Valery Nesterov believes. “Gazprom” trumps by the fact that with proper use of capacities, the transport tariff for Nord Stream 2 will be lower than for transit through Ukraine, and then the pipe will pay off. ”

However, it will not be possible to completely replace Ukrainian transit. Firstly, the throughput of Nord Stream 2 does not cover all the needs of Europe, and secondly, the supply of a number of countries of Eastern Europe through Germany is simply unprofitable. “Russia will strive to reduce the use of the Ukrainian route to a minimum: 10-30 billion cubic meters a year against the current 60-80 billion,” says Nesterov. Ukraine will lose a rather significant amount on this: $ 2-3 billion per year.

With the second loud project of Gazprom - “Turkish stream” - the situation is more unambiguous: analysts agree that there is no commercial meaning in the construction of this gas pipeline. “The construction of infrastructure, which may not be needed for anyone, has already been spent $ 17 billion,” says Krutikhin. - Now it turns out that the “Turkish stream” can consist of only one thread instead of the planned four. Maybe there will be a second one, but there will be nowhere to put it - there is simply no consumer there. ”

Belogoryev agrees that Türkiye will not increase gas dependence on Russia, which is already at a critical level. “In addition, the countries of Western Europe are not interested in this project, since transit will go through the Balkan countries that are not part of the EU. Moreover, Russia itself has been positioning this project for all these 10 years as geopolitical, ”the expert says.

The future of Russian gas

Despite these difficulties, Gazprom has every opportunity to maintain its position in the European market in the next decade. However, in order to hold its share (in 2016, state -owned companies provided about 32% of European gas demand), Gazprom will still have to withstand price competition with new players (in particular, with American suppliers of cheap LNG).

This “window of opportunities” for the displacement of Gazprom from European markets opens after 2025, Belogoryev believes. “This“ window ”will be associated with the Caspian gas. Iran and Turkmenistan are the potentially largest sources of gas export, which has not yet been involved in Europe. ” By 2025, these players may well build a new pipeline route or organize LNG supplies, which will noticeably weaken the positions of the Russian state -owned company.

Valery Nesterov recalls that in recent years Europe seeks to change its energy balance in favor of renewable energy sources, consuming less and less oil, gas and coal. “On the other hand, the predicted drop in gas production, primarily in the North Sea, creates additional demand for export. But there will be a lot of people who want to sell gas to Europe by this time, ”the expert concludes.