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Gazprom expects natural gas export price to average $190/1,000 cu m through year-end

Russia’s Gazprom expects its European export price to average $190/1,000 cu m ($5.25/MMBtu) through the end of 2017, a price that its deputy CEO Alexander Medvedev says demonstrates the competitiveness of Russian gas especially versus US LNG deliveries.

In an interview with Gazprom’s in-house magazine this week, Medvedev also said Gazprom had begun supplying gas to countries in Europe it does not reach via pipeline — such as Spain — through LNG deliveries.

Gazprom is set to hit a new record export level for its pipeline gas to Europe and Turkey in 2017, with volumes expected to reach as high as 190 Bcm.

Medvedev said the average price for the first nine months of this year was $190/1,000 cu m, and that “we expect approximately the same level at the end of the year.”

Asked about Gazprom’s expectations for gas supplies to Europe in 2018, Medvedev said the company was happy with its competitive position.

“In the short term, we see stronger price competition between the main suppliers but Gazprom feels comfortable under these conditions,” Medvedev said.

“Our gas is competitive, and we are able to sell volumes that exceed the minimum contractual obligations,” he said.

By contrast, LNG has struggled to expand its share of the European market in recent years and US LNG in particular has failed to make a dent in the northwest European market.

“Under current market conditions, the full cost of delivering US LNG to the European market for winter 2017-18 is in the range of $265-$295/1,000 cu m, which is significantly higher than both current and forward prices on European hubs and the price of Russian gas,” Medvedev said.

However, there have been geopolitical elements to some US LNG deliveries to Europe so far, with Lithuania taking two cargoes and Poland one, seemingly an attempt to prove their increasing independence from Russian gas.

Further, US LNG offtakers can still deliver cargoes even if they don’t cover their costs by applying a sunk cost methodology.

LNG BUSINESS

Gazprom is also an LNG seller, both from its Sakhalin 2 facility and also its traded portfolio.

Medvedev said Gazprom supplied significant volumes of LNG to Spain in September, a market it does not supply gas to via pipeline.

“We delivered a lot of LNG to Spain in September. Traditionally, Gazprom separated the markets of continental Europe from the markets of the Iberian Peninsula, but now thanks to LNG, Gazprom has commercial links with these traditional LNG buyers.”

Medvedev also said that in the first nine months of 2017, Gazprom saw a slight decrease in deliveries in comparison with the record volumes in 2016, but it expects a recovery in Q4.

“At the same time, we continue to actively participate in tenders to expand our trading portfolio,” he said.

As for a third train at the Sakhalin 2 plant, Medvedev said Gazprom and Shell were working toward taking FID in order to commission the 5.4 million mt/year train in 2023/24.

And work continues with Shell on the 10 million mt/year Baltic LNG plant that is set to be put into operation in 2022/23.

AUCTION DOUBTS

Medvedev also expressed doubts over whether Gazprom would revisit the auction model used three times in the past few years to sell additional Russian gas volumes in Europe.

“We have tested the mechanism of auctions and were satisfied with it,” he said.

“We do not exclude holding new auctions for the European market but why would we try to sell additional volumes in this way when our deliveries under long-term contracts are setting records?” he said.

Medvedev added that he remained “convinced” that the bulk of Russian gas exported to Europe would continue to be supplied under long-term export contracts.

“However, we are not standing still and in response to changes in the market we are gradually increasing our presence in the segment of short-term deals and spot operations,” he said.
Source: Platts

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