Full gas stocks slash Gazprom's market share in Europe

7/10/2020

Russia’s Gazprom reduced gas supply to northwest Europe and Italy more than other sellers in the first half of this year, signalling a glut in the region has reached its peak.

\Record oversupply due to the coronavirus pandemic and two mild winters has seen stocks in the region rise to almost full capacity earlier than usual, sending prices to all-time lows.

Top supplier Gazprom’s first-half market share in northwest Europe and Italy fell by around 4 percentage points to 34% versus 38% a year earlier, data complied by Reuters and Refinitiv showed.

Exports through its three main routes - Nord Stream, Mallnow and Velke Kapusany - fell by 14 billion cubic metres (bcm), the data showed.

Supply from the second largest supplier - Norway’s Equinor - fell by around 4 bcm but its market share edged up 1 percentage point to 26% amid the supply drop from Russia.

Liquefied natural gas (LNG) supply to northwest Europe and Italy rose and its share was up 2 percentage points.

The share of North African imports to Italy slipped by 1 percentage point after a decline in flows.

HIGH BASE IN 2019

“Gazprom’s drop is coming from the high base of 2019 supply,” said Trevor Sikorski, head of natural gas and carbon research at consultancy Energy Aspects.

“Gazprom put a lot of gas in European gas storage in 2019, and with nominations falling on low demand, imports have had to come off. And Gazprom has not been selling much more in (spot electronic sales for spot delivery) because prices have fallen far enough to make more exports uneconomic.”

Sikorski said there was a smaller drop in supply from Equinor compared to Gazprom because Norway’s supply has a lower delivered cost into Europe and it has limits on its supply flexibility.

Gazprom Export and Equinor declined to comment on the market share numbers. The calculations were made for northwest Europe and Italy to estimate the impact on supply of a drop in Dutch gas hub prices, the benchmark in Europe.

ELECTRONIC SALES RISE

Sales via Gazprom’s Electronic Sales Platform (ESP) have allowed buyers reducing volumes via long-term contracts to optimise their supply with fewer volumes or future delivery dates.

Gazprom offers gas on the ESP that was not sold via long-term contracts. More than 19 bcm of gas has been sold via the ESP this year, data from Gazprom Export shows.

But with current oversupply, Gazprom has been offering more volumes for future supply, with delivery dates ranging as far as 2022.

Prices at the ESP are generally more attractive than in Gazprom’s long-term contracts at the moment, gas traders said.

“With current gas prices (so low), most of the long-term contracts are out of the money,” one of them said.

“Plus, at the ESP you can buy volumes at locations where liquidity is limited,” he said, adding that it is difficult, for example, to buy Slovakia future delivery contracts.

Germany and Slovakia have been the most popular destinations on the ESP this year, meaning buyers optimise their long-term deliveries and are looking at storing gas in Ukraine this summer. Gas can be delivered to Ukraine via Slovakia.

“The fact that European buyers are purchasing Gazprom gas even when the market is so oversupplied certainly shows Gazprom’s competitiveness,” said Jack Sharples, research fellow at the Oxford Institute for Energy Studies.

ESP sales are expected to add to Gazprom supply later this year, but may play a small role in Russia’s overall volumes in 2020, analysts said.

Reporting by Ekaterina Kravtsova; editing by Nina Chestney, Veronica Brown and Jason Neely