Russia's Gazprom has revealed some insight into its efforts to meet a strong rebound in natural gas demand in Europe after repeated criticism it is not increasing exports in an attempt to coerce authorities to accept controversial subsea gas pipeline Nord Stream 2.
In a statement of its interim operating results released last week, the state-controlled gas monopoly said it raised its gas output by almost 18%, or 42.4 billion cubic metres, to close to 279 Bcm between 1 January and 15 July this year, against the same period of 2020.
Gazprom said European customers have taken the largest share of that incremental production, with company’s exports to Europe increasing by more than 24%, or 21 Bcm, to 107.5 Bcm in this period.
The monopoly said that such gas exports are close to the all-time record deliveries to Europe of almost 109 Bcm that were seen in same period of 2018.
Robust domestic demand in Russia soaked up some 19.2 Bcm of the company’s incremental production, with supplies to China from the Chayanda greenfield development in East Siberia also on the rise, Gazprom said.
However, industry analysts in Moscow pointed out that Gazprom has commissioned no major greenfield in its core region of Yamal-Nenets in West Siberia since 2018, thus restricting the company’s ability to react quickly to the spike in European gas demand by arranging additional supplies via existing pipeline routes from Yamal-Nenets via Ukraine and Poland to the continent.
Meanwhile, the production capacity at Gazprom’s large, but severely depleted, legacy fields in Yamal-Nenets is believed to have suffered a setback after the drop in demand in the first half of 2020 as a result of Covid-19 pandemic.
Gazprom has to perform new development drilling to tap deeper reservoirs at its flagship Bovanenkovo field on the Yamal Peninsula as gas production from its shallow formations hit a plateau in the first quarter of this year, concurrently with many well workovers and development drilling at legacy gas fields, analysts note.
With Gazprom battling with its apparent capacity crunch, European gas spot prices shot to about $14 per million British thermal units, or $400 per 1000 cubic metres, in July. Gas supply futures contracts are also in contango, suggesting a further upside in the gas spot price this winter.
However, European gas spot prices have remained below levels that liquefied natural gas exporters have been getting in Asia on the back of the post-Covid recovery.
LNG cargoes sail East
According to Russia's largest gas independent, Novatek, China has led the growth in global LNG imports so far this year, with total import volumes increasing by 27% to 40.1 million tonnes in the first six months.
Overall, key Asian consumers imported 113.1 million tonnes of LNG in the first half 2021, up 15% from the comparable period of 2020.
According to Novatek, overall LNG imports to Europe aggregated to 42 million tonnes during the first half of this year, representing a year-on-year decline of roughly 19%.
Low storage volumes should support underlying gas prices during the remaining gas reinjection season this year, Novatek said, noting European gas storage capacity utilisation of just 55% at the end of July, well below the five-year average of 72% for this time of year.
“We see this same trend [of low gas in storage] in other parts of the world," Novatek deputy executive board chairman Mark Gyetvay said during a recent conference call.
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