Gazprom has revealed an increased decline in its natural gas production and exports as it continues its efforts to use gas supplies to influence Europe’s gas markets and public opinion ahead of the upcoming winter.
Since the middle of 2021, the Russian gas giant has been reducing deliveries to Europe, and the decline has continued to gather pace following Russia’s invasion of Ukraine in February.
The supply shortfall has also helped spur rocketing gas prices, with European nations wary about the effect of high energy prices on political and social stability as they strive to replace Russian volumes.
Gazprom has continued to supply reduced volumes of gas to central Europe via a legacy pipeline transit route running across Ukraine.
And at the beginning of September, the company fully halted gas supplies to Germany via the Nord Stream 1 pipeline — before the explosions last week that damaged the Nord Stream 1 and Nord Stream 2 pipelines running across the Baltic Sea to Germany.
The company said that between January and September this year its total gas exports fell by 58.9 billion cubic metres to 86.9 Bcm — a drop of more than 40% against the same period in 2021.
And its total production declined by 64.8 Bcm to 313.3 Bcm — a drop of 17% against the same period last year.
The decline in exports and production is of such magnitude that it is already greater than France’s annual gas consumption, which French gas network operator GRTGaz placed at 45 Bcm for 2021.
Russia’s domestic demand for Gazprom’s gas has also deteriorated, despite the government claiming that the country’s economy has not had any significant impact from the international sanctions imposed following Russia’s invasion of Ukraine in February.
However, the Russian Statistic Committee reported that production of fertilisers — which use natural gas as a base feedstock — fell by 9% to 14.1 million tonnes between January and July this year because of disruptions to supply and export chains.
September fall
On a month-to-month comparison, Gazprom exported just 6.3 Bcm of gas in September this year compared with 14.5 Bcm in September 2021 and 16.5 Bcm in September 2020.
Gazprom provided only a total figure for its gas exports, rather than an individual figures for Europe, Turkey and China.
However, Gazprom said separately that gas supplies to China remain far below the contracted level of 38 Bcm per annum.
Gazprom has yet to commission a key gas processing plant near Amur in East Siberia, which will adapt incoming gas to Chinese market specifications before being sent across the border to China.
Gazprom executives recently expressed hope that the company could start up and operate the processing trains at the Amur plant, even though its core technical adviser and technology provider, German company Linde, exited the project to comply with the international sanctions.
Despite declining Russian gas pipeline supplies in recent months, higher liquefied natural gas imports to Europe have replenished the continent’s storage volumes.
The International Energy Agency (IEA) estimated Europe’s storage volumes at about 88% of capacity, just a notch below the 90% the IEA regards as necessary to replace a full halt in Russian supplies ahead of winter.
The high volume of gas in storage also hit Gazprom’s revenues, with front-month November gas contracts at European gas trading hubs falling by 2% to €167 per megawatt hour ($1700 per thousand cubic metres) after hitting a ceiling of €280 per MWh in early September.
Gazprom executives have argued that record high gas prices in Europe have generated higher revenues for the company, despite reduced export and production volumes, encouraging them to announce interim dividends earlier.
However, the recent spot gas price decline and the continued discussion in Europe over introducing gas price caps may result in a sharp decline in Gazprom’s revenues later this year.
Earlier this week, Moldova’s gas importer and distributor Moldovagaz revealed it expects to pay just over $1000 per thousand cubic metres for Russian gas in October, against almost $1900 per thousand cubic metres in September.
Hungary's deferral
In a surprise move, Gazprom has also agreed to defer some payments for its gas exports to Hungary between October this year and March 2023, in an arrangement that is likely to hit the company’s revenues this winter.
Hungarian gas importer MVM said that a part payment for Russian gas during this period will be rescheduled to a later date if the contract price exceeds a certain threshold value.
Hungarian Development Minister Marton Nagy did not specify the threshold value, but said it was below the current market price, Reuters reported.
Nagy said that, at the current market spot price, the agreement with Gazprom would mean a payment of up to €1 billion may be deferred.
This would mean that, if the gas price increases to €300 per MWh, the deferred payments could total between €3.5 billion and €4.5 billion.
Similar agreements have not been reached with Gazprom’s other European customers, and the deal with Hungary follows Hungarian Prime Minister Viktor Orban lashing out against Germany’s planned €200 billion energy support package, complaining that there was no European Union-wide solution to help companies struggling with soaring energy costs.
Orban has been a constant critic of European sanctions against Russia, arguing that they hurt the EU Union member states more than Russia.
Hungary, together with Bulgaria, has also abstained from supporting several other European states in approving Ukraine’s efforts to become a NATO member.
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