By Roman Kupchinsky
Ukraine’s state-owned oil and gas company Naftohaz met the July 7 deadline and paid Russia’s Gazprom some $280 million for June gas deliveries. As has been the case every month since February 2009, Gazprom officials had been predicting that Ukraine would be unable to come up with the money and were threatening to demand prepayment if the monthly deadline were missed.
Part of the explanation for the relatively low amount paid for June deliveries is that Ukraine imported a record low amount of gas last month – some 33 million cubic meters a day. The previous bill for May 2009 was higher - $475 million, and was paid in full on June 7.
July however, might prove to be more problematic. Naftohaz increased daily deliveries for July to 120 million cubic meters or 3.5 times the June amount. Most July deliveries will go into underground storage for use during the heating season. The price Ukraine paid for gas in the third quarter of 2009 fell to $198 for 1,000 cubic meters from the second quarter price of $271.
Despite the lower price, Ukraine needs to come up with some $675 million by August 7 to pay for July purchases. The perplexing question is where will the money come from?
On June 29, 2009 the Slovak gas monopoly SPP signed a 10 year contract with Germany’s E.ON to buy 500 million cubic meters of gas annually, or 10 percent of Slovakia’s demand. The deal is being touted as the first step towards diversification of gas supplies to Slovakia which is totally dependent on Russian gas. SPP also announced that it intends to sign a similar agreement with France’s GdF according to the Polish Center for Eastern Studies publication Central European Weekly.
The following day, June 30, Poland signed an agreement with Qatar to buy 1 million tons of LNG (1.5 billion cubic meters) annually beginning in 2014. The Polish state-owned gas company PGNiG eventually hopes to import 5 billion cubic meters of LNG.
The growing trend in Central Europe to diversify gas suppliers could eventually have a ripple effect forcing Gazprom to reevaluate or downsize the expensive and controversial Nord Stream and South Stream gas pipeline projects and explore the much cheaper alternative of modernizing the aging Ukrainian pipeline.
Showing posts with label LNG. Show all posts
Showing posts with label LNG. Show all posts
Thursday, July 9, 2009
Thursday, July 2, 2009
As Russian Gas Production Drops Poland Turns to Qatari LNG
by Roman Kupchinsky
In June 2009 gas production by Russia’s Gazprom fell by 35.9 percent compared to June 2008. In May the drop was 34.5 percent. Gazprom officials told the Russian newspaper Vedomosti they remain optimistic and by year’s end the fall of production would only amount to 7-10 percent.
The conventional explanations for this rapid drop in production are both the world-wide economic crisis which has dampened demand for gas in Europe and Gazprom’s failure to invest in the development of new fields. There are, however other factors contributing to lower Russian exports. One example of how EU member states are diversifying suppliers is the recent contract signed by Poland to buy 1.5 billion cubic meters (bcm) of Qatari LNG for 20 years.
Poland currently produces 5 bcm of gas and imports 70 percent of its gas from Russia. Annual Polish consumption of gas is 15.6 bcm and is forecast to rise to 16.4 bcm next year.
Qatari LNG is scheduled to begin arriving in Poland in 2014 once the new LNG import terminal is built on the Baltic coast near the German border. However, liquefied gas will be transported to Poland on the new Q-Flex vessels and concern has risen in Poland that the Nord Stream Russo-German pipeline project could prove an obstacle to the workability of the Poland-Qatar deal. The current plan for Nord Stream imagines the pipeline being laid across the fairway leading to the ports of Szczecin and Swinoujscie. This will reduce its depth to 12.9 meters, while Q-Flex ships require depths of 14.3 meters to pass.
PGNiG, the Polish state-owned gas monopoly, hopes to eventually import 5 Bcm/ of LNG annually.
On June 29, 2009, PGNiG's vice-president in charge of strategic projects, Radoslaw Didzinski, was reported as saying Gaz de France, Spain's Gas Natural and the UK's National Grid are potential partners in the LNG terminal. Meanwhile the company has signed preliminary agreements with Iranian and Algerian companies and held talks with Qatari companies as well as Gaz de France about supplies.
Polish Chamber of Commerce president Andrzej Arendarski summed up his country's interest in LNG: "We would like to have other suppliers too, so that there is no over-dependence on Russian producers."
In June 2009 gas production by Russia’s Gazprom fell by 35.9 percent compared to June 2008. In May the drop was 34.5 percent. Gazprom officials told the Russian newspaper Vedomosti they remain optimistic and by year’s end the fall of production would only amount to 7-10 percent.
The conventional explanations for this rapid drop in production are both the world-wide economic crisis which has dampened demand for gas in Europe and Gazprom’s failure to invest in the development of new fields. There are, however other factors contributing to lower Russian exports. One example of how EU member states are diversifying suppliers is the recent contract signed by Poland to buy 1.5 billion cubic meters (bcm) of Qatari LNG for 20 years.
Poland currently produces 5 bcm of gas and imports 70 percent of its gas from Russia. Annual Polish consumption of gas is 15.6 bcm and is forecast to rise to 16.4 bcm next year.
Qatari LNG is scheduled to begin arriving in Poland in 2014 once the new LNG import terminal is built on the Baltic coast near the German border. However, liquefied gas will be transported to Poland on the new Q-Flex vessels and concern has risen in Poland that the Nord Stream Russo-German pipeline project could prove an obstacle to the workability of the Poland-Qatar deal. The current plan for Nord Stream imagines the pipeline being laid across the fairway leading to the ports of Szczecin and Swinoujscie. This will reduce its depth to 12.9 meters, while Q-Flex ships require depths of 14.3 meters to pass.
PGNiG, the Polish state-owned gas monopoly, hopes to eventually import 5 Bcm/ of LNG annually.
On June 29, 2009, PGNiG's vice-president in charge of strategic projects, Radoslaw Didzinski, was reported as saying Gaz de France, Spain's Gas Natural and the UK's National Grid are potential partners in the LNG terminal. Meanwhile the company has signed preliminary agreements with Iranian and Algerian companies and held talks with Qatari companies as well as Gaz de France about supplies.
Polish Chamber of Commerce president Andrzej Arendarski summed up his country's interest in LNG: "We would like to have other suppliers too, so that there is no over-dependence on Russian producers."
Tuesday, June 2, 2009
Troubles in the Russian Gas Sector
by Roman Kupchinsky
With demand for natural gas in Europe at new lows, the Russian gas industry is going through a period of decreased profits and dropping production. Russia’s gas giant, Gazprom, the majority of which is owned by the Russian state, has been hit particularly hard.
The International Energy Agency reported on May 15, 2009 that gas consumption in the European Union decreased by 2-3 percent in the first quarter of 2009. Gas imports dropped by 12 percent compared to the first quarter of 2008. During this period, Gazprom’s supplies to Europe fell by 39 percent (and by 50 percent to Germany and Italy) and its share of gas imports to the E.U. decreased from around 30 percent to 18 percent. Despite this, Gazprom remains the largest exporter of gas to the E.U.
According to the Polish Center for Eastern Studies, Gazprom sells gas at the current price of $390-400 per 1,000 cubic meters making it the most expensive gas in Europe. NorskHydro sells gas at $360-370 and Shell at $333. The cheapest gas in Europe is supplied by BP at US$196. BP mainly operates spot supplies, where the price is more flexible than in long-term contracts.
In what might be considered a response to the crisis it faces, Gazprom has begun expanding its LNG sector. The Moscow Times reported on June 1, 2009 that Gazprom was “speeding up its plans to sell more gas by tankers to a wider range of customers as it faces a sharp drop in demand from its traditional consumers in Europe.” "Trends on the global gas markets create conditions for Gazprom to increase the pace of producing and supplying liquefied natural gas," the company said in a statement late Thursday.
According to the Moscow Times:
Gazprom’s aim is to control 25% of the global LNG market by 2030 following the development of a number of key, but highly challenging fields in Eastern Siberia, the Yamal Peninsula and the Barents and Caspian Seas. However, unless the company provides greater strategic focus on developing domestic reserves, while also allowing for greater foreign investment and technical expertise, such a target is likely to remain elusive.
According to the Energy Business Review:
But Gazprom, despite its vast difficulties does not seem to be in the least bit deterred from achieving its strategic plan to strengthen its monopolistic role in southern Europe. According to the Romanian on-line news portal HotNews.ro, on June 1, 2009,
In April 2007 Gazprom Export signed long term gas supply contracts with three Romanian gas companies - Romgaz, Transgaz and Conef. The contracts provide Gazprom with long-term access to gas shipping facilities in Romania but do not provide any transparency. The blanket use of the term “commercial secret,” currently used by Gazprom to cover up its shady dealings in the countries of the former Warsaw Pact who are now members of the E.U. and N.A.T.O. is very disturbing and the E.U. Commission should conduct an investigation into what is really taking place in Romania. For insuring E.U. energy security it is the right thing to do.
With demand for natural gas in Europe at new lows, the Russian gas industry is going through a period of decreased profits and dropping production. Russia’s gas giant, Gazprom, the majority of which is owned by the Russian state, has been hit particularly hard.
The International Energy Agency reported on May 15, 2009 that gas consumption in the European Union decreased by 2-3 percent in the first quarter of 2009. Gas imports dropped by 12 percent compared to the first quarter of 2008. During this period, Gazprom’s supplies to Europe fell by 39 percent (and by 50 percent to Germany and Italy) and its share of gas imports to the E.U. decreased from around 30 percent to 18 percent. Despite this, Gazprom remains the largest exporter of gas to the E.U.
According to the Polish Center for Eastern Studies, Gazprom sells gas at the current price of $390-400 per 1,000 cubic meters making it the most expensive gas in Europe. NorskHydro sells gas at $360-370 and Shell at $333. The cheapest gas in Europe is supplied by BP at US$196. BP mainly operates spot supplies, where the price is more flexible than in long-term contracts.
In what might be considered a response to the crisis it faces, Gazprom has begun expanding its LNG sector. The Moscow Times reported on June 1, 2009 that Gazprom was “speeding up its plans to sell more gas by tankers to a wider range of customers as it faces a sharp drop in demand from its traditional consumers in Europe.” "Trends on the global gas markets create conditions for Gazprom to increase the pace of producing and supplying liquefied natural gas," the company said in a statement late Thursday.
According to the Moscow Times:
“Gazprom's management board ordered the company's engineering divisions to work faster in studying options for building an LNG plant in the Far East, the statement said. The board also ordered the engineers to report on the possibility of building a long-discussed LNG plant that would use prospective gas from the Yamal Peninsula, saying for the first time that the plant would take gas from independent producers.“Gazprom’s main competition in the LNG market would come from Qatar which produces cheaper LNG and has a substantial LNG tanker fleet as compared to Russia’s fledgling few tankers. However, Russia has used gas swaps in the past to export LNG and will presumably do more such deals in the near future.
Gazprom’s aim is to control 25% of the global LNG market by 2030 following the development of a number of key, but highly challenging fields in Eastern Siberia, the Yamal Peninsula and the Barents and Caspian Seas. However, unless the company provides greater strategic focus on developing domestic reserves, while also allowing for greater foreign investment and technical expertise, such a target is likely to remain elusive.
According to the Energy Business Review:
“Gazprom clearly believes that international aspirations can successfully coexist with domestic production in order to achieve such goals. However, the scale of investments and technical expertise required to launch major LNG capabilities, both inside and outside Russia, could be beyond Gazprom's reach without the help of greater foreign investment and a strategic focus on upstream assets. Even then, Russia will face growing competition from other LNG players in the Middle East, North and West Africa and Asia Pacific in its bid to claim a 25% mantle.”“According to recent calculations, investment of up to $200 billion in the Russian gas sector will be required by 2020 if it is to meet international demand. The growth of Gazprom's production rate dropped to a mere 0.5% in 2005 and to almost zero in 2006, underlining the IEA's forecasts that, without the major development of reserves, Gazprom could be unable to fulfill contracts” the Energy Business Review states.
But Gazprom, despite its vast difficulties does not seem to be in the least bit deterred from achieving its strategic plan to strengthen its monopolistic role in southern Europe. According to the Romanian on-line news portal HotNews.ro, on June 1, 2009,
“Romanian gas producer Romgaz and Russian company Gazprom signed a collaboration memorandum as a consequence of the Moscow visit the Economy minister Adriean Videanu and his delegation made two weeks ago. Videanu says that this is the first agreement signed by the two companies since 1989, but he would not reveal its content, as it is confidential…Videanu told the press the access to the agreement was denied, as the memorandum was classified. The minister said that, according to the agreement, this September will see the creation of a Romanian-Russian project between Gazprom and Romgaz, meant to store and use gas. The future depots could store up to 5-6 billion cube metres of gas.”Videanu also stated that Romgaz will be able to import gas directly from Gazprom, hinting that intermediary companies might be excluded from the deal. However, HotNews.ro reported on May 25, 2009, that Gazprom would not exclude the present intermediary companies:
“Gazprom (Export) head Alexander Medvedev said he was pleased with the intermediary companies, in an interview for Radio Romania Actualitati. Romanian authorities believe that if the intermediary companies are eliminated, the prices for imported gas, considered to be some of the highest in Europe, could drop. Medvedev agrees only with the fact that the prices are competitive. The medium price for the second quarter was set to $370 for one thousand cube meters. Markets expect the gas price to drop to $220 by the end of 2009.”On April 2, 2007, Gazpromexport, Gazprom’s foreign trading subsidiary headed by Medvedev, signed a contract with Conef, a Romanian company owned by the Russian/Israeli businessman Vitaliy Machitsky, to sell Conef up to 2 billion cubic meters of gas annually from 2010 to 2030. Under the contract the aggregate supply volume would reach 42 billion cubic meters. The Romanians were concerned that Machitsky, not only acquired ownership in the country’s aluminum industry but also controlled a substantial percentage of Romania’s gas imports from Russia. At this time Gazprom Export agreed to increase gas deliveries to the Alro Slatina aluminum plant owned by Machitski’s Marco Group. The price Gazprom Export charged Conef for this gas was classified a “commercial secret.”
In April 2007 Gazprom Export signed long term gas supply contracts with three Romanian gas companies - Romgaz, Transgaz and Conef. The contracts provide Gazprom with long-term access to gas shipping facilities in Romania but do not provide any transparency. The blanket use of the term “commercial secret,” currently used by Gazprom to cover up its shady dealings in the countries of the former Warsaw Pact who are now members of the E.U. and N.A.T.O. is very disturbing and the E.U. Commission should conduct an investigation into what is really taking place in Romania. For insuring E.U. energy security it is the right thing to do.
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