Written by: Eduard Steiner (Die Welt)
Already in November and December, gas prices fell. And in January, that trend continued for a long time. On an annual basis, this is a drop of around 30%. A few days ago, the Asian price for liquefied LNG gas, which is transported by mega-tankers, fell as low as $50 per million British Thermal Unit (MMBtu) - down more than 2019% compared to the same quarter in XNUMX. China, the world's largest importer of this raw material, currently simply needs a lot less of it.
Some two weeks ago, 5 mega LNG tankers, which were on their way to China, had to change their route, the British branch agency "Poten&Partners" announced, while the Minister of Energy of Qatar, the largest exporter of LNG gas, said that they were shutting down. Qatar's corporations are "very busy right now" finding new buyers for the LNG tankers they were planning to send to China.
It is this excess gas, which China cannot use due to the specific situation, that pushes the price of gas into the abyss. And in Europe. Currently, in the Dutch market point TTF, one of the most important in Europe, prices are as low as they have not been in the last 15 years. The situation is in some respects reminiscent of the dramatic drop in oil prices in the months of the second half of 2014. At that time, the major exporter Saudi Arabia tried to bring to its knees the new US cheap competition by flooding the market with a huge supply, but this caused a drop in prices, which later could only partially be corrected to the previous level.
But despite all the similarities in the negative dynamics of price development, the current situation with gas is only conditionally comparable to the one with oil. The reasons for the drastic reduction in the price of gas are, namely, of a completely different nature. And the appearance of the corona virus has de facto only intensified them, says Hannes Loacker, oil and gas advisor at the Viennese Raiffeisen Bank.
Gazprom was hit hard by falling prices
The biggest backlash to the price of gas - and at the same time the most long-lasting - came through the increase in LNG gas quotas, which threatened the so far clearly locally limited markets defined by continental gas pipelines. And from 2018, in addition to those present until then, the USA also entered the LNG gas market with all its might. The data is unforgiving: according to ICIS, LNG shipments to Europe increased from 51 million tons in 2018 to 76 million tons in 2019.
Which directly affects the most important supplier of gas to Evopa: Russian Gazprom, the largest concern in this industry in the world. From the giant, the EU imports 40% of its gas from Russia, 31% from Norway. For Gazprom, business with Europe is of crucial importance, because this company earns almost nothing on the domestic Russian market, due to political decisions on limited prices. Gazprom recently opened a new gas pipeline to Turkey, and with the "Power of Siberia" gas pipeline, a new one to China. Whereby it is still completely unclear whether they will be profitable, especially this one towards China.
The United States has decided to take a good part of the European gas pie into its own hands. At the very least, to prevent Gadprom from expanding its market share and possibilities of influence in Europe. But this is exactly the goal of the Russian concern, which it wants to achieve by building the new gas pipeline Nord Stream 2 through the Baltic Sea to Germany. The project, in which Gazprom together with its European partners invested almost 6 billion euros, has been completed to the level of 94%. However, at the beginning of this year, the USA undermined further construction when, with the threat of sanctions, they expelled the Swiss company Allseas Group from the Gazprom game, which was laying the pipes for Nord Stream 2. The Russians do not have their own ships, which can come close to the capacity and capabilities of the Swiss, and the rest of the world is afraid of drastic US sanctions, so no one can predict the end of this project.
However, the Russians do not give up, so they sent their own ship "Akademikh Chersky" from their Pacific coast to the Baltic. But this ship has minimal capacities and does not have the necessary equipment. US Energy Minister Dan Brouillette openly told the Russians at the Munich Security Conference: "You won't succeed with that ship" and announced even tougher sanctions against this German-Russian project, which have not yet come into effect, but it is an information war: Rainer Seele disagrees with the US minister and believes that the Russians will still succeed, which he also told Bloomberg. Seele is the head of the Austrian concern OMV, which is one of the financiers of Nord Stream 2. At the same time, he is the president of the German-Russian Chamber of Foreign Trade.
In addition to all this, Gazprom also has problems with demand. Which is being dragged down, on the one hand, by the great slowdown in the growth of the Chinese economy - as a consequence of the conflict in Trajan with the USA, and on the other hand, by the fact that last autumn, European importers, out of fear of a new Russian-Ukrainian gas conflict and thus the possible suspension of gas deliveries via Ukraine to Europe, filled their underground tanks to the last milliliter, having previously bought record quantities of gas from Gazprom.
But their calculation turned out to be wrong: the Russian-Ukrainian dispute over gas ended peacefully at the end of last year, with a new agreement, which caused an even greater drop in prices. And then the third winter in a row in Europe and China is so much warmer than usual that consumers don't need as much gas as before. The result: despite all the consumption, the underground European reservoirs are today filled to the level of 70% of their capacity, while in "normal" winter conditions they would be almost half empty.
The consequences for the Gazprom concern, Russia's largest taxpayer, are enormous. Despite the fact that Gazprom sold a record amount of 2019 billion cubic meters of gas to Europe in 200,8: mostly in the first half of last year.
But the breakdown occurred in the third quarter of 2019, when Gazpom's exports to Europe fell by a full 45%. At the investor meeting in New York the other day, Gazprom announced that it will have a drop in revenue of more than 8% for 2019: to 21,4 billion dollars, and revenue - calculated according to the principle of EBIDTA (before tax) - by as much as 25% to 30 billion dollars.
In the summer, the price of gas could drop even more drastically
The current 2020 will be very problematic for Gazprom, because the oversaturation of the gas market continues and prices remain low. To complete the irony of fate: Gaspom is to blame for this. The concern applies the Saudi strategy from 2014: extremely aggressively offers at daily auctions, through its own electronic platform, record volumes of gas: with huge price discounts.
With this form of sale, Gazprom is trying to drown out the US competition with its offer of liquid LNG gas. The logic of this operation is simple: since the production of LNG gas is much more expensive in the USA, distract them from the market with a huge amount of ridiculously cheap gas. As the Saudis wanted with oil in 2014.
The Oxford Institute for Energy Studies predicts that gas prices will fall even further in the summer of 2020. Gazprom believes that from 2021 it will be dramatically higher.
Translation: Mirko Vuletić
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