Europe

The main goals of Gazprom in the European market are retaining its leadership position, ensuring reliable gas supplies, and improving the efficiency of its marketing activities.

European countries have been key consumers of Russian gas for over 40 years.

 

Russia has ensured reliable natural gas supplies to Europe for over 40 years

Russia has ensured reliable natural gas supplies to Europe for over 40 years

In 2015, Gazprom exported 159.4 billion cubic meters of gas to Europe (under contracts of Gazprom Export and Gazprom Schweiz), up 8 per cent versus 2014.

Gazprom is the largest gas supplier in the European market. In 2015, the Company’s gas share in the European consumption grew to a record high of 31 per cent. Gazprom’s exports to Europe account for around one-third of the Company’s overall supplies and more than half of its revenue.

Gazprom Group’s share in overall gas imports in Western Europe, per cent

Gazprom Group’s share in overall gas imports in Western Europe, per cent

Gazprom’s activities in the European gas market are underpinned by long-term contracts with oil-pegged prices and take-or-pay clauses. The Company also uses new forms of trade based on short- and medium-term sales, swap operations, and spot contracts.

Unified export channel

The unified export channel is the backbone of Gazprom’s export strategy. Pursuant to the Russian law on gas export, Gazprom has an exclusive right to export gas via gas pipelines. The law allows the Company to pursue a coordinated production and marketing policy and serves as an additional legal guarantee of reliable gas exports from Russia.

Long-term contract system

Gazprom exports gas to Central and Western Europe mostly under long-term contracts of up to 25 years, usually based on intergovernmental agreements.

Long-term contracts with oil-pegged prices and take-or-pay clauses are fundamental to stable and sustainable gas supplies. No other contract can guarantee that producers and exporters will get returns on multibillion investments in major gas export projects and that importers will enjoy secure and uninterrupted gas supplies in the long term.

At present, Gazprom’s portfolio of signed long-term contracts provides for gas sales beyond the former Soviet Union (FSU) in the amount exceeding 4 trillion cubic meters over the contract period.

The main features of the long-term contracts are as follows:

  • price formula taking into account the oil prices of the previous six to nine months;
  • clauses forbidding the unilateral termination of contracts with the exception of prolonged force majeure events;
  • take-or-pay terms for significant contracted volumes, stipulating that buyers should pay for all contracted gas, whether offtaken or not, but can later withdraw the unconsumed volumes at a surcharge upon receiving the minimum annual volumes contracted for the specified year.

In essence, long-term contracts are service contracts that allow buyers to exercise flexibility with regard to daily volumes and annual supplies, while the seller has an obligation to deliver the pre-paid take-or-pay volumes. Moreover, long-term contracts provide a guarantee of gas deliveries over a substantial period of time. Meanwhile, spot gas is a fundamentally different product, which makes direct comparisons between contract and spot prices unjustified.

At the same time, oil-indexed contracts continue to be relevant. Oil indexation is an essential means of long-term business planning for the benefit of both gas purchasers and sellers. It provides for investment continuity and stability in the gas sector in the vertical dimension, from wells to end consumers. Oil indexation, which has proved to be useful in the course of more than 40 years of the global gas market development, is also employed by other major exporters. In current conditions, oil products act as a universal deflator in the gas price formula, placing the gas price in the context of other feedstock prices.

Average gas selling price (net of VAT, excise tax and customs duties)
  Year ended on December 31
  2011* 2012 2013 2014 2015
Russia
RUB/1,000 m3 2,631.7 2,867.9 3,264.6 3,506.5 3,641.3
USD**/1,000 m3 89.5 92.3 102.3 90.8 59.4
EUR**/1,000 m3 64.3 71.8 77.0 68.8 53.6
FSU countries
RUB/1,000 m3 8,509.3 9,489.5 8,499.9 10,115.9 11,911.0
USD**/1,000 m3 289.5 305.3 266.5 262.1 194.2
EUR**/1,000 m3 208.1 237.7 200.5 198.4 175.2
Europeand other countries
RUB/1,000 m3 11,259.1 11,969.8 12,137.9 13,487.2 15,057.3
USD**/1,000 m3 383.0 385.1 380.5 349.4 245.6
EUR**/1,000 m3 275.3 299.8 286.3 264.5 221.5

*The 2011 data were not adjusted under IFRS 11 Joint Arrangements.

** The data were not derived from financial statements and were calculated based on exchange rates as of the end of the relevant period.

European gas market

The dynamics of Russian gas supplies to Europe depend on a number of factors, including rates of economic growth and indigenous gas production, prices for other energy sources – particularly in the power industry – and gas prices in other international markets.

Natural gas sales by Gazprom Group in Western Europe and Turkey in 2015, billion cubic meters
Country Gazprom Export Other companies of Gazprom Group Total
Germany 45.3 2.1 47.4
Italy 24.4 0 24.4
UK 11.1 11.4 22.5
France 9.7 0.8 10.5
Austria 4.4 0.6 5
Finland 2.8 0 2.8
Greece 2 0 2
Netherlands 2.4 6 8.4
Denmark 0.7 0 0.7
Switzerland 0.3 0 0.3
Turkey 27 0 27
Belgium 0 1.5 1.5
Ireland 0 0.2 0.2
Total 130.1** 22.6 152.7
Natural gas sales by Gazprom Group in Central and Eastern Europe in 2015, billion cubic meters
Country Gazprom Export Other companies of Gazprom Group Total
Poland 8.9 0 8.9
Hungary 5.9 0.1 6
Slovakia 3.8 0 3.8
Bulgaria 3.1 0 3.1
Serbia 1.7 0.2 1.9
Czech Republic 4.2 −3.3* 0.9
Romania 0.2 0.1 0.3
Croatia 0 0.6 0.6
Slovenia 0.5 0 0.5
Bosnia and Herzegovina 0.2 0 0.2
Macedonia 0.1 0 0.1
Total 28.6**   26.3

* Amounts supplied under the swap deal between Gazprom Export and RWE Supply & Trading CZ.

** Total exports beyond the former Soviet Union under Gazprom Export’s contracts in 2015 – 158.6 billion cubic meters.

Enhancing reliability of gas supplies to Europe

Gazprom is implementing a set of measures to enhance the reliability of its gas supplies to European consumers, including systematic efforts for contracting gas transmission capacities, optimizing and redistributing the contracted capacities, executing swap deals, and mitigating flow interruptions and other emergencies.

With a view to further improve supply reliability, Gazprom initiated the Nord Stream and Nord Stream 2 gas transmission projects.

Nord Stream, the first gas pipeline in history to establish a direct connection between the Russian and European gas transmission systems, reached its design capacity in 2012. Nord Stream 2 will be put in operation before the end of 2019.

The use of underground gas storage (UGS) facilities in Europe also helps considerably increase the stability of export supplies and boost Russian gas sales.

In 2015, Gazprom’s gas storage capacities in Europe (including those under lease contracts) totaled 5 billion cubic meters, with a daily deliverability of 61.5 million cubic meters.

Gas injected into UGS facilities outside Russia by Gazprom in 2015, million cubic meters

Gas injected into UGS facilities outside Russia by Gazprom in 2015, million cubic meters