Europe

As a European market player, Gazprom primarily aims at maintaining a leadership position and secure gas supplies as well as attaining higher distribution efficiency.

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

Russia has been a reliable natural gas supplier to Europe for over 40 years

Gazprom supplied Europe with 161.5 billion cubic meters of gas in 2013.

Gazprom remains the key gas supplier to the European market and secures more than a quarter of the total consumption in Europe. Gazprom’s gas supply to Europe accounts for some one-third of the total supply volume and brings in more than a half of the Group’s revenues.

Gazprom Group’s share in overall gas import in Western Europe

Gazprom Group’s share in overall gas import in Western Europe

Gazprom's activity in the European gas market hinges on long-term contracts with oil pegged prices based on the take-or-pay commitment. New forms of trade based on short- and medium-term sales, swap operations and spot contracts are also used.

Unified export channel

The unified export channel is a backbone of Gazprom's export strategy. According to the Russian law on gas export, Gazprom has the exclusive right to export gas via gas pipelines. The law provides for pursuing a coordinated production and marketing policy and serves as an additional legal guarantee of reliable gas export routes from Russia.

Long-term contract system

Gazprom exports gas to Central and Western Europe mainly under long-term (up to 25 years) contracts that typically derive from intergovernmental agreements.

Laying the basis for reliable and sustained gas supply, only long-term contracts with oil pegged prices based on the take-or-pay commitment may guarantee that producers and exporters will get returns on multibillion investments in major gas export projects and importers will enjoy secure and uninterrupted gas supply in the long run.

At present, Gazprom's portfolio of signed long-term contracts obliges it to distribute more than 4 trillion cubic meters of gas beyond the FSU during the contracts validity period.

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

  • price formula taking account of the oil prices for the previous 6 to 9 months;
  • clauses forbidding unilateral termination of a contract except for prolonged force majeure;
  • take-or-pay commitment pertinent to significant contracted volumes stipulating that the customer shall pay for the volumes that have not been offtaken by him during a year and may be offtaken later after delivery of the minimum annual volumes contracted for the specified year and at the relevant surcharge.

In fact, long-term contracts are service contracts providing a customer with daily and annual flexibility as well as with a vendor's liability to deliver take-or-pay volumes the customer has paid for. Moreover, long-term contracts guarantee gas supplies over a substantial period of time. Spot gas, in essence, is a totally different product and direct comparison between contract and spot prices is unjustified.

Moreover, the contracts with oil indexation remain relevant. Oil indexation is an essential means of long-term business planning, which meets the requirements of both gas purchaser and gas seller. It secures the investment cycle continuity and steadiness in the sector along the whole vertical – from a well to a consumer. Oil indexation has proved itself in the course of more than 40 years of the global gas market development, and it is used by other major exporters. In current conditions, oil products act as a universal deflator in the price formula. Their existence doesn’t let the gas price to be delinked from other feedstock prices.

Average gas sales price (net of VAT, excise tax and customs duties)
  Year ended on December 31
  2005 2006 2007 2008 2009 2010 2011 2012 2013
Russia
RUB/1,000 m3 1,009.7 1,125.4 1,301.1 1,652.8 1,885 2,345.5 2,725.4 2,964.2 3,393.9
USD*/1,000 m3 35.1 42.7 53.0 56.3 62.3 77 92,9   106.7
EUR*/1,000 m3 29.5 32.4 36.2 39.9 43.4 58,2 66,7   80.3
FSU states
RUB/1,000 m3 1,415.7 2,007.4 2,672.9 3,693.9 5,483.7 6,416.5 7,802.1 8,016.4 7,132.8
USD*/1,000 m3 49.2 78.9 108.9 125.7 181.3 210.5 265.8   224.2
EUR*/1,000 m3 41.4 59.9 74.4 89.1 126.4 159.1 190.9   168.7
Europeand other states
RUB/1,000 m3 3,964.8 5,238.5 5,181.9 7,521.5 7,216.6 7,420.7 9,186.6 10,104.4 9,680.1
USD*/1,000 m3 137.8 199.0 211.1 256.0 238.6 243.5 313   304.2
EUR*/1,000 m3 116.0 151.0 144.2 181.5 166.3 184 224.8   229.0

* The data is not derived from financial statements and is calculated using exchange rates as at the end of the relevant period.

European gas market

The dynamics of Russian natural gas supply to the European market depends on a number of factors, including the rate of economic growth, the scope of domestic gas production, prices of other energy sources – particularly in the power industry – as well as gas prices at other international markets.

Gas export to Europe, billion cubic meters
  2005 2006 2007 2008 2009 2010 2011 2012 2013
Austria 6.8 6.6 5.4 5.8 5.4 5.6 5.4 5.4 5.2
Bosnia and Herzegovina 0.4 0.4 0.3 0.3 0.2 0.25 0.3 0.3 0.2
Bulgaria 2.6 2.7 2.8 2.9 2.2 2.6 2.8 2.5 2.9
Croatia 1.2 1.1 1.1 1.2 1.1 1.1   0.0* 0.2
Czech Republic 7.4 7.4 7.2 7.9 7.1 8.6 7.6 8.3 7.9
Denmark             0.05 0.3 0.3
Finland 4.5 4.9 4.7 4.8 4.4 4.8 4.2 3.7 3.5
France 13.2 10.0 10.1 10.4 10.0 9.8 9.5 8.2 8.6
Germany 36.0 34.4 34.5 37.9 33.5 34 34 34.0 41.0
Greece 2.4 2.7 3.1 2.8 2.1 2.1 2.9 2.5 2.6
Hungary 9.0 8.8 7.5 8.9 7.6 6.9 6.3 5.3 6.0
Italy 22.0 22.1 22.0 22.4 19.1 13.05 17.1 15.1 25.3
Macedonia 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0*
Netderlands 4.1 4.7 5.5 5.3 5.1 4.3 4.4 2.9 2.9
Poland 7.0 7.7 7.0 7.9 9.0 9.9 10.25 13.1 12.9
Romania 5.0 5.5 4.5 4.2 2.5 2.3 2.8 2.5 1.4
Serbia 2.0 2.1 2.1 2.2 1.7 1.8 1.4 1.9 2.0
Slovakia 7.5 7.0 6.2 6.2 5.4 5.8 5.9 4.3 5.5
Slovenia 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0.5 0.5
Switzerland 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.4
Turkey 18.0 19.9 23.4 23.8 20.0 18 26 27.0 26.7
United Kingdom 3.8 8.7 15.2 7.7 9.7 6.8 8.2 11.7 16.6
Total 156.1 161.5 168.5 167.6 152.8 138.6 150 149.9 172.6

* less than 0.05

The major counterparts of Gazprom Group in Western Europe include the following companies: E.ON Ruhrgas, Wingas, WIEH (Germany), Eni (Italy), Botas (Turkey), PGNiG (Poland), GDF Suez (France), Panrusgas (Hungary), RWE Transgas (Czech Republic), SPP (Slovakia), EconGas (Austria) and GasTerra (Netherlands).

Raising security of gas supplies to Europe

Gazprom takes efforts to raise security of gas supplies to European consumers, which requires systematic activity in contracting gas transmission capacities, optimizing and reallocating contracted capacities, executing swap deals, minimizing effects of flow interruptions and other contingencies.

Nord Stream, first gas pipeline ever to have directly connected Russian and European gas transmission systems, was brought to its full capacity in 2012. In late 2012 the construction of South Stream began – first gas supplies are slated for the late 2015.

The use of underground gas storage facilities (UGS) in Europe also considerably increases reliability of export supplies and boosts Russian gas sales.

In Europe Gazprom owns UGS facilities in Austria, the UK, Germany and Serbia, having access to 4.5 billion cubic meters of the UGS working capacity. At present, the Group is engaged in UGS construction projects in the Netherlands and the Czech Republic. It is planned to bring the European UGS capacity to more than 5 billion cubic meters of active gas by 2015.

Maintaining the share of the European gas market is one of the major objectives of the marketing strategy. The most important instruments to retain and increase export volumes are extending long-term contracts as well as raising the gas volumes being delivered under take-or-pay terms.

Gas injection into UGS facilities by Gazprom in 2013, million cubic meters

Gas injection into UGS facilities by Gazprom in 2013, million cubic meters

European gas market liberalization

The European gas market liberalization opens up new opportunities for Gazprom Group to increase Russian gas export efficiency owing to additional revenues from gas sales to ultimate consumers: in Austria, the Czech Republic, France, Italy, Slovakia and the UK.

Gazprom is also an active player in the European spot market. Being a member of Gazprom Group, Gazprom Marketing & Trading is involved in gas trading operations on the appropriate floors in Belgium, France, the Netherlands and the UK selling purchased European gas and some Russian gas in the spot market. It also deals with exchange trading in electricity, greenhouse gas quotas and derivatives. Gazprom Marketing & Trading Ltd. is a participant of the following trading floors: National Balancing Point, Powernext, Nordpool, Z-Hub, TTF, PEG, European Energy Exchange and European Energy Derivatives Exchange.