Gas export. Export routes and supplied products diversification
June 25, 2007
- Alexander Medvedev, Deputy Chairman of the Management Committee, Gazprom, Director General, Gazprom export;
- Stanislav Tsygankov, Head of the Foreign Economic Relations Department, Gazprom.
Since the Briefings are held in the Russian language, all the related reference sources, videos and presentations can be viewed in the Russian version of Gazprom’s website. The background information and presentations in English will be placed at a later time.
Gas export. Export routes and supplied products diversification
Reference to the press conference:
As estimated by CEDIGAZ, the International Association for Natural Gas, in 2006 global gas consumption increased 2.9 per cent on the previous year to a total of 2,930 bcm. The high rates of natural gas consumption growth are driven by better general economic situation and higher demand for this energy source, particularly in the power generation sector.
Being the world's largest gas business, Gazprom confidently retains the top spot in the world in terms of natural gas exports, supplying around 1/4 of the global total (including deliveries to the CIS and Baltic region). The Company's export strategy hinges on long-term gas supply arrangements and an integrated export channel.
In 2006 Gazprom's natural gas exports to Central and Western Europe amounted to 151.1 bcm (versus 147 bcm in 2005). Foreign currency earnings from commercial gas export grew 42.5 per cent to a record high of USD 37.2 bln. According to provisional estimates, the share of Russian gas in Central and Western Europe's energy consumption and import structure reached 27 and 35 per cent, respectively.
Just like in previous years, the behavior of Russian natural gas export prices was affected in 2006 by a certain time lag in the movement of the global prices of competing liquid fuels. The lag was driven by the pricing specificity on the gas market. Last year's global nominal oil prices were at an unprecedently high level, experiencing an upward trend throughout the first decade of August.
On the whole, the global oil price movements matched the behavior of the global heating oil product prices, namely gas oil, which determine a level of Russian natural gas export prices. Reflecting the competing oil product price movement dynamics modified by the specific price shaping factors on the European gas market, an annual average export price of Russian natural gas supplied to Western and Central Europe hit in 2006 a record high of USD 260.7 per 1,000 cu m.
Natural gas export revenues are a crucial element of the Russian Federation external trade balance. In 2006 natural gas accounted for 14.2 per cent of the total national exports. It is obvious that in the foreseeable future natural gas will continue being a key element of Russia's foreign trade structure.
In 2006 Gazprom kept developing the relationships with the conventional buyers, with particular attention paid to fulfilling the gas supply commitments and devising schemes to enhance their fulfillment reliability.
In August an agreement was signed for a 15-year (from 2020 to 2035) extension of the existing contracts for natural gas deliveries to E.ON Ruhrgas through Waidhaus. Under the extended contracts, an annual gas supply volume will average 20 bcm, with an aggregate volume to reach 300 bcm.
In September extensions till 2027 were agreed on with Austria for the gas supply contracts expiring in 2012. Under the new arrangements, Gazprom will export to Austria up to 7 bcm of gas per annum. At the same time, the Company received the opportunity of directly selling gas on Austria's internal market, particularly in Carinthia, Styria and Salzburg.
In November 2006, Gazprom and ENI entered into the Strategic Partnership Agreement granting Gazprom the opportunity of directly supplying Russian gas to Italy starting 2007. The supply volume will be undergoing a by-stage increase to 3 bcm by 2010. Pursuant to the Agreement, the existing contracts for Russian gas supply to Italy were extended till 2035.
In December gas supply contract extensions till 2030 were signed with Gaz de France, which was also linked to an opportunity of operating on the French end-user market.
Moreover, in 2006 Gazprom extended a contract for gas deliveries to the Czech Republic (till 2035) and a contract for gas transit across Bulgaria.
As part of its strategy aimed at ensuring the natural gas supply security, in 2006 Gazprom performed a big scope of work to have broader access to underground gas storage in the European countries, via the territory of which the bulk of Russian export volumes are transited.
In May a contract addendum was signed with VNG to increase storage volume from 150 to 200 mcm.
In July Gazprom and Vitol (Switzerland) inked an addendum to the contract for gas storage in the British Humbly Grove UGS facility. The addendum contemplates boosting storage capacity from 151.6 to 227.5 mcm.
Back in October 2003, Gazprom, Austria's RAG and WINGAS signed the Protocol of Intentions to build and operate an underground gas storage site in Austria's Haidach field. In late May 2007, Salzburg hosted a solemn ceremony dedicated to the completion of stage one of the facility. The Haidach UGS site was created in accordance with the highest environmental and safety standards within a record short time – two years. Upon completion of stage two by 2011, the Haidach facility, with a working gas volume of 2.4 bcm, will become the second-largest underground gas storage site in Central Europe. Gazprom, WINGAS and RAG's overall investment in this project is estimated at around EUR 260 mln.
An integral part of the Company's export strategy is maximally using the opportunities granted to suppliers by the European market liberalization and developing new forms and methods of trade in natural gas.
Since 1999 Gazprom has been engaged via its British subsidiary Gazprom Marketing & Trading in short-term natural gas trading. In recent years GM&T's business geography has undergone considerable expansion. In addition to the UK, operations were launched in France, Ireland, the Netherlands, Belgium, Germany and other countries. Intensive work is underway for entry into the Italian and US gas markets. In 2006 GM&T's sales amounted to 8 bcm and profit before tax was GBP 33.7 mln.
Export routes and supplied products diversification
Gas flow optimization and gas transmission infrastructure diversification are crucial elements of the Gazprom export strategy.
Yamal-Europe gas pipeline: since January 1, 2006, upon commissioning of the fifth compressor station in Poland, Yamal-Europe's Polish segment has started operating at full capacity – around 33 bcm/yr.
Blue Stream Trans-Black Sea gas pipeline: this trunk pipeline supplied last year 7.5 bcm of gas.
In future, Blue Stream may be used for the creation of a new transmission system – the South Stream gas pipeline linking Russia and Europe across the Black Sea.
In pursuance of the Memorandum of Understanding signed by Gazprom and ENI on June 23, 2007, South Stream's offshore section will run through the Black Sea from the Russian coast (Beregovaya compressor station) to Bulgaria. The total length and maximum laying depth of the submerged section will average 900 km and over 2,000 m, accordingly. As far as an overland section is concerned, consideration is being given to two various routes traversing the territory of EU member countries. When executing the project, ENI and Gazprom will deploy state-of-the-art technologies and meet the most rigid environmental requirements.
Nord Stream gas pipeline: this large-scale project with a planned 55 bcm/yr capacity has been operational since December 2005. Nord Stream will enable to diversify export flows, directly link the Russian and European gas transmission networks and supply first Russian gas shipments by-passing transit countries and minimizing, thus, related risks.
The offshore section will be constructed by Nord Stream AG, a joint venture between Gazprom (51 per cent), BASF (24.5 per cent) and E. ON (24.5 per cent). In October 2006, the Memorandum of Understanding was signed with the Dutch Gasunie as regards joint participation in the Nord Stream and BBL (North Sea) projects. Pursuant to the MoU, Gasunie will receive an up to 9 per cent stake in the joint venture via a pro rata reduction of the stakes held by each of the German partners.
During the Nord Stream project implementation the Agreements on the main gas supply terms were entered into with E. ON Ruhrgas (up to 4 bcm/yr), WINGAS (9 bcm/yr) and the Danish Dong Energy (1 bcm/yr). An agreement was also sealed with Gaz de France for an annual 2.5 bcm of gas from Nord Stream. The main terms were agreed on with Gazprom Marketing & Trading for the supply of up to 4 bcm/yr. So, all of the new gas volumes projected for transportation by Nord Stream have been contracted for sale on a market.
Gazprom's strategy contemplates a by-stage entry into the global LNG market. Starting September 2005, Gazprom Marketing & Trading has supplied a number of LNG shipments to the USA, the UK, South Korea, Japan, India and Mexico, with a total of 0.6 mln t, or 0.9 bcm, of LNG sold. In future, there are plans to continue increasing LNG spot trading volumes. At the same time, the potential is being evaluated for mid-term pipeline gas-for-LNG swaps in Europe.
Furthermore, on April 18, 2007, the signing of the purchase/sale agreement with Sakhalin Energy's stockholders ended the process of Gazprom's entry as shareholder into the Sakhalin-2 project operator. The deal resulted in Gazprom's acquiring a 50 per cent plus one share stake in Sakhalin Energy for USD 7.45 bln.
The Sakhalin-2 project, with two LNG trains totaling 9.6 mln t/yr, has considerable potential for growth through possible construction of the third train. First LNG exports within the Sakhalin-2 project (primarily to Japan, the US and Korea) are due 2008.