Speech by Alexey Miller at plenary session held as part of SPIGF 2024: “Gas Market in 2024: New World Order Outlines”

Shorthand record

Moderator: Mr. Miller, what is your assessment of the today's market situation observed in Europe after Russian gas supplies were radically reduced?

Alexey Miller: It is bad.

There is already a fixed definition for the situation taking place in the European gas market: artificial destruction of gas demand. However, there are harsher assessments and opinions by experts. Some of them say that it can be called an “energy suicide” of Europe. Other experts say that we are witnessing the “driving engine of the economy” turn into the “sick man of Europe.”

And you know, one can agree with these statements, because a purposeful destruction of gas demand is indeed happening. The question arises: why is this done, what can it lead to and what can the consequences be?

The downward trend in gas consumption in the EU and the United Kingdom continues. For instance, in the first nine months of 2024, their gas consumption decreased by another 11 billion cubic meters versus the same period of 2023. It has to be noted in this regard that the expenditures of the European Union [incurred for the exports of fossil fuel] in 2023, in terms of their value, exceeded those of 2019 by 2.7 per cent of GDP. This change has happened in as little as four years. As we can see, even such low and downward gas demand ultimately requires tremendous financial expenses.

However, it has to be kept in mind in this regard that, no matter whether gas demand is low or high, the balance must somehow be maintained between the amounts of gas received and the amounts of gas distributed. If a market is experiencing a drop in supplies, it means that someone has to be left to deal with the consequences; someone has to take the blow.

As for the European Union, they have decided nothing better than to let their own European industry be the one to deal with the consequences. And not just the European industry, but the very backbones of the European Union economy, as it is about a dozen of gas-intensive sectors, such as the steel, cement, chemical industries, that are truly at the basis of the European economy.

Enlarged photo (JPG, 4.1 MB)

In fact, as a result of this policy, in the last year and a half, the production volumes dropped by almost 10 per cent in some sectors from this dozen. The production volumes of these sectors are now at the lowest levels observed in the last ten years. In some industries, the cost prices of their products have slightly increased by as little as 25 per cent in one year and a half.

Of course, all of this ultimately has a significant adverse impact on the European industry. Everyone agrees that the deindustrialization of the European Union is in full swing now.

As regards energy tariffs, they are rising. Energy tariffs are rising very quickly. However, another very important factor that has to be noted in this regard is volatility, namely, the volatility of gas prices. Do you know what the volatility of gas prices and high energy tariffs result in? They result in a situation where it is impossible to control expenditures over a short- and medium-term, let alone a long-term horizon.

Then we ask: how do we plan the production activities for the coming years?

It turns out that the industrial enterprises of the European Union have found themselves in a situation where some of them are already out of business and, for example, a half of enterprises located in Germany – just get this – are considering either the relocation of their production capacities to third countries or the reduction of their output. At 20 per cent of the enterprises, financing of R&D activities has been reduced to zero. No financing of R&D activities means no new technologies and no technological development.

Let us look at the country on the other side of the ocean, the United States, and compare the prices for electric power and gas observed in the US and the EU. For the similar industrial sectors of the US, the prices for electric power are 2–3 times lower, and the prices for gas are 4–5 times lower than that in Europe.

A very clear question arises in this regard: can the European industry be competitive in this situation? The answer is no, it cannot.

So, what comes next? I will put it very short. The deindustrialization of Europe will continue. This is the first thing. The gas market volatility will further increase. And the most unpleasant thing is that the policy and the situation currently observed in the European gas market can lead to a new gas price shock and disruptions in supplies.

Moderator: In your opinion, what are the main trends in the international gas market prices today?

Alexey Miller: Speaking of the main trends in the international gas market prices, I would like to note, first of all, the changes that have taken place in the European market, the market that until recently used to be the main one for us.

There has been a great deal of recent changes; this has had an influence on the price formation mechanism. Long-term contracts based on predictable prices are no longer concluded. On the other part, a new major significant player has entered the scene. The name of the player is speculative capital. New rules of the game have emerged. New trading algorithms have appeared.

European investment funds are holding, in certain positions, about 25 billion cubic meters of gas, which corresponds to one fourth of the total volume of gas present in the underground storages of the European Union. But this is not the end consumer. This is a player who is a speculator. We are already witnessing some situations that demonstrate very clearly the immense influence of this player on the price formation and high volatility.

Just recently – I am not going to name the exact deal and the companies involved – information was circulated that a major contract had been concluded. A very big contract for very big volumes. And with such considerable player now present in the market, the information that entered the market caused the strongest price movement we have ever seen. In 21 minutes, gas prices rocketed by 12 per cent.

But what happened the following day? When the trading session started the following day, the prices went back to their previous level. Why? Because the information on the conclusion and existence of said deal was declared to be untrue.

As you know, speculative capital earns from both upward and downward trends. We are witnessing an increase in prices. But what are the reasons behind this, considering that the current trends are absolutely bearish?

There is a decrease in gas demand. True? True. Is it a bearish position? It is. A very, very bearish position, actually. Gas demand is decreasing, but gas prices are growing. The amount of gas injected in Europe's underground storages is very large, close to record-high and all-time high figures. Is it a bearish factor? It is. But the prices are growing.

And we just record that volatility is increasing; moreover, it is increasing at a very fast pace. If we look at the price volatility over a day trading session, I can mention, as an example, that, before the year 2020, the price fluctuations from the opening price were about 5 per cent during the day. During the COVID-19 pandemic, i.e. in the period from 2020 to approximately the second quarter of 2021, the fluctuations were about 10 per cent during the trading session, i.e. during the day.

In 2022, against the backdrop of a sharp decline in Russian gas supplies to Europe, the price volatility in the autumn/winter period was about 15 per cent over a day during the trading sessions at the European trading platforms.

So, it turns out that the reduction of Russian gas supplies had a worse effect on the European gas market than COVID-19. It is a fact. An evident fact.

Let us have a look at the prices of just the recent period. I will speak of the August and September prices, as October is not over yet. In the August-September period, the price spectrum was from USD 370 to USD 460 per 1,000 cubic meters of gas, which means a 25 per cent growth in gas prices. The average annual price we are going to see in late 2024 is twice as high as the average price of 2016–2020.

It means that, on the one hand, we observe a very high volatility. We see that the prices are very high and notice new players emerging on the market. The traditional mechanisms that provided stability, predictability and economic efficiency for the industrial sector are not present anymore. And the situation is characterized by a very high degree of uncertainty.

As for the assessment of what is going to happen next – we have already mentioned this today – I can say that the volatility will keep growing. As regards the absolute prices for gas, the probability of a new price shock is, apparently, well above zero for Europe. Almost all gas market experts agree with this opinion, seeing that the market has undergone major fundamental changes, which, unfortunately, do not contribute to the reliability, stability and sustainability of the gas market.

Moderator: Thank you, Mr. Miller. I think, the last question will summarize the results of the entire session and give us an opportunity to speak about the issues mentioned here earlier.

In your opinion, how will a new energy world order be formed and what opportunities will it open up for Russia?

Alexey Miller: Today, we have discussed major and global changes. There is no doubt that the newly established energy world order will be predetermined primarily by further global population growth. It means that new consumers will emerge. New consumers mean economic growth, which is associated with the growth of energy consumption. First and foremost, it is not merely the growth of energy consumption, but also the growth in the consumption of gas, the most reliable, eco-friendly and cost-effective primary resource.

In this regard, we have also mentioned the quick development of digitalization. We observe spectacular examples of this in the fuel and energy complex. Digitalization is a power-intensive area. Without any doubt, further speeding up of digitalization on a global scale will require even more energy resources.

At the same time, we expect that global gas demand will be at 5.7 trillion cubic meters in 2050, and gas will be the leader of this balance with a share of 26 per cent. Number one.

To prove this point, I can name this year's figure. In the first nine months of 2024, the global demand for gas grew by 60 billion cubic meters as compared to the same period of last year. And 80 per cent of said growth are attributable to three countries: China, India and Russia.

In this regard, I would like to note the role of the countries of the global South. Twenty-five years ago, 45 per cent of the global demand for natural gas were attributable to these countries. Today, their share in global gas demand is 55 per cent. According to our estimates, by 2050, the share of their gas consumption in the global energy balance will be 70 per cent.

In this connection, it should be stressed that we are witnesses of and participants in a unique phenomenon, i. e. the formation of a new sustainable gas region, which, as I would define it, includes Central and South Asia, the Caucasus and the Far East, with subsequent creation of new major export-oriented corridors towards the Northeast Asia.

We should draw a specific example in this regard, because the representatives of this region are present here. I would like to mention that, in the first nine months of 2024, Gazprom has doubled the volume of its gas supplies to Central Asian countries as compared to the same period of last year. That has never happened before.

And we will go on with our work. I can say that our work at the Forum has not finished yet. We are going to have very significant negotiations, and I am sure that we will reach new agreements and set new goals and objectives before us.

As for how a new energy world order will be formed, I would like to say a few words about such large producer as the Unites States.

Let us have a look at what is happening in the US: first of all, we observe a slowdown in gas production there. Depletion of shale deposits, a reduction in the funding of geological exploration works, and a rise in gas demand in the domestic market. The most interesting thing is that, as we observe, this year the amount of pipeline gas imported by the US from Canada has grown by 6 per cent versus the same period of last year. Few people know about it. Hardly anyone even knows that the United States also imports gas, thus maintaining its gas balance.

If we speak about the opportunities that open up for Russia, as a follow-up to all the statements we have heard today during the plenary session, there is no doubt that the new opportunities are the fair principles of global cooperation in the gas market within such economic associations as BRICS. This is point one.

Point two is that all of the global changes in the gas market we have discussed and highlighted today give us an opportunity to make the Russian gas industry even more stable. The exhibition at our Forum is a clear evidence of this fact. And this is just the beginning.

I would like to conclude my speech by saying that, of course, as regards the opportunities, they also include the strengthening of Russia's leadership in the global energy market.

Thank you!