EU-Russian Gas Trade: Too Deep and Comprehensive to Fail

EU-Russian Gas Trade:
Too Deep and
Comprehensive to Fail
Sergei Komlev
Head of Contract Structuring and Price Formation
Gazprom Export
Moscow Energy Charter Forum:
Cross-Border Trade and Investment Flows
as the Backbone of International Energy
Security
April 3, 2014
WSJ and Economist Claim that EU is less Dependent on
Russian Gas than Before
Source: Jan Hromadko. Europe Relies
Less on Russia Gas Than Before.
Wall Street Journal, March 6, 2014
Economist, March 5, 2014: “Russia supplies a far
smaller share of Europe’s gas supplies than used to
be the case… Gazprom’s share of EU gas imports
has diminished from nearly 50% in 2000 (see chart)”
Source: Industry briefing
Our comment: Eurostat’s value of gas estimate is
not representative because it classifies as Russian
less than half of its export volumes (less than 60
bcm). The rest falls in the category ‘other’
© ZMB
2
Share of Russian Gas in EU-28 Imports Declined but then
Rebounded while its Share in Consumption is on the Rise
EU imports of Russian gas
Bcm
EU consumption of Russian gas
% of total
Bcm
160
60%
160
28,3%
53,1%
140
50%
43,2%
120
43,0%
80
30%
144,6
60
25,3%
25,9%
25%
22,0%
20%
100
80
15%
144,6
137,5
122,4
118,8
140
30%
120
40%
34,0%
100
% of total
20%
40
60
137,5
122,4
118,8
10%
40
10%
20
0
0%
2000
2005
2010
2013
5%
20
0
0%
2000
2005
2010
2013
Sources: IEA, Gazprom Export estimates
© ZMB
3
EU Dependence on Russian Gas in 2013
UK/
Belgium
11,9
Denmark
Netherlands
5,0
16,6
7,7
43,2
Germany
100
100
Finland
Estonia/
Latvia/
Lithuania
55,5
Poland
France
Direct imports from
Russia as a % of
total consumption of
natural gas, 2013
82,5
86,2
Czech
Republic
59,8
Austria
35,1
Italy
8,5
Croatia
Slovakia
63,0
62,3
Slovenia
Hungary
Romania
9,7
100
66,3
Bulgaria
Greece
© ZMB IEA, Gazprom Export, re-exports not taken into consideration
Sources:
4
Efforts to Diversify Supplies Brought no Fruit
Share of suppliers in total imports
2012 HHI = 3536*
4,8%
2,6%
2013 HHI = 4471*
7,1%
2,5%
3,0%
5,5%
Gazprom Group
Gazprom Group
Algeria (incl. LNG)
Qatar
Algeria (incl. LNG)
9,8%
Qatar
12,3%
55,0%
Nigeria
Libya (incl. LNG)
15,0%
64,3%
Libya (incl. LNG)
18,3%
Others
Nigeria
Others
HHI points to high dependence of Europe on few suppliers
In 2013 HHI hit 4471** despite efforts to diversify gas supplies
* Herfindahl-Hirschman index
** 1800 < HHI <10000 – high concentration
1000 < HHI < 1800 – moderate concentration
HHI < 1000 – low concentration
Sources: IEA, Gazprom Export estimates
© ZMB
5
Gazprom is the Most Reliable Supplier to Europe
Supply by the largest gas exporters, bcm
2012
2013
Changes
Changes, %
Gazprom
Algeria (incl. LNG)
139.9
46.5
162.7
37.9
22.8
-8.6
16.3%
-18.5%
Libya (incl. LNG)
6.7
6.2
-0.4
-6.5%
Qatar
31.3
24.8
-6.5
-20.7%
Nigeria
12.1
7.5
-4.6
-38.0%
Supply by the largest European producers, bcm
2012
2013
Changes
Changes, %
Norway*
121.4
115.4
-6.0
-4.9%
UK
43.8
40.9
-2.9
-6.5%
Netherlands
72.6
81.5
8.9
12.2%
* Volume of pipeline gas and LNG delivered to the European market
Sources: IEA, Eurostat, National Statistical Offices, Wood Mackenzie, Lloyd’s,
Gazprom Export estimation as of January 2014
© ZMB
6
Removal of Midstream Flexibility Threatens Energy
Security
600
MCM/d
500
400
300
200
1998-2005
80-100MCM/d
seasonal swing
2005-2013
150-220MCM/d
seasonal swing
100
0
Gazprom is the major provider of supply flexibility to Europe as seasonal swing
in Russian gas daily deliveries doubled
Sources: IEA, Gazprom Export estimates
© ZMB
7
LNG Deliveries to EU are not Secure
21,2
25,0
9,7
10,0
2010
0,3
0,7
0,5
2005
2010
2013
0,5
0,4
1,6
2013
2000
2,1
2010
1,3
2,0
4,6
3,1
2000
2,0
3,7
2013
0,4
2,7
5,0
1,8
5,8
6,9
7,1
10,0
6,6
8,5
10,9
15,0
2005
13,7
17,3
20,0
Mt
Spain
United Kingdom
Others
France
Egypt
Italy
Norway
Belgium
Trinidad and Tobago
Portugal
Nigeria
Algeria
Greece
2013
2010
2005
2000
2005
2000
2013
2010
2005
2010
2005
2000
2013
2000
2013
2010
2005
2000
2013
2010
2005
2000
0,0
Netherlands
Qatar
Sources: Wood McKenzie, Gazprom Export estimates
© ZMB
8
EU-28 LNG Imports Dropped by 30 mt over the Last Two
Years
Spain
61,5
United Kingdom
France
Italy
Belgium
44,7
Portugal
Netherlands
40,0
Greece
31,9
27,5
Mt
21,8
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Sources: Wood McKenzie, Gazprom Export estimates
© ZMB
9
Major LNG Suppliers Diverted their Volumes away from
EU
Qatar
61,5
Algeria
Nigeria
Trinidad and Tobago
Norway
44,7
Egypt
Others
40,0
31,9
27,5
MMt
21,8
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Sources: Wood McKenzie, Gazprom Export estimates
© ZMB
10
US Companies’ Costs Exceeded Revenues on a Unit Basis
• The main drivers of the
declining all-in costs were yearover-year decreases in
operating, general and
administrative (G&A). Finding
and development (F&D) costs
and interest expenses were
relatively flat year over year.
• Companies still have an
urgency to increase oil reserves
and produce existing oil and
liquids reserves, which
increases all-in costs.
© ZMB
350
312
300
$/Mcme Produced
• Weighted average all-in costs
for the group in 2012 were $225
per thousand cubic meter
equivalent (Mcme),
representing a 10.2 percent
year-over-year decrease from
2011.
247
250
131
207
101
104
139
146
148
2005
2006
2007
200
150
68
251
252
225
217
157
69
76
74
41
100
50
181
175
148
116
151
0
2008
2009
2010
2011
2012
Cash Costs (incl Tax)
F&D Costs
Full Cycle Costs (incl Tax)
Realized Gas Prices
Wtd. Avg. Oil & Gas Prices
Henry Hub Price of Gas
$ Per Mcme
Operating Costs
G&A
Interest
Current Tax
Cash Costs (incl Tax)
F&D Costs
Full Cycle Costs (incl Tax)
Realized Gas Prices
Wtd. Avg. Oil & Gas Prices
Henry Hub Price of Gas
2005
91.84
11.42
11.06
24.50
138.82
68.04
206.86
248.99
256.77
307.13
2006
94.05
13.85
12.20
25.85
145.95
100.70
246.64
218.27
234.71
233.43
2007
98.71
13.71
14.93
20.42
147.78
104.22
252.00
216.41
236.24
248.82
2008
127.93
15.52
11.05
26.70
181.20
130.78
311.98
279.12
303.13
309.85
2009
92.07
14.18
9.78
0.00
116.03
40.51
156.53
188.17
204.31
139.85
2010
116.28
14.61
6.80
10.22
147.91
69.35
217.26
176.72
212.67
154.32
2011
141.05
14.00
7.30
12.66
175.01
75.84
250.85
158.30
220.87
139.31
2012
132.30
12.59
7.33
(1.14)
151.07
74.26
225.34
106.90
203.35
97.27
Note: Cash Costs and Current Tax in units of production. F&D costs are in units of reserve additions.
Source: Company 10-Ks
Notes:“Full cycle” or “All in” costs are defined herein as the sum of operating costs (on a unit of production basis) plus the cost of
acquiring, exploring for, and developing new reserves (on the basis of an equal unit of new reserves identified). The annual
presentation of costs incurred in property acquisition, exploration and development activities (collectively referred to as “costs
incurred”) is an SEC requirement for publicly listed oil and gas companies. Such an accounting, however, is not required, and is
typically not reported, on a quarterly basis. Thus, this interim update will not discuss 2012 YTD all-in costs.
11
American Dry Gas Industry is the State of Coma
Indicating that Shale Gas Price Anomaly will not last for Long
1600
1400
Number of rigs
1200
1000
800
Oil
600
Gas
400
200
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
0
Henry Hub price does not cover dry gas production costs estimated to be USD 6 per MMBTU on average for
more than five years. Production of dry gas because of the depressed prices is possible only as by-product of
gas liquids of shale oil. This situation is not sustainable and will eventually lead to the Henry Hub price rise
above the USD 6 MMBTU levels. There are already no major increases in shale gas output from September
2011 there are predictions that dry gas output may fall unless price adjustments takes place. HH-linked tolling
contracts are structured in a way that risk of such price adjustments fully stays with the buyer. Price
adjustments will make deliveries of American LNG to Europe loss-making.
Sources: Baker Hughes, Gazprom Export estimates
© ZMB
12
Gap is Widening Between European Indigenous
Production and Consumption
900
800
700
Volume, bcm
600
500
+165
bcma
400
+222
bcma
300
200
100
Production forecast spread
Production consensus forecast
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
0
Consumption forecast spread
Consumption consensus forecast
Source: Consensus projections derived from consultants, companies and governmental bodies
© ZMB
13
THANK YOU FOR YOUR ATTENTION!
© ZMB
14

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