European companies began to resell Russian gas to each other

Since the beginning of the year, the Yamal – Europe gas pipeline has been idle or operating in reverse mode, pumping gas from Germany to Poland. Moreover, Gazprom responsibly booked part of Yamal-Europe’s capacities for January (19 million cubic meters per day) for export to the West, but there were no applications for supplies from Europe.

The losses of the Russian company in just ten days of gas pipeline downtime are estimated at $ 2 million. Against the background of Gazprom’s record profit in 2021, this amount may seem small, but imagine what a cry would be raised if, for example, the company did not fulfill its obligations to supply gas to Europe for $ 2 million.

The situation is similar with other gas pipelines. Gas pumping through the Turkish Stream fell from 43 million to 26 million cubic meters per day, and gas transit through Ukraine has almost halved. At the same time, the exchange prices for gas in Europe, although they have left their maximum values ​​- $ 2,000 per thousand cubic meters, are still at a very high level – over $ 900, and underground gas storage facilities (UGS) have already been emptied up to half. Moreover, there is still talk in Europe that there may not be enough gas for the winter. Therefore, the lack of applications for its purchase in Russia is surprising.

According to Aleksey Grivach, deputy head of the National Energy Security Fund, there are two interrelated reasons for this behavior of European companies. The first is abnormally high prices and relatively warm weather. These two factors have collapsed gas demand in Europe by 30 percent. The second reason is big politics. A series of negotiations on an energy security architecture is under way, and the Europeans need to demonstrate the possibility of reducing the physical withdrawal of Russian gas. In addition, the current situation allows European corporations and traders to make the most of high prices, the expert said.

There is no need to go far for examples of the latter. The reverse of gas through Yamal – Europe to Poland means its actual resale at higher prices. As Grivach specified, physically deliveries from Germany are carried out at the expense of gas that enters the system from Nord Stream. There are three more small gas pipelines from Norway, their flows are intended mainly for the western part of Germany, from where it is irrational to redirect them to Poland.

Record gas withdrawal from storage facilities in Europe coincided with the highest gas prices on the exchange

But Poland may not be the last link in the chain. During the negotiations between Gazprom and Moldova, Warsaw offered Chisinau small volumes of gas. Previously, Poland sold gas to Ukraine and, perhaps, would have done it now, but at such high prices, Kiev cannot afford it.

It is impossible to trace exactly how the gas that comes through operating pipelines and is taken from European UGS facilities is disposed of. It is significant that during the period of relatively warm weather in Europe, gas withdrawal from the storage facilities on January 10 turned out to be close to the maximum (about 750 million cubic meters). And the past records of gas withdrawal from UGS facilities were set during the period of maximum exchange prices for gas on December 21 and 22, when they exceeded $ 2,000 per thousand cubic meters. These days, the withdrawal was approaching 1 billion cubic meters per day.

In Europe, one of the reasons for the lack of applications for Russian gas is the increase in the supply of American liquefied natural gas (LNG). In December, Europe received 7.5 million tons of LNG (about 10 billion cubic meters of gas). The volume is significant, but the increase in supplies was associated only with a jump in exchange prices for gas in Europe at the end of last year, as well as with a drop in the cost of tanker freight in the United States. This made the European market for LNG exporters a premium compared to supplies to the Asia-Pacific region (APR). Now the situation has changed again, and it is more profitable to transport liquefied gas to the countries of the Asia-Pacific region.

To attract additional volumes of LNG, the Europeans had to pay “space” money for spot gas (supplied at exchange prices, under fast payment and delivery contracts), and this is several times more than for Russian gas under long-term oil-pegged contracts, Grivach said. From his point of view, LNG so far, as practice shows, is not a very reliable source of ensuring energy security, since at any moment it can go to other markets, where a higher price will be offered for it.

Finam analyst Sergei Kaufman agrees with this. In his opinion, LNG from the United States is indeed one of the main culprits for the lack of applications for Russian gas, but this situation will not be sustainable. First, Asia remains a priority for US LNG. Secondly, a number of Gazprom’s contracts have a take-or-pay structure, according to which it is simply unprofitable not to buy gas. Thirdly, so far the volume of American LNG is too small to displace Russian gas from the European market.

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