Gazprom’s full tanks may be a relief for gas-hungry Europe

Gazprom’s domestic storage is almost full, giving the Russian state gas giant leeway to increase exports this winter, officials and industry experts say, potentially encouraging news for Europe as it toils under surging power prices.

Russia, whose gas production and exports to the EU are already near record highs, said last week it needed to finish topping up its gas storage reserves before it could increase supplies to Europe’s spot market.

Energy minister Nikolai Shulginov said on Wednesday that domestic gas storage was 97% filled, without disclosing the specific figure.

Ronald Smith, a senior oil and gas analyst at Russia’s BCS brokerage, estimates that storage stands at 69-billion cubic metres (bcm), close to the publicly disclosed target full-storage level of 72.6bcm.

Gas markets in Asia and Europe have rocketed this year, with benchmark Dutch gas hub spot prices jumping 365% since the beginning of the year, fuelled by low inventories and surging demand as economies recover from the Covid-19 crisis.

This has put Gazprom, Europe’s biggest gas supplier, front and centre, with its exports rising by 13% and production up 17% since the start of the year.

The former Soviet gas ministry, which became a state company in 1990s, runs a network of 23 storage sites from abandoned gas fields to salt caves securing between 20% and 40% of all domestic supply in the heating season.

NORD STREAM 2

If storage is full by the start of November, then “unlike Europe, Russia will start the withdrawal season at a healthy storage level and should have some flexibility to ramp up gas sales to Europe”, said Marina Tsygankova, an analyst with Refinitiv.

“The question is whether Gazprom wants to do it before Nord Stream 2 is certified,” she said, referring to the undersea gas pipeline

Germany that ’from s opposed Russia by to a number of countries, including Ukraine and Poland, as it could deprive them of transit fees.

While finished and now being filled with the gas, Nord

Stream 2 is awaiting the goahead from Germany before it can start transporting supplies.

European inventories are about 14 billion cubic metres (bcm) short of gas, including 8bcm in Gazprom-linked facilities, partly due to Gazprom booking just a fraction of export capacity via Ukraine and Poland, said Dmitry Marinchenko, senior director at Fitch ratings agency.

“Until the end of the year, Russia should probably be able to provide at least an additional 5bcm to 10bcm. November would be the right time to ramp up deliveries as in December Russia’s own consumption will increase,” he said. Russia has said that it would prioritise its home market over exports. Gazprom’s supplies domestically have already risen by 17% so far this year, or by 26bcm equal to what Poland consumes annually.

But even with temperatures lower than usual across Russia last year, which Gazprom predicts may happen again this season, it used just 60.6bcm from the storage at home, leaving 12bcm underground untouched.

Nonetheless, Smith cautioned that the Russian weather, and its influence on domestic consumption, could play a role in Gazprom’s export plans.

“Gazprom’s ability to export to Europe will be highly dependent upon Russian weather. September was cold, and October doesn’t appear to be warm,” he said. And even if Russia increases supply, it’s unlikely to have an immediate effect on European spot prices, analysts at the Sweden-based bank SEB said, because prices at the European gas market are linked to the globally set liquefied natural gas (LNG) price.

“We see that more natural gas from Russia would only calm the nerves a bit,” SEB said.

The Dutch gas futures price “will still depend on the global LNG price both now, for the coming winter, and in the years to come”.

WHILE FINISHED AND BEING FILLED WITH THE GAS, NORD STREAM 2 IS AWAITING THE GO-AHEAD