January 27, 2023

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El Dorado gas in Russia is slowly coming to an end.  High prices will not last forever

El Dorado gas in Russia is slowly coming to an end. High prices will not last forever

The initial annual summary kills the positive message related to the past few weeks. Export to the so-called this year (until mid-December) decreased by 45% year on year, that is, by 80 billion cubic meters, and the volume sent was almost 98 billion cubic meters. Gas production has also decreased. It was formed at the level of 394.1 billion cubic meters. It was 19.6 per cent. (more than 96 billion cubic meters) less than last year. At the same time, domestic demand decreased by 5.2 percent, i.e. by 12.5 billion cubic meters.

However, the company was supported by high gas prices. But here, too, there was a slight disappointment – profits limited Gazprom’s higher financial burden. Export duties and mining taxes have practically doubled. Due to customs duties, it increased to almost 1.6 trillion rubles, and due to taxes to about 950 billion rubles. As a result, the revenues of the Russian budget from this segment have increased.

However, the Russians are building a positive message for their market. Gazprom is proud of the new daily cap on the volumes of Russian gas transportation to China via the Power of Siberia gas pipeline. The records were supposed to fall last Wednesday, December 14th. – The surplus over Gazprom’s daily contractual obligations under the Gas Purchase and Sale Agreement amounted to 16.5 percent. The company reported. The Chinese reportedly asked the company to increase daily transmission volumes in December in relation to the previously approved schedule for this year.

Deliveries are made under a long-term bilateral agreement between Gazprom and China National Petroleum Corporation (CNPC). They started in 2019. In 2021, the “Power of Siberia” sent 10.4 billion cubic meters. Gas, in 2022 – according to the company – it will be 15 billion cubic meters, and in 2023 22 billion cubic meters. In the end, the volumes transported through this gas pipeline will increase to 38 billion cubic meters. In the mid-20s, however, this is still not much compared to the volumes that Europe received earlier. In 2021, it was 155 billion cubic metres. (145 billion cubic meters – gas pipeline, 10 billion cubic meters – liquefied natural gas).

In Russia, there is talk of negotiations on the implementation of another major project, “Power of Siberia-2”. This gas pipeline will lead to China through Mongolian territory. Its planned capacity is 50 billion cubic meters. Russian Deputy Prime Minister Alexander Novak recently announced that Russia’s trade with China in the energy sector has “increased dramatically” – by about 64 percent. Asia is a natural destination for Russia, which is losing European markets as a result of its aggressive policy towards Ukraine.

Meanwhile, the concern noted with satisfaction the increase in gas supplies to the Russian market in December due to the lower temperatures prevailing there. The company stated that from December 1 to December 9, it sent record daily volumes to Russian consumers every day. The peak was reached on December 7 when it pumped 1.6 billion cubic meters into the domestic market. Gas. Although over the past 12 months – as mentioned above – this demand has decreased.

The mood of the Russians is also improved by the cold weather in Europe, which is causing the gradual depletion of gas stocks in European storage facilities. Interfax reports that for the second day in a row, Europe selects the maximum amount of raw materials from it. He adds that the strong frost at night should continue for some time. He points out that Europe is cold at this time of the year.

The current inventory level is down to 86 percent. However, this is a good result – the level of 10 percentage points. above the average on the same day over the past five years. Although recent cold weather reduces this gap. Gazprom notes that “the load on warehouses in Europe will be greater than in previous years due to changing logistics and sources of gas supplies to the European market.”

The company also indicated investments in new LNG terminals implemented in Europe. Kirill Poulos, deputy head of one of Gazprom’s divisions, compared it to a thirsty person who buys glasses instead of water. He stressed that the sector has limits related to production, and in this case, the expansion of infrastructure will not solve the problem. He pointed out that the average gas price in European markets increased 2.5 times compared to 2021 and 13 times compared to 2020.

The truth is that the energy crisis is taking its toll on Europe. Gas prices remain high and LNG supplies remain insufficient. The coming winter could also be a problem, as European decision-makers are increasingly pointing out. However, the prospects for Russian raw materials companies are also not good. Investment is being made around the world to increase the supply of LNG. It is worth noting here Qatar Energy, whose LNG capacity will increase from 77 to 126 million tons in 2027. The United States of America is also making investments, in which case the capacity will increase by 30 million tons per year (from 77 million tons). ). As supply increases, prices will also fall.

This, coupled with the loss of markets, could put Russia in a difficult position. Asia would probably be willing to take on additional blue fuels, but transporting the gas depends on infrastructure. Pipeline construction is expensive and time consuming. On the other hand, setting up a gas liquefaction plant is a big challenge. Until now, the Russians used Western technologies, but now, due to sanctions, this is impossible.

Monica Borkowska

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