Gazprom has recovered its self-confidence … and then some! That is the clear impression given by its executives, who have made many public comments over the last few weeks, especially during two presentations to investors held in New York and London, on February 6 and 8 respectively. The difference in tone is very clear when compared to the rather cautious language that the Russian gas company has been using for the last few years, especially since the appointment of a new European Commission in July 2014, which entrusted the energy question to anti-Russian hardliners. Both sides have had to give a lot of ground. Today, Gazprom seems to be far more willing to conform with European rules governing competition and access to networks. And European officials now seem to be far less strident in their demands, at least in public. In a sign of the times, Gazprom recently agreed to let the Bulgaria-Greece gasline operate in both directions, a gesture that was immediately lauded by the European Commission’s director for the internal energy market, Dieter Borchardt: “It all helps, what injects new trust in the relationship”, he said on February 7.
While an agreement between Gazprom and the EC now seems possible, the Russian company’s executives are sticking more firmly to their positions. The production cuts announced at the Groningen field in the Netherlands, and the fact that the world’s additional supply of LNG has mainly been absorbed by Asia instead of flowing into Europe, relieved the Russians. On the contrary, however, European positions were weakened, thus allowing Gazprom’s head of exports, Alexander Medvedev, to be more caustic in his comments. “Europe completely miscalculated when they assumed that they won’t need much additional gas, and if they need some it can be supplied from outside Russia”, Gazprom’s Deputy Chief Executive said on February 9. Europe must now make up its mind, said Medvedev: does it want more Russian gas or not?
The confidence displayed by the Russians is also due to the fact that they will start supplying gas to China in 2019, while they are confined to the European market for the time being, with the exception of their LNG exports. “We can supply as much gas as needed to Europe, even though we are entering a new market in China. But Europe needs to decide now. They need to start thinking right now about who will cover additional demand after 2025”, said Medvedev, deploring the lack of any energy dialogue between his country and Europe. “Even if Gazprom builds its two new pipelines to Europe on time – Nord Stream 2 under the Baltic Sea and TurkStream for Europe’s south – it will not be enough to balance rising demand and shrinking supply”. And “LNG will not be able to cover that gap”, he warned. In late January, the Russian group’s Deputy Chief Executive had already stated that Europe would have to purchase “an additional 50 bcm of gas imports by 2025 and 75 bcm by 2025”.
In 2017, Gazprom increased its gas exports to Europe and Turkey by 8.1%, reaching the record level of 193.9 bcm. Its European market share thus grew to 35%, as compared to 33% in 2016. And it could even exceed 40%, Medvedev warned. If Europe fails to give itself the means to receive additional quantities of Russian gas, it will run the risk of a major gas crunch, and “what is worse, a steep rise in prices”, he said.
In its presentations to investors, Gazprom made a few ironic comments about the importance of US LNG on the European gas market, comparing it to “a few drops” in a cup of coffee. The Russians are thought to have the intention of combating US LNG in Europe not only via their gaslines, but also through new LNG terminals. On December 27, 2017, Vladimir Putin signed an executive order authorizing Russian companies to export LNG at an “unregulated price”. According to the newspaper Kommersant, which revealed this information at the time, the Russian President’s order is mainly aimed at new projects, such as Baltic LNG or the expansion of Sakhalin-2, both led by Gazprom. If it wanted to, the Russian company could sell LNG “at any price”, it is said in Moscow.
In its presentations, Gazprom also projected graphs showing that European gas production is expected to fall to 113-153 bcm in about 2035, as compared to the 216-236 bcm forecast for 2018. In the meantime, European demand will climb from 536-541 bcm to 546-572 bcm. The European market’s import needs are thus expected to rise from 300-325 bcm this year to 393-459 bcm by 2035. But beware, the Russian group warned, as China’s needs will also increase in the meantime: it will have to import 207 to 277 bcm of gas in 2035, as compared to 85-127 bcm in 2018. And Gazprom will be there to meet those needs… As we can see, just when it’s thought that Moscow and Brussels are close to reaching an agreement on gas, Gazprom is loudly proclaiming that it has more than one iron in the fire, and that it will turn towards other commercial opportunities if Europe doesn’t want its gas.