Fortnightly Overview – Natural Gas World Magazine

The gas year has got off to a strong start for Europe’s biggest supplier, Gazprom. The start of October saw the Russian monopoly beat its own daily record for exports twice in quick succession; and then at the end it was cleared for yet more sales.

Two unrelated and very long-awaited regulatory decisions came within days. First, the day before the deadline for a ruling, the Russian exporter was told it could access much more than half the capacity in the 36bn m./yr nominal Opal line, the European Union’s biggest: up to 80% as a matter of course, and possibly all of it, depending on the demand from others, which it may not outbid.

According to Polish state supplier PGNiG, which also claims that Gazprom is planning to add 5bn m./yr capacity to Nord Stream 1, the European Commission’s ruling means that Gazprom will be able to bring up to 20bn m./year more gas to Germany by that route than it may today.

Second, Gazprom has been given the task of drafting its own new rules of market behaviour as part of a settlement procedure with the EC’s competition directorate. If they are generally acceptable, it means it won’t face the risk of fines.

This sounds a bit like setting and marking its own homework, with some provisos. Abandoning its take-or-pay, oil-indexation price clauses, which were listed among the complaints, will be relatively easy now, as it becomes more adept at other forms of selling, such as auctions of flat gas and hub trading.

The old contracts were designed to share the risk between buyer and seller. But many of those investments in upstream and transportation have already been made, the latest of which being the 100+ bn m./yr Bovanenkovo field on Yamal, which was developed before the catastrophic collapse in European demand. It could be termed a sunk cost.

And as a major new study – financed by the German foreign ministry and covered in this issue – points out, there is little that Gazprom can gain from oligopolistic pricing, because there is simply too much gas around for it to exert any kind of leverage.

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Failure to beat the competition on price could mean no sale – particularly fatal for an economy that is as weak and as reliant on hydrocarbons as Russia’s.

But Poland’s state-owned supplier PGNiG has threatened to sue both the EC and the German networks regulator for breaching the provisions of the Treaty on the Functioning of the European Union and the third energy package.

But the EC has to act within the law and to have done nothing might have led to even worse consequences than the threat of legal action from Poland. Meanwhile, Russia itself has been challenging the same energy package, claiming that the measures are inconsistent with the European Union’s obligations under a number of World Trade Organization agreements. A panel has been set up by the WTO’s Dispute Settlement Body and is expecting to issue its final report next May.

The Polish anti-trust agency declined to comment to NGW’s question at the time of its anti-Nord Stream 2 ruling if it was happy with the degree of competition in the Polish gas market. But gas traders find Poland as anti-competitive in some regards as Poland finds Gazprom.

Several months on from its first formal letter to the Polish energy minister, and with winter now under way, the European Federation of Energy Traders (Efet) still is waiting for an explanation about its intentions to make Polish storage capacity compulsory for certain shippers. This would benefit the stateowned operator at a time when storage is proving ever less necessary, given falling industrial demand, reverse flow, new LNG import capacity and other forms of flexibility.

It is not only Poland though that has competition issues to sort out: France also crossed swords with the free-marketeers’ lobby group over storage in October, as the government not only grants priority storage access to shippers with end-users supplied by distribution networks; it also allows the operator – which is nearly always the state-controlled Storengy – to negotiate the tariffs.

Closing the circle, French behemoth Engie, the owner of Storengy, has signed a framework agreement with the Ukrainian state-owned gas transmission and storage system operator that sets out the rules on which it may trade and store gas in Ukraine.

A number of companies – including state-controlled Ukrnafta and Gazprom – claim they have lost billions of cubic metres of gas that they had stored in Ukraine’s giant facilities.

But that is mostly the past: Ukraine is now a possible market for those unwanted cubic metres that Europe’s importers thought years ago would be a money-spinner by now, rather than the collective millstone they have become. Engie, a shareholder in Nord Stream 1 and keen to facilitate Nord Stream 2, has become a major supplier of gas to Ukraine’s borders and may become a supplier soon within it.

NGW

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