Russian Gas Issues. James Henderson September 2013

Transcription

1 Russian Gas Issues James Henderson September 2013

2 The Russian Gas Matrix: major building blocks 2011 (2012) SUPPLY (major variables) GAZPROM PRODUCTION: (Yamal production, other NPT) 513 (488) Bcm NON-GAZPROM PRODUCTION: Gazprom relationships, tax, terms of network use 157 (169) Bcm CENTRAL ASIAN IMPORTS: individual relationships, competition from China 35 (32) Bcm DEMAND (major variables) RUSSIAN DEMAND: GDP, price reform, capital stock turnover 473 (465) Bcm EXPORTS TO CIS: volume, price relationships with Ukraine and Belarus 82 (66) Bcm EXPORTS TO EUROPE: long term contracts, new transit pipelines 150 (138) Bcm Complex issues for all elements!

3 US$/mcm The balance of market relevance for Russia is changing slowly Prices for Russian gas Split of Gazprom s revenues 450 % Domestic FSU# Europe* 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 29% 24% 7% 62% 55% 20% 65% 9% 14% 57% 29% 31% 2003 Revs 2003 Vols 2012 Revs 2012 Vols Domestic FSU Europe Historic pricing trends have always favoured exports to Europe Europe continues to dominate Gazprom s revenues in 2012, but the share of FSU sales has increased sharply Domestic sales only account for 24% of the Gazprom total, despite an 8-fold increase in prices over the past decade

4 Gazprom export markets rising prices but falling volumes Russia s gas export volumes Prices for Russian gas exports Russia s export volumes declined sharply during the 2008/09 economic crisis and have not recovered since Prices for Russian gas, that remain linked to oil prices, have compensated for this loss of volumes, but have reduced Gazprom s competitiveness Gazprom s position is also being challenged by a number of arbitration cases and by the EU Competition Directorate

5 Price (US$/mmbtu) Russia Premium / Discount Gazprom s strategy may be validated in the short term but carries longer term risks Prices for Russian gas versus spot price European gas demand trends % % % % 20% 10% % % % Aug 10 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 Axis Title UK Russia Export Russia Premium Gazprom is maintaining its strategy of oil-linked pricing, preferring a high price over high volumes This is a perfectly valid strategy, and may pay dividends in a tight market, but is somewhat risky in a stagnant longer term demand scenario Gazprom has shown retro-active pricing flexibility, but the ongoing impact of renewables/coal and/or the arrival of new competing gas from North America could undermine its position

6 bcm US$/mcm FSU markets are responding to price signals and are demonstrating how Russia can lose captive markets Prices for Russian gas versus FSU sales Ukraine setting a demand restraint example As % of Russia GDP Russia gas consumption Ukraine GDP Ukraine gas consumption FSU (bcm) FSU (US$/mcm) 75 Average prices from Russia to FSU countries have moved towards, or even above, European netback levels Sales of Russian gas have declined as a result, as countries look to reduce demand and/or diversify supply Ukraine is the best example of this; demand is down and the search is on for increased indigenous supply and alternative sources of imports Lithuania is another example of potential destruction of demand for Russian gas

7 Why so many export pipes? You need to be very confident about the outlook for European gas demand to need this much capacity. Potential for NS3 & 4 to UK 55bcm Nord Stream 55bcm Yamal Europe 33bcm Ukraine 145bcm South Stream 63bcm Blue Stream 16bcm Total existing capacity 250bcm Plus: Nord Stream bcm South Stream - 63bcm Nord Stream bcm Yamal Europe 2-33bcm Total planned - 151bcm A high price to pay for geo-political influence and security of supply? 7

8 bcm Gazprom Market Share Russia s domestic market is demonstrating similar trends with demand growth stalling as prices rise Demand growth in Russia is stalling Gazprom s market share is falling % pa -1.6% 0.75% pa % 70% 65% 60% 55% % 45% 40% 35% 30% E 25% Total Demand Gazprom Sales Gazprom % Russian gas demand fell by 1.6% in 2012 and is set to rise by only 0.75% p.a. to 2020, in reaction to a quadrupling of prices in 10 years Gazprom s market share has been falling consistently over the past decade and could be below 50% by 2020 Novatek and Rosneft both aim to produce and sell bcma + by 2020, while total Independent production could reach 300bcma by then The balance of the market is adjusting to a new more competitive landscape

9 OXFORD OXFORD INSTITUTE FOR FOR ENERGY STUDIES Natural Gas Gas Research Programme Pricing will be a key variable, but essentially there is a potential oversupply of gas in Russia Domestic Russian Gas Price Demand for Russian gas versus potential supply Rising prices have encouraged competition from new suppliers Meanwhile demand for Russian gas in all its markets has stagnated It would therefore appear that Russia has an excess of potential gas supply Independent producers have been signing long-term contracts with consumers to secure market share

10 Non-Gazprom Russian Supply is set to expand rapidly Potential NGP gas production in 2020 Novatek has been at the forefront of 3 rd party gas supply in Russia and has plans to double output by 2020 Rosneft has become the major new entrant through organic and inorganic growth, and has aggressively gained new customers Total 3 rd party production can double by 2020, and existing contracts underpin much of that growth potential 10

11 Gazprom s natural dominance is starting to be eroded Premium/discount of Novatek sales price to regulated price Novatek s profits and margins Gazprom has historically dominated via ownership of UGSS, involvement in Gas Balance and lack of transparency in transport arrangements Low regulated prices have also discouraged customers from switching unless absolutely necessary However, NGPs are now selling at discounted prices while continuing to make money Better contractual terms are also being offered (take-or-pay levels)

12 Gazprom is becoming the swing producer using controlled growth of Yamal output Peak output pushed back Field Name Old Peak New Peak Bovanenkovo Kharasavey Severo-Kamennomysskoye Kamennomysskoye-more Yuzhno-kirinskoye Kirinskoye Pestsovoye Source: Interfax Yamal becoming the source of future production growth and flexibility Source: Gazprom Gazprom has significantly downgraded its production forecast from 650bcm to 540bcm in 2020 Peak output at major field developments, including Bovanenko, have been pushed back by 2-3 years Yamal is becoming the engine of production growth but will also increasingly turn Gazprom into a relatively high cost swing producer in Russia

13 US$/mcm Domestic gas prices have reached a quasiequilibrium, within a regulated context 3 steps towards market-based pricing system 250 Stage 1 Stage 2 Stage Regulated price growth 15% pa Regulated price growth 0-5% pa 50 Increasing impact of Gas Exchange Prices determined by supply and demand in a liberalized market? Export Netback (at $ oil price) Domestic Gas Price The theoretical oversupply of gas in Russia has raised questions about why regulated gas prices need to rise, particularly towards netback parity Initial reaction was to slow growth to 5% per annum, but this may become 0% in 2014 The introduction of a Gas Exchange could help to establish a true market price, but may take time to evolve

14 Non-CIS Exports (bcma) bcma Russia sees eastern gas sales as key to Gazprom s strategy to Russian gas export forecast Split of Gazprom production to Asia Europe Low High Western Low Eastern High 2030 Low 2030 High Russia regards gasification of its eastern provinces as a key strategic priority Increased export sales will be vital to underpin the economics of supply developments Gazprom s production growth will rely on growing eastern output, as it faces more competition west of the Urals It would therefore appear to be in Russia s interest to conclude an agreement with China Competitive tension is also being created via discussions on piped gas exports to Korea, LNG from Vladivostok and potential Sakhalin expansion

15 Gazprom s domination of the Eastern Gas Programme can be a key source of growth Gazprom controls more than 4tcm of eastern gas reserves The Russian Administration is keen to encourage economic development in the region The geo-political importance of exports into China and Asia means that it

16 However, lots of the same issues as in Europe/FSU/Domestic markets Uncertain demand outlook Price formation mechanism and price level Geo-political versus commercial priority gasification of Eastern Russia, relations with China/Japan Competition from international sources of supply Changing levels of Russian corporate influence reflected in questions over Gazprom export monopoly Division of exports between pipeline and LNG Russian budget requirements export tax from pipeline sales

17 Russia is facing a competition for supply into the growing Asian gas market Barents Sea Yamal N. Sea W. Siberia E. Siberia W. Canada shale Europe Caspian Sakhalin US shale N. Africa E. Med. Middle East China Shale Gas Asia Impact of North American markets on price formation W. Africa E. Africa Offshore SE Asia N. / N.W. Australia Queensland CBM Russia s potential eastern gas exports Brazil pre-salt Argentina shale Legend Established gas export province / flows Emerging gas export province / flows N. Sea Gas export / import province name Gas import province Will Russia s firm stance on oil-linked pricing undermine its potential for sales into Asia? Can the an offer of upstream equity offset differences over price?

18 bcma Within Russia there appears to be some debate about how that competition should be addressed Yamal LNG 16.5mmt CNPC - 3mmtpa BP -?? EdF -?? Pechora LNG 2.6mmtpa? Sakhalin 2 10mmt Various Asian buyers Leningrad LNG 10mmtpa? Chayanda Sakhalin 1 5mmt SODECO 1mmtpa Marubeni 1.25mmtpa Vitol 2.75mmtpa Kovykta Russia s potential eastern gas exports 38bcma to China? Vladivostok LNG 10-15mmt East Siberia Pipe Sakhalin 1 Yamal LNG Vladivostok LNG Sakhalin Expansion Rosneft and Novatek are already signing contracts with Asian buyers Novatek s Yamal LNG project will inevitably compete in the Atlantic Basin Sakhalin Current Can Gazprom find an adequate response that optimises the outcome for Russia?

19 Russia is facing multiple challenges in the gas sector The Russian gas sector, and Gazprom in particular, is experiencing increasing competition in all its markets In Europe, Gazprom s position is being challenged by the EU authorities, by slack demand and by alternative supplies In the FSU, high prices are encouraging increased efficiency and diversification Progress is starting to be made towards Asia, but Gazprom s export monopoly may soon be broken in this new region for Russian gas exports The question of Gazprom s future as the dominant player across the Russian gas sector is at least a subject now worthy of debate Radical change may become a necessity if Russia is to retain its competitive position in the global energy economy