What were the outcomes of the global gas market at the end of 2020? What does the future hold for LNG projects? Have the priorities, both economic and political, changed and where will they lead the Russian, European and global energy sectors? Elena Burmistrova, Deputy Chairman of the Gazprom Management Committee, Director General of Gazprom Export, presented the results and trends of 2020 in the global gas market at the Gaidar Forum 2021. Gazprom PJSC is a partner of the forum.
Analyzing the 2020 trends, Elena Burmistrova called the prevalence of short spot prices in import contracts a vulnerable point for the European gas market. "For a long time, spot indices were called the most adequate indicator, a benchmark that guaranteed equal competition for all the market players. The past year showed how high their volatility is," she said. At European hubs, prices on day-ahead contracts fell by about five times in the first half of the year. And in the second, they increased sixfold. Front month contracts also became quite volatile.
According to her, spot LNG supplies without a destination became the main destabilizing factor in the market. Despite an already emerging oversupply, a fall in demand and prices to record lows in the first quarter, the volumes of shipments to Europe increased. With the prices falling even lower in the spring, LNG exporters continued to bring record volumes to the market. It was only when the prices stopped covering even the operating costs of LNG exports that it effectively left the European market.
"In the spring LNG oversaturated the market and accelerated the price declines during the crisis period, but during the recovery of markets in the fourth quarter, on the contrary, contributed to the explosive price increases. In both cases, it only intensified the overall volatility," Burmistrova explained.
LNG can reach the remotest markets. This is why, at any given period of time, its exporters are en masse trying to go where it is most profitable to sell gas.
In this situation, the pipeline gas suppliers assumed responsibility and began to take steps to stabilize the market, even if this conflicted in part with their own short-term commercial interests.
"The volatility that is high and difficult to predict sends conflicting signals to both producers and suppliers, makes the long-term planning impossible and undermines the investor confidence in the industry," Burmistrova pointed out. The pandemic has only exacerbated this situation, she stressed, and has led to an average 30 percent drop in oil and gas investment. Only one final investment decision on a new LNG project has been made globally in a year. Elena Burmistrova also acknowledged that investment in the industry faces significant political pressure, particularly in Europe.
Nevertheless, Gazprom managed to retain its position in the global market, which was facilitated by the company's classic long-term contracts. "The prices on these contracts are more stable and predictable as we use various forms of indexation, and in case of binding to hubs, we use, among others, contracts with long delivery periods, which are less exposed to momentary market fluctuations," Burmistrova explained.
By the end of the year, the contract prices of the Russian giant were slightly lower than the spot quotations at the European hubs. This served as an additional stimulus to the Russian gas exports.
Currently, the company's trading portfolio includes optimal combinations of long-term contracts and spot deliveries that quickly respond to changes in the current market conditions.
In 2020, we saw that the natural gas market was less susceptible to the pandemic than the oil market and was able to cope with serious shocks. "In particular, the operation of Gazprom Export's electronic trading platform was adapted to the new realities and contributed to the market stabilization. For instance, since May we only offered contracts with a delivery period of more than a month to reduce the pressure on spot prices. Such an initiative was well received and marketable," Elena Burmistrova observed.
"Gas and innovation are the perfect combination for the evolutionary construction of the new energy sector. And natural gas can already offer ready-to-use and cost-effective technologies for the most widely discussed solution of the recent years - the production of pure hydrogen", Elena Burmistrova said.
In total, the company sold more than 27 billion cubic meters of gas through the trading platform in 2020, which is 1.8 times higher than in 2019. The market share remained at around 33 percent. In 2020, Gazprom entered into two new long-term contracts: for gas supplies to Germany and Greece. About 175 billion cubic meters of gas were transported to the countries of Europe and Turkey in 2020.
Gazprom PJSC is a global energy company whose core businesses include exploration, production, transportation, storage, processing and selling of gas, gas condensate and oil. The company also sells gas as a motor fuel, produces and sells heat and electricity. Gazprom is the world leader in natural gas reserves and production, supplying natural gas to consumers in Russia and more than 30 countries in the former Soviet Union and beyond. Gazprom is also the largest exporter of gas to Europe. The company is one of the top three Russian producers of oil and gas condensate and ranks first among the Russian thermal generation companies in terms of electric power generation and thermal power generation.
The Gaidar Forum “Russia and the World After the Pandemic” will be held on January 14 and 15 at the Presidential Academy. The Forum will traditionally open the annual business agenda of Russia. In 2021, this large-scale event will be held in a hybrid format, both online and offline.
This time, the main discussion track will be social and economic transformations that have occurred in the country and the world as a result of the COVID-19 pandemic. The expert discussions will be focused on the national and global development goals and the search for practical solutions to the most urgent challenges of today. The Forum’s participants include ministers from the Russian Government, members of the Federal Assembly, governors of the Russian regions, largest world experts, representatives of foreign states.
The general partners of the Gaidar Forum are Gazprom PJSC and Gazprombank JSC.
The strategic partners are Russian Railways OJSC, Johnson&Johnson, ACIG Group, Novartis.
The partner of the forum is MasterCard, Russian Direct Investment Fund (RDIF)
The discussion partners are Magnit, Pepsi, Huawei, Coca-Cola, AstraZeneca, Takeda, EY.
General media partners: TASS, Business FM, RIA Novosti, RBC. Strategic media partners: Interfax, Rossiyskaya Gazeta, Kommersant Publishing House, RIA FederalPress, Invest-Foresight magazine. Main media partners: Anews, News.ru, lenta.ru. International media partners: Russia Today.
Media partners: PRO Business TV channel, AEI PRIME, Polit.ru, Strategy magazine, Public Administration magazine, Ekonomika i Zhizn newspaper, Econs portal, Finam, Bankovskoye Obozreniye magazine, Parlamentskaya Gazeta, Snob media project, Echo of Moscow radio station, Nauchno-Obrazovatelnaya Politika Telegram channel.