European Gas Market: Myths and Realities
New Urengoy, 5 July 2017
by Sergei Komlev
Gazprom Export LLC
Head of Contract Structuring and Pricing
Directorate
Myth #1
Gazprom’s Place in Boatful of Supplies is
Insecure due to Falling Demand and EU
Diversification Policies
European Gas Market: Current State and Perspectives 2
3
583 598 564
602 551 542 540
485 507 542
26% 27% 25% 23% 27% 26% 30% 30% 31% 33%
0
100
200
300
400
500
600
700
800
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Consumption Gazprom Group deliveries Gazprom Group's share*
Gazprom on European Gas Market
bcm
* Volumes sold under “Gazprom export” and “Gazprom Schweiz” contracts to European Far Abroad
** Difference between consumption and domestic production
Gazprom Group’s* Share in the European Consumption
271 273 257 280 274
248 255 225 240
273
56% 58% 55% 50% 55% 56% 64% 66% 66% 66%
0
100
200
300
400
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Imports, bcm Gazprom Group deliveries*, bcm Gazprom Group's share*
Gazprom Group’s* Share in the European Imports** bcm
European Gas Market: Myths and Realities
4
* Including the contracts of Gazprom Export LLC, direct contracts of Gazprom Schweiz AG and volumes marketed via gas auctions of Gazprom
Export LLC.
Sources: Gazprom PJSC, IEA, Eurostat.
Given values may differ from the calculated ones as they are rounded.
Gazprom Deliveries on European Market in Q1 2017
Q1 2016 Q1 2017 ∆, bcm ∆, %
Gas deliveries by Gazprom*, bcm 44.4 51.0 6.6 14.9%
Share in consumption, % 24.8% 27.8% 3.1 pp -
Share in imports, % 63.7% 71.1% 7.4 pp -
European Union (E)
Q1 2016 Q1 2017 ∆, bcm ∆, %
Gas deliveries by Gazprom, bcm 38.4 43.3 4.9 12.7%
Share in consumption, % 23.7% 26.4% 2.7 pp -
Share in imports, % 43.8% 49.8% 6.0 pp -
Share of EU in Gazprom’s exports 86.5% 84.8% -1.6 pp -
European Far Abroad (E)
European Gas Market: Myths and Realities
5
Gas Consumption in Europe, 2011-2015
Gas Consumption in Europe, 2013 – 2017
In Q1 2017 natural gas consumption in Europe was up by 4 bcm or
2.2% compared to Q1 2016.
Monthly Gas Consumption (Accumulated Values)
European Gas Market: Myths and Realities
6
Major Factors Affecting Gas Consumption in
Europe in Q1 2016 and Q1 2017*
Q1 2016 Q1 2017
1.Favorable weather conditions
(cold and long winter, hot summer)
2. Economic recovery
3. Use of gas in power generation
4. Base period effect
Total consumption dynamics, YoY: +2.7% +2.2%
* Factors are defined in comparison with long-term averages. Factors could affect consumption in a bidirectional way. Changes in volumes
made on year-on-year and quarter-on-quarter basis.
European Gas Market: Myths and Realities
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Demand for Natural Gas in Power Generation in European Far Abroad
Sources: Eurostat, International energy agency (IEA), ENTSOG, IHS, PIRA, National Statistical Agencies as of April 2017.
Given values may differ from the calculated ones as they are rounded.
European Gas Market: Myths and Realities
542 540
485 507
542
179 183 164 151 141 142 154
43,4 45,3
30% 28% 29% 28% 28% 24% 25%
0
100
200
300
400
500
600
700
2012 2013 2014 2015 2016 1Q 2016 1Q 2017
Total consumption Consumption in power generation Share of power generation in gas demand
Demand for Natural Gas in Power Generation
8
Deliveries by Major Suppliers in Q1 2017
Deliveries by Major Exporters
* Including the contracts of Gazprom export LLC, direct contracts of Gazprom Schweiz AG and volumes marketed via gas auctions of Gazprom
Export LLC.
** Including pipeline and LNG deliveries from Norway to the European market and excluding LNG to Asia and America.
Sources: Eurostat, IEA, ENTSOG, Bloomberg, National Statistical Agencies as of April 2017.
Given values may differ from the calculated ones as they are rounded.
Q1 2016 Q1 2017 ∆, bcm ∆, %
Gazprom PJSC* 44.4 51.0 6.6 14.9%
Algeria (incl. LNG) 11.2 14.2 3.0 26.6%
Qatar 6.8 5.1 -1.7 -25.2%
Nigeria 2.4 3.5 1.1 47.8%
Iran 2.3 2.1 -0.1 -4.9%
Deliveries by Major Indigenous Producers
Q1 2016 Q1 2017 ∆, bcm ∆, %
Norway** 34.5 35.1 0.7 1.9%
United Kingdom 14.2 14.0 -0.2 -1.3%
Netherlands 11.8 12.3 0.5 4.4%
(bcm)
(bcm)
European Gas Market: Myths and Realities
9
Supply Dynamics to Europe by Major Exporters in
Q1 2017
Sources: Eurostat, IEA, ENTSOG, Bloomberg, National Statistical
Agencies as of April 2017.
Given values may differ from the calculated ones as they are
rounded.
Record high Russian supplies compared to
deliveries by Algeria and Qatar.
European Gas Market: Myths and Realities
10
Supply Dynamics to Europe by Major Internal Suppliers
in Q1 2017
Sources: Eurostat, IEA, ENTSOG, Bloomberg, National Statistical Agencies
as of April 2017.
Given values may differ from the calculated ones as they are rounded.
Norway maximizes its output while deliveries from
Netherlands and UK are in their lows
European Gas Market: Myths and Realities
European Gas Consumption: Scenarios and Forecasts
11
Definition of European countries slightly differs from one forecast to another. For the purpose of comparison all forecasts and scenarios are restated on compound
annual growth rates. Forecasts surveyed for the consensus analysis are updated on a regular basis.
Updated: April 2017
European Gas Market: Myths and Realities
There will be Vacant Places in Boatful of European
Suppliers after 2020
12
According to the consensus forecast, additional demand (2016 base year) for
imported gas in Europe will be:
51 bcm by 2025 84 bcm by 2035
Updated: April 2017
Natural gas European demand and production gap is calculated as the difference between the demand consensus forecast and the production consensus forecast.
Wide range of forecasts is explained by variability of scenarios from optimistic scenario of Energy Information Administration and to pessimistic scenarios of Statoil,
Enerdata and EU Commission.
European Gas Market: Myths and Realities
Myth #2
Trump’s Global Energy Dominance Plan will
Result in Flood of US LNG to Europe
European Gas Market: Myths and Realities 13
Outlook for NA LNG Exports to Europe
Futures on European gas hubs stay below full cycle costs of US LNG indexed to Henry Hub forward prices
Estimated Costs* of US LNG Deliveries to Europe vs. Prices of European Gas Futures**
* Based on Henry Hub-related contract price, P = 115% * Henry Hub + X, where X are costs of liquefaction, shipping and regasification
** Historical NBP 1st Month and current NBP Futures
*** Historical price of Russian gas deliveries to Germany (based on World Bank data) and projected price based on current Brent and TTF Futures
Source: Bloomberg, Cheniere Energy, Wood Mackenzie, World Bank
14 European Gas Market: Myths and Realities
Myth #3
European Gas Prices Delinked from Oil Completely
and are Driven by Supply and Demand
European Gas Market: Myths and Realities 15
Market Tightness is Inadequate Criteria for
Division of European Gas History into Periods
“Global gas glut” (Jun ‘08 – Dec ‘10) only strengthened European gas prices despite the LNG flood; European gas prices just followed oil price
recovery prior to Fukushima
“Fukushima tightness” (Mar ‘11 – Dec ‘14) gave no special momentum to gas price developments: erratic fluctuations of gas prices completely
ignored outflow of large LNG volumes from Europe
“Oversupply and price convergence” (Dec ’14 – current): collapse of gas prices coincided with oil price drop; LNG not coming to Europe
European gas history periodization based on market tightness creates parallel reality. It supports an absurd conclusion that oversupply leads to
higher prices and vice versa
Source: Adapted from Timera Energy
16 European Gas Market: Myths and Realities
By the end of Q1 2017 the UGSs of European countries were filled by 23.6%, a new minimum over the last five years.
Source: Based on IHS and IEA data
Deficit in European Gas Stocks Does not Point to
Situation of Nearly Permanent Oversupply
17 European Gas Market: Myths and Realities
Competition with Other Hydrocarbons Locks
Natural Gas in Price Envelope
Source: Shell
18 European Gas Market: Myths and Realities
Ceiling
Floor
Oil/Oil products
parity
Coal parity
Source: Gazprom Export
Inter-Fuel Competition Defines Upper and Lower
Price Range Levels for Natural Gas
European Gas Market: Myths and Realities 19
Oil-p
ari
ty C
oa
l-pa
rity
Loose market Tight market
Buoy 1
Buoy 2
Buoy 3
LTCs
prices
Gas price as
derivative of shale
oil breakeven costs
Price of shale
gas full costs of
deliveries to
Europe
Pri
ce
Up
Pric
e
Do
wn
Hub Natural Gas Price Navigation in Europe
20 European Gas Market: Myths and Realities
ACER 2016 Report: Correlation between
Oil and Gas Prices is High
21 European Gas Market: Myths and Realities
Correlation and Regression Analysis Indicates
that TTF Price Dependence on Oil Prices is Increasing
Correlation
(TTF MA, USD/mcm)
Time period Brent,
USD/barrel
Oil Price:
Six month
moving
average
Oil Price:
Nine month
moving
average
2008-2016 76.6% 85.5% 83.3%
2008-2013 69.9% 84.7% 81.9%
2014-2016 79.5% 87.3% 88.7%
R Squared
(TTF MA, USD/mcm)
2008-2016 58.6% 73.1% 69.4%
2008-2013 48.9% 71.8% 67.1%
2014-2016 63.2% 76.3% 78.6%
This effectively means that NA shale breakeven costs which emerged as the major determinant for global
oil prices are setting price rage for European hub prices
22 European Gas Market: Myths and Realities
Thank you for your attention
European Gas Market: Myths and Realities