Raw materials 2022: uncertainty weighs on gas offers on Gazprom Export’s ESP auction tool

Strong points

No sales on electronic platform since mid-October

The takeover could be linked to the start of Nord Stream 2

ESP has been the key to the dynamics of the European gas market

One of the biggest questions of 2021 for the European gas market was why Russian company Gazprom failed to deliver more natural gas to the market at a time of record prices.

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After all, it was previously assumed that Gazprom had spare production capacity and that there was certainly enough spare transit capacity in pipelines through Belarus and Ukraine for larger deliveries.

Gazprom’s export arm even has its own auction tool – the electronic sales platform – which, since September 2018, has offered surplus gas to European buyers, with some 51 billion m3 of gas sold in the country. during the three years since its launch.

Traders – especially those who did not have long-term Russian import contracts – appreciated the flexibility the platform offered to source Russian gas and optimize purchases at different hubs and at different times.

But now things have changed. No sale has been recorded on the ESP since mid-October and no auction has been scheduled since the end of this month.

Has Gazprom Export interrupted the auctions indefinitely and if so, why?

The company declined to comment when contacted by S&P Global Platts, but analysts say it could have everything to do with the uncertainty surrounding Nord Stream 2.

Approval process

Much of the gas sold on the ESP before the auction ended was slated for delivery in 2022 or 2023, perhaps an indication of when Gazprom expected Nord Stream 2 to begin commercial operations.

But with the German regulator having suspended the pipeline certification process in November while Nord Stream 2 AG transfers assets to a new German subsidiary, it remains uncertain when the pipeline could start carrying gas.

“We do not expect Gazprom Export to send more than its long-term contract nominations require until the start of Nord Stream 2,” said Henryk Vasilevski, analyst at S&P Global Platts Analytics.

“We do not anticipate any cash sales on Gazprom’s ESP or any significant sales through its subsidiaries for delivery before June 2022,” Vasilevski said.

Jack Sharples of the Oxford Institute for Energy Studies also sees a link between ESP sales and Nord Stream 2.

“My urge is to expect ESP sales to remain on hold until the launch of Nord Stream 2,” Sharples said, adding that this was unlikely to happen until the end of winter. .

There has been speculation that Gazprom may not have had enough gas to supply more to Europe given strong domestic demand and the need to restock Russian stocks.

But Sharples said he believed Gazprom had withheld spot volumes. “There should have been an increase in the availability of Russian gas once Gazprom finished restocking its national storage, and that did not happen,” he said.

“Even Gazprom’s replenishment of its European storage has been a trickle rather than a flood.”

Gazprom announced at the end of October that it would start restocking at five sites in Europe – supposed to be Rehden, Katharina, Jemgum and Etzel in Germany and Haidach in Austria – once its national storage injection program ends on November 8.

Gazprom chief Alexei Miller even admitted at the time that his European stocks were “very, very small”.

High prices

But it is Moscow’s repeated insistence that the start of Nord Stream 2 will see new volumes of gas reaching Europe to help tackle the energy crisis that suggests Russian flows will be brought under control until the pipeline be approved.

“At the moment, Gazprom is fine with maintaining current price levels. But by the end of winter, prices are likely to drop, so the math comes down to ‘additional rapid sales volumes at a price healthy, “” said Sharples.

According to S&P Global Platts pricing estimates, the TTF price for delivery in Q2 2022 is currently a third cheaper than the next day’s equivalent.

With the start of Nord Stream 2, Sharples said transit through Ukraine and Belarus will decrease as exports move to the new route to ensure supplies reach target pipeline markets.

Gazprom will also want to be seen as using Nord Stream 2 as much as possible given the hurdles it has had to overcome to start using it commercially.

“To ensure that Nord Stream 2 is used to a greater extent, Gazprom will resume offering fast volumes to ESP,” he said.

According to Danila Bochkarev, associate researcher at the Institute of Political Studies Louvain-Europe, the evolution of the weather this winter should also play a role in Gazprom’s strategic thinking.

As Gazprom’s gas production is currently heading towards a 10-year high in 2021, this is also an indication of an increase in domestic gas demand.

“By the end of December, there could be certainty of the amount of gas needed until the end of the heating season and sales through ESP are expected to start in early January,” Bochkarev said.

Explore this topic: Commodities 2022

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