Gas prices fell before exports – Newspaper Kommersant No. 24 (7469) of 09.02.

Gazprom’s deliveries to the EU via Ukraine began to slowly increase as the company’s contract prices began to converge with declining spot prices in Europe. Deliveries nearly halved in January as spot gas prices plummeted due to warmer weather. So far, contract prices for gas from the Russian Federation are still less competitive compared to the spot market, but in February, as spot prices stabilize, this factor will level out, and supplies may continue to grow, analysts believe.

Gazprom’s exports to Europe through Ukraine began to gradually recover after the January decline. Thus, in mid-January, flows through the entry point to the Ukrainian gas transmission system “Sudzha” declined to new lows of 24.2 million cubic meters per day, compared with 41-42 million cubic meters on average in December. From the beginning of February, the volumes began to grow, on February 8 they reached 30.8 million cubic meters per day.

Gazprom did not comment on the reasons for the decline in supplies. It was probably caused by a drop in demand for Russian gas supplied under long-term contracts, where the price formula usually assumes deliveries at the average price of the previous month or quarter.

In January, spot prices in the EU fell sharply, which made it unprofitable for Gazprom’s customers to take gas at December prices.

In January, the month-ahead price at the Dutch TTF hub averaged €63 per MWh against €118 per MWh in December. On February 8, March futures in the Netherlands already cost €53.3 per 1 MWh (or about $605 per 1,000 cubic meters). gas prices stabilized warm winter weather, which made it possible to preserve gas reserves in underground storage facilities, which are now more than 69% full. In addition, LNG imports to the continent remain high. All these factors reduce fears about the prospect of winter passing. The head of the French Totalenergies, Patrick Pouyanne, said on February 8 that he expects an increase in LNG imports to Europe by 15-25 million tons this year, but “much depends on the price.” At the same time, some market participants expect that the Chinese economic recovery will deprive Europe of some of the LNG volumes that Chinese companies sold to the EU in 2022 due to low demand in the country amid lockdowns.

“If the high exchange prices for gas in December led to a decrease in January exports, now we see the opposite situation: lower prices in January led to an increase in demand,” notes independent expert Alexander Sobko.

This version is also supported by the fact that the volume of applications for transit through Ukraine increased sharply – by 20% – precisely on February 1,

After the outbreak of hostilities in Ukraine, the Russian Federation gradually reduced gas flows to Europe, first completely cutting off supplies through the Yamal-Europe and Nord Stream gas pipelines, which was subsequently blown up as a result of sabotage, and at the same time reducing exports through Ukraine by several times. Deliveries through Ukraine to the EU in January amounted to about 1 billion cubic meters. Gas supplies from the Russian Federation to the countries of South-Eastern Europe continue via the Turkish Stream.

In January, spot gas prices in the EU fell by about 50%, recalls Marcel Salikhov from the Institute of Energy and Finance. According to him, in January the difference between current prices and prices in Gazprom’s contracts reached 20-30%. “However, this factor will stop in February if spot prices remain at current levels,” he believes.

Gazprom’s portfolio also includes contracts pegged to average exchange prices over a longer period of time than a month; they will be in demand as this average price starts to decline, Alexander Sobko believes. “This will happen if exchange prices for gas remain close to current levels, which, judging by the futures curve, is the most likely development of events. It can be expected that as a result, exports will tend to grow,” the expert believes.

Tatyana Dyatel