A key uncertainty for the EU gas market concerns the level of Russian gas imports that we can expect given we have been seeing significant reductions in EU supply. Over gas year 2017/18, Russian supply was higher y/y in Q4 17–Q2 18, but lower y/y in Q3 18. This Insight looks at why Russian imports were softer in Q3 18 and what we can expect in the coming years regarding exports of Russian gas to Europe.
One potential explanation for low flows in Q3 18 could be field and pipeline maintenance within Russia. The very high level of early summer flows suggests that the Q2 18 maintenance schedule was light and that could have been shifted more into Q3 18 to coincide with both Nord Stream maintenance (17-31 July) and Yamal pipeline maintenance (6-12 August).
This certainly played an important role in explaining flow behaviour in Q3 18. But a more structural reason is that Gazprom is getting close to maximising its supply under the flexibility provisions in long-term contacts. Gazprom’s CEO set maximum flexibility under its contracts at 205 bcm to non-FSU buyers, with 2017 contract sales indicated at 198 bcm and another 10 bcm sold via other outlets (injected into storage and sold into hubs), suggesting little further upside.
When looking at individual pipeline routes out of Russia for the coming winter, capacity through both Nord Stream and Kondratki were fully utilised in all months of winter 2017-18. However, flows through Velke Kapusany (via Ukraine) were only around half utilised, meaning any incremental gas flow from Russia over the coming 18 months will need to be through Velke Kapusany.
Russian gas production is seeing a shift in focal point away from the fields in the Nadym-Pur-Tazovsky (NPT, Western Siberia) region, which historically fed the southern route pipelines, to fields further to the west of the Yamal Peninsula such as the 140 bcm/y Bovanenkovo field. New Russian gas fields in the Urals are planned to add some 70 bcm/y of incremental gas production by 2025, with 55 bcm of that in the Yamal Peninsula. Only 15 bcm is in the mature NPT producing region, and that will not be enough to halt overall declines from that region. Despite the efforts of Yamal, we think it is likely that Urals production in 2025 could be 5-15 bcm lower than 2017 levels, which could increasingly starve the southern routes of supply.
Gazprom Export has responded to reaching its maximum limits for supply under its long-term contracts and has introduced an electronic sales platform for selling short-term gas (M+1 and M+2). While still a very new platform, it has reported selling 0.5 bcm of additional gas so far for delivery points around Baumgarten for November delivery.