Diagnosis for Gazprom: Coronavirus? Worse – Catarrh!

The Russian gas giant, the concern is severely indisposed. Serious symptoms testify about its declining strength. In March of the current year export of the Russian natural gas dropped by 45 percent compared with the same pe…

The Russian gas giant, the concern is severely indisposed. Serious symptoms testify about its declining strength. In March of the current year export of the Russian natural gas dropped by 45 percent compared with the same period of the last year. Turkey, the biggest importer of the Russian gas, was happy with just 210 million cubic meters this month, whereas last year in March it bought 1,148 billion. Revenue of in the first four months of the current year reached just 6,812 billion, although it was over 14 billion US dollars in the first quarter of 2019.      
Whose fault is it and what should be done about it? Does have an answer to this timeless Russian question that is suitable in all aspects of life? The answer to the first part of the question is yes and most probably no to the second part of it. In this case the guilt falls on the coronavirus. Actually, in the wake of pandemic and when economies of countries stopped, a demand for gas significantly dropped. As a result of which its prices dropped to a record low level. In addition, this drop most probably will not stop this year. In the opinion of experts, the price of Russian gas will drop up to 72-75 US dollars in the second quarter of the current year and even up to 50 US dollars for 1,000 cubic meters in the third quarter (in 2019 it reached 211 US dollars for 1,000 cubic meters in Europe). Besides, the share of Russian gas should decline in the market of Europe, which was 39 percent last year. In case the demand in the continent stays unchanged, this figure might drop up to 35 percent this year and in case it drops more – up to 34 percent, the expert Maria Belova of the independent consultancy company VYGON Consulting operating in Russia told to the Polish web portal onet.pl.             
However, decline in the demand as a result of coronavirus is not the greatest problem of . The company of Qatar Qatar Petroleum that is ready to exclude the Russian monopolist from the market and later reduce its influence in the global market to the minimum. To this end the state corporation of the Arab country is planning to increase production of the liquefied natural gas (LNG) by one and a half times and this production necessarily will get into European ports.
This is not the end yet: within the coming two years Qatar intends to increase LNG from 77.5 million last year to 126 million tons. In other words, it plans to reach the volume that was planned only by year 2026. Thus, the Arab state intends to be the first on the list of exporters of liquefied natural gas that was recently taken by Australia. The daily The Financial Times quoted Saad Sherida al-Kaabi, Minister of Energy of Qatar, who told that his country can reduce gas prices even more. ’When we have a problem in the demand, the most expensive producers drop from the market, because they are not able to sell anything. I think that many of them will stop the projects of LNG until this tendency reaches us’, the Minister told and added that by taking advantage of the current situation Qatar may improve its positions in the market.
To Gazprom that offers natural gas to the market supplied through pipes it means a relentless price battle, where positions of the opponents significantly differ. To Russia it will definitely mean the declining revenues to the federal budget, meanwhile Qatar, being probably the most efficient      producer of gas in terms of costs, will definitely resist any decline of prices. However, already is counting losses – they were record high in the first quarter of the current year and they reached 306 billion Roubles. The concern itself forecasts that its sales this year will drop by 17 percent up to 165 billion cubic meters and its average price will drop by one third. As if that’s not enough on 20 May Central Banks of Qatar and Turkey agreed on mutual currency exchange at a fixed rate for the amount of 15 billion US dollars in order to improve terms and conditions of the bilateral trade. Therefore, Turkey will definitely choose liquefied gas of Qatar and not natural gas of Russia. Especially because in the first four months of the current year the volume of the Russian gas dropped even 7 times up to 200 million cubic meters. According to the Bulgarian daily Expert supply of gas from Russia to Turkey may actually stop. Only 11 percent of the throughput of the gas lines ‘Turkish Stream’ and ‘Blue Stream’ connecting Russia and Turkey has been used. In the opinion of analysts of , having this in mind and the dropping prices of gas, the use of ‘Turkish Stream’ is totally unprofitable.     
Thus, Russia now just has to export its gas only to China. However, expectations related to Beijing seem more like illusions. The pipeline ‘Power of Siberia’ can pay off not earlier than 2048. Talks about its theoretically potential throughput of 50 billion cubic meters mean nothing, having in mind that the gas pipeline branch ‘Power of Siberia-1’ has been loaded very poorly. If the prices of gas will continue to drop, it will be simply not profitable to sell the gas abroad.   
can make some profit in the internal market, where prices of gas are much higher than in Europe: in Leningrad region the price of one thousand cubic meters is still around 63 US dollars and in the Central Russia – about 67 US dollars, meanwhile in the Netherlands it now reaches 45 US dollars (this price is simply detrimental). Moreover, the agency Bloomberg noticed that actions of Qatar may lead to negative prices of gas, because it may happen that there will be no place where to store it. Now 66 percent of LNG storage facilities in Europe are filled, where according to the information of Gas Infrastructure Europe this figure reached only 38 percent for the last 5 years.   
Experts of Skolkovo Energy operating in Russia noticed that the current situation in the market of gas remind of what is going on with oil at the time being. However, Gazprom has no gas OPEC that is able to regulate the price of gas by cartel and share debts with big players. Therefore, the budget hole of the current year of which grew up to 10 billion US dollars, now will have to live in a new economic reality.
Despite such assessments of experts, Moscow still tends to make the problem less. The propaganda portal tries to obtrude an idea that the attempt of Qatar to reduce the price of LNG will have negative impact on already congested global market, but Russia will not suffer so much as other countries, including Qatar. “Lack of gas carriers, which resulted in the growing freight prices has been felt since 2018. Now Qatar can face its deficit. In this situation, the prices of LNG reduced by Qatar will turn into the rising prices, because the prices include vessel rental prices, too’, the portal wrote and quoted an independent industry expert Alexey Khazanov.     
In another article on the same portal it was written that Qatar could reduce the revenue of Russia from export of gas if it built a gas line from the kingdom to Turkey and connected it to ‘Nabucco’ pipeline, the one that was designed before but forgotten for good. In the same article they reminded that this project was wrecked because of differences in Qatar and Saudi Arabia foreign policy and the civil war in Syria. Besides, according to the quoted experts, the USA will suffer first because of actions of Qatar that recently is trying to expand export of its liquefied gas. However, Russian propaganda is very sceptical about the United States strategy: allegedly, it is more profitable to European consumers to buy natural gas from Russia than bring LNA from across the Atlantic Ocean.        
It seems that reality is different: coronavirus pandemic, the main disaster named by , is subsiding but the gas (same as oil) markets will remain overloaded for a long time, probably for ever, the independent investigator portal The Insider remarked. If the prices grow more than the current minimum level, American shale gas extraction that has become a new factor regulating the market, may be easily increased. This might result in drop of gas prices. According to The Insider, such a swing will remain for a very long time. This will allow neither nor the oil giant earn previous windfall profits. Thus, Moscow will have to say good bye to big budget revenues from the gas and oil sectors with such current price conjuncture. At least, for a few coming years.
 
Moreover, Russia might have to subsidize its gas and oil companies. Particularly since this happened once already: at the beginning of the last decade of the century the Russian government had to borrow from the World Bank and try to bring its oil and gas production to life.   
Actually, in the opinion of the The Insider such scenario is not very probable. Most probably, the prices will grow a little bit and the state Russian corporations will make some profit. However, this hardly operating sector will no longer bring more significant revenues to the budget.    
Hence, economic policy of the Kremlin has no and probably will have no levers enabling to secure the growth. This means that all so-called ‘national projects’ that had to be implemented under instructions of Vladimir Putin by the end of 2024, are doomed to fail. These projects included 13 strategic areas such as health care, education, demography, culture, roads, dwelling programs, ecology, small and medium-sized enterprises, productivity and employment, digital economy, international cooperation and export and modernization of backbone infrastructure. All these ambitious plans are based on expectations that their implementation will be funded namely from the gas and oil money. Now there will never be this money. However, V. Putin and his environment have not developed other model of the economy in two decades that does not depend on the type of resources that are extracted from the ground.    
Aras Lukšas
 

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