Russia's Gazprom hikes domestic gas storage withdrawals as cold weather bites

Russia's Gazprom has increased withdrawals from its domestic gas storage sites to cope with a period of seasonally low temperatures, but continues to supply its European customers in line with its contractual obligations.

Parts of Russia have seen temperatures fall to extreme lows in the past week, with the temperature in St. Petersburg -- the country's second-largest city -- hitting a 19-year low of minus 23 degrees Celsius on Dec. 26.

"In order to provide reliable gas supplies to its consumers, Gazprom has brought the daily amounts of gas withdrawn from Russian underground gas storage facilities to their highest level in the last five years," Gazprom said Dec. 27.

The volume supplied to Russian consumers had reached as high as 1.656 Bcm/day, it said.

The strong demand in Russia has come as supplies to the European market remain subdued, with deliveries via Belarus having dropped sharply from Dec. 18.

That helped push European gas prices to new record highs, with S&P Global Platts assessing the TTF day-ahead price at an all-time high of Eur182.78/MWh ($207/MWh) on Dec. 21, an increase of 985% year on year.

Prices have cooled somewhat since, with the TTF day-ahead contract assessed Dec. 24 at Eur96/MWh, still a year-on-year increase of 440%.

However, Gazprom said Dec. 27 that despite the strong Russian demand, European consumers were receiving gas "in full, as requested and in accordance with the existing contractual obligations".

2021 output

Despite the lower-than-expected Russian gas supplies to Europe, Gazprom's total gas output in 2021 is set to hit a 13-year high.

CEO Alexei Miller said in an address Dec. 23 that the company expected to have produced 515 Bcm of gas in 2021, 62 Bcm higher year on year.

"Needless to say, our key priority is the provision of stable and reliable gas supplies to Russian consumers," Miller said, adding that the amount of gas supplied to the domestic market would have grown by 29.7 Bcm compared with 2020.

Miller reiterated that Gazprom had fulfilled all its obligations to its European consumers in 2021 despite the strong domestic demand.

"The biggest growth in our supplies took place in the countries that are our largest consumers," he said.

"This indicates that our main clients -- our key partners -- are oriented toward buying Russian gas. They realize the long-term nature of our partnership, which will remain long-term in the future."

Miller's comments come after the European Commission on Dec. 15 proposed a ban on any long-term fossil gas contracts beyond 2049 as the EU looks to wean itself off unabated gas supply.

Gazprom has repeatedly stressed the importance of long-term contracts, which it says protect against short-term price volatility.

A number of its long-term contracts are due to expire at the end of 2021, including a 4 Bcm/year contract with Turkey's Botas and its supply arrangements with Serbia.

Miller held talks on Dec. 20 with representatives from both Serbia and Turkey, with no new agreements announced.

China supplies

Gazprom also supplies gas to China via the Power of Siberia pipeline, which began operations in December 2019, and Miller said deliveries continued to increase.

"Since November, our daily gas supplies have been exceeding the daily contractual obligations to our Chinese partners by more than one-third," he said.

"Our supply volumes are already in excess of the contractual and design amounts."

Gazprom was expected to supply some 10 Bcm of gas to China in 2021 before ramping up to its design capacity of 38 Bcm/year later in the decade.

In 2023, the Power of Siberia will also start receiving gas from the Kovykta field to add to the supply from the Chayandinskoye field, both located in East Siberia.

Miller said Dec. 23 that the pipeline between the two was 70% complete.

Development work in East Siberia is part of Gazprom's main investment budget for 2022, which has been approved at Rb1.76 trillion ($24 billion).

Gazprom deputy chairman Famil Sadygov said Dec. 21 the company would achieve record high revenues in 2021, higher than the current record of Rb8.2 trillion from 2018, which would help drive future investment.

"Pricing conditions combined with our well-established sales policy have made the current year one of the most successful for Gazprom," Sadygov said in the company's corporate magazine.

Net profit is set to exceed Rb2 trillion, he said.

Export price

For 2021, Sadygov said Gazprom expected its average export price to exceed $280/1,000 cu m, and for prices to remain "significantly higher" compared to pre-pandemic levels in the short term.

"The budget for 2022 includes an average export price of $296/1,000 cu m," he said.

"The forecast for 2023 and 2024, taking into account our conservative approach to planning, provides for a phased reduction to $265/1,000 cu m and $228/1,000 cu m, respectively."

"Thanks to the balanced structure of our portfolio of export contracts, the average supply price in 2022 will be higher than the average price of 2021, even in the event of a significant decrease in spot prices from current levels," he said.

Under Gazprom's long-term contracts, prices are indexed with a 6-9 month lag, meaning the higher prices seen in recent months will filter through to Gazprom's long-term agreements in early-to-mid 2022.

"This situation allows us to predict with great confidence the growth of key financial indicators next year," Sadygov said.