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Russia's Gazprom eyes European gas exports at 200 Bcm/year to 2030

Highlights

Far Abroad supplies in 2019 totaled 199 Bcm

Price realization fell 17% to $203/1,000 cu m

Nord Stream 2 to come online by end-2020

Russia's Gazprom plans to export around 200 Bcm/year to Europe and Turkey over the next decade as it looks to keep a share of around 35% of the European market, the company said in an investor presentation late Tuesday.

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Its supplies to the Far Abroad -- Europe plus Turkey but minus the countries of the former Soviet Union -- totaled 199.3 Bcm last year, a slight drop on the record 201.4 Bcm in 2018.

Gazprom said the company had "retained its front-runner" position on the European market in 2019 -- taking a 36% market share -- despite an increase in LNG supplies to Europe.

"The company successfully defended its market share despite the bearish fundamentals and European energy policy emphasizing diversification of gas imports," it said.

LNG accounted for 21% of the European market share, Gazprom said, with supplies rising by 47 Bcm last year.

But Gazprom said LNG projects could be impacted in 2020 by "unfavorable economic conditions...With global prices at 10-year lows in the winter, LNG prices for deliveries from the Atlantic coast do not cover even the short-run marginal costs."

"In 2020, the share of unutilized liquefaction capacity is expected to increase."

Gazprom prices

Gazprom said its prices last year were resilient and outperformed the European hubs.

Its average realized price in 2019 was $203/1,000 cu m, down 17% from 2018.

By contrast, it estimated European day-ahead prices having fallen by 44% year on year to an average of $156/1,000 cu m.

Gazprom said, however, there was a "strong consensus" that the cycle of low prices would persist for the next couple of years.

But, it said, "low break-even costs provide Gazprom with a strong competitive advantage over spot LNG deliveries."

The company still has an anticipated sales price of $200/1,000 cu m in its 2020 business plan but, as of the start of February, had revised its internal estimates to $175-$185/1,000 cu m.

Gazprom said linkages in its contract portfolio to month-ahead plus products and price formation on the basis of historic forwards and oil indices translated into a premium of $1/MMBtu in relation to month-ahead prices at the hubs.

It said that over the first three quarters of last year, legacy oil indexation (16.5%) and contemporary quasi-oil indexation (15.5%) represented almost one third of its price formation pattern.

A total of 56.7% of the volumes delivered were sold under long-term contracts with a direct link to different trading hub indices, including spot and forward markets.

"The pricing mechanism embedded in the company's export contracts can be easily adjusted to European market changes," Gazprom Export CEO Elena Burmistrova said.

The remaining 11.3% of its sales last year were covered by trading operations and sales on its Electronic Sales Platform.

Gazprom said the ESP allowed it to "optimize sales" in periods of down-nominations on long-term contracts.

Export pipelines

Gazprom pointed to the roll-out of its additional export pipeline capacity as important factors in the company's "resilience" to market turmoil, with its export capacity to Europe and Turkey closing in on 250 Bcm/year once Nord Stream 2 and TurkStream ramp up to full capacity.

The 55 Bcm/year capacity Nord Stream 2, it said, is expected online by the end of 2020 following delays caused by the imposition of US sanctions against the project.

Russian President Vladimir Putin had said in January the start could be delayed into Q1 2021.

The 31.5 Bcm/year capacity TurkStream, which began commercial exports on January 1, is expected to reach full capacity by October 2022, Gazprom said.

The pipeline already delivers gas to Turkey, Bulgaria, Greece and North Macedonia, Gazprom said.

Supplies onward to Serbia and Hungary are expected by December this year, it said.