Russian gas purchases by Germany and Turkey -- the two countries set to be directly linked to Russia through new gas pipelines from next year -- led a surge in Gazprom's gas sales in 2017, an analysis of the company's full-year financial report showed Wednesday.
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Sales in almost all of Gazprom's markets were up last year from 2016 as relatively competitive Russian gas prices and strong European demand in both the power sector and for heating drove increased nominations for Gazprom gas (see table below).
Germany's purchases from Gazprom hit a new record of 53.4 Bcm, the data showed, an increase of 7.2% year on year, while Turkey's imports surged 17.3% to 29 Bcm.
Gazprom has repeatedly pointed to the growing needs of countries that would be served by its new gas pipelines -- the 55 Bcm/year Nord Stream 2 link to Germany and the 31.5 Bcm/year TurkStream line to Turkey -- as justification for their construction.
The two lines are designed to all but eliminate the need for using the Ukrainian transit route -- an issue that has again come to the fore in recent days after Gazprom said it had begun the process of terminating its gas supply and transit contract with Ukraine's Naftogaz after an arbitration court in Stockholm last month ruled in Naftogaz's favor in the companies' dispute over gas transit.
"The court's decision confirms the need for alternative infrastructure routes," Russian energy minister Alexander Novak told reporters in Moscow late Tuesday.
"Transit risks need to be reduced, and there needs to be new routes for gas supplies, including Nord Stream 2, which is the most economically expedient and the most technologically advanced, supplying gas directly to European consumers," Novak said.
Gazprom's sales in northwest Europe -- other than Germany and the Netherlands -- were mainly flat, and its exports to Italy actually fell in 2017 by 3.6% to 23.8 Bcm.
Dutch supplies rose strongly as its own domestic production continues to fall due to restrictions on output from the giant onshore Groningen field. Also notable in the 2017 data was a resumption of Gazprom sales to Croatia -- totaling 2.1 Bcm last year -- and deliveries restarting to Azerbaijan and Kyrgyzstan.
There was also a jump in deliveries to countries in eastern Europe despite a continued antipathy of countries in the region toward Russia and Gazprom.
For example, Gazprom's sales in the Czech Republic were up 27.8% to 5.8 Bcm, in Hungary by 4.7% to 5.8 Bcm, to Slovakia by 24.4% to 4.6 Bcm and to Bulgaria by 4.7% to 3.3 Bcm.
Surprisingly the three Baltic countries all increased their imports from Gazprom too -- Latvia by 36% to 1.8 Bcm, Lithuania by 59.5% to 1.4 Bcm and Estonia by 34.6% to 0.5 Bcm.
The increase in supplies to Lithuania came despite Vilnius now having access to LNG imports via its FSRU at Klaipeda.
Lithuania's Lietuvos Energija -- the country's state-owned energy holding company -- had a one-year supply deal with Gazprom at what it called "market prices" in 2017, which was renewed for another year in 2018.
The seven countries make up all but one of the eight eastern European countries cited in the ongoing, well-publicized European Commission antitrust case against Gazprom for alleged abuse of its dominant position in the countries.
Only Poland -- the eighth country in the antitrust case and probably the most vocal EU opponent of Russia's gas dominance in Europe -- reduced imports from Gazprom last year. It bought a total of 10.5 Bcm from Gazprom last year, a 5.4% reduction.
Poland hopes to be able to have the capacity to eliminate Russian imports altogether from 2022 when its supply deal with Gazprom expires, through a combination of LNG imports and supplies from Norway via the planned Baltic Pipe.
However, Warsaw has also said it could continue Russian imports if the price was right.
The eight countries in the antitrust case have traditionally been supplied mainly or exclusively by Russia, with few structural reasons to increase their gas demand significantly.
They also generally favor nuclear -- even Russian provided -- over gas to keep their power sector greenhouse gas emissions down, limiting one of the key variables for gas demand.
Still, given that Gazprom has said its prices last year in the European market averaged $197/1,000 cu m, its sales in the eight countries were still significant at some $6.6 billion.
The European Commission is currently waiting for Gazprom to make a better offer on how it will ensure its gas can be bought at competitive prices and resold without restrictions in central and eastern Europe to address the EC antitrust concerns.
Gazprom first published commitments in March 2017 designed to give its customers in these eight countries similar options to those already enjoyed by its western customers, but they were rejected by a number of countries, including Poland .
PGNiG, Gazprom's biggest customer in the region, said the commitments were "insufficient to remove the negative impact of Gazprom competition breach in the CEE markets, including the Polish market."