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Gazprom to hold next natural gas export auction in spring, delays OMV asset swap

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Gazprom to hold next natural gas export auction in spring, delays OMV asset swap

Moscow — * Deputy CEO expects European gas demand to keep growing
* Spot sales not a solution for Central, South Europe
* LNG sales seen flat in 2016, 2017

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Russia's Gazprom expects to offer its next European auction for natural gas in spring 2017, marking the fourth such auction as the company moves to meet growing demand in the Baltic and Northern European regions, deputy CEO Alexander Medvedev told the company's inhouse magazine.

"I do not exclude that in the spring of 2017 we will hold the next auction," Medvedev said.

Gazprom offers gas auctions for the Baltic and Northern Europe. But Medvedev did not specify which market would be the focus of the upcoming auction, or the volumes offered.

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Gazprom Export sold 2 Bcm of natural gas to 11 companies during the latest auctions in September for 3-4 Bcm of gas offered for winter 2016-17 (October-March) delivery in Germany and Austria, double the volume sold at the first auction to Germany last year.

While Gazprom intends to widely use auctions for sales to Europe in the future, Medvedev said spot sales are not an alternative to long-term contracts in other regions, such as Central and Southern Europe.

"I would like to emphasize that we should not overestimate the role of the spot markets in continental Europe, especially in Central and Southern Europe, for which the real gas, not 'paper' gas sold in the hubs, is now practically inaccessible," Medvedev said.

Demand for Russian gas has been growing despite the European Union urging a reduction in European dependency on it, and Medvedev said he expects that demand to continue rising.

"We believe the share of Russian gas in European consumption will at least remain at current levels, and, most likely, show a small but steady growth," Medvedev said.

Gazprom hit last week a new historic daily record of 579.5 million cu m for exports to Europe and Turkey.

Gazprom's most recently stated target for total exports to Europe and Turkey in 2016 is 170 Bcm -- an all-time high.

With growing European demand, the company eyes increasing European storage capacity for 5% of the deliveries, Medvedev said reiterating the company's previous plan.

Gazprom said earlier it wants to build up this volume of active gas storage capacity outside Russia by 2030 as it looks to build on its presence in the sector following its consolidation of German trading and storage company Wingas in September last year.

Gazprom Export's current gas storage capacity in European countries totals 5 Bcm, with a throughput of 61.5 million cu m/d.

Gazprom is also developing two additional pipelines to send Russian gas to Europe -- Nord Stream 2 across the Baltic Sea, and TurkStream across the Black Sea -- both expected to be launched in 2019 as a way to deliver Russian gas bypassing Ukraine.

While Russia and Turkey signed an intergovernmental agreement on TurkStream last week, Nord Stream 2 faced hurdles with European regulators forcing the parties involved to abandon a planned joint venture and raising questions over the construction financing share.

Gazprom's partners on Nord Stream 2 include five European companies, BASF/Wintershall, Engie, Uniper, Shell and OMV.

Medvedev said the inland part of the line will be built by European companies, adding German transport operations are coordinating action with the regulator.

Gazprom has meanwhile postponed closing the asset swap with Austria's OMV to 2017, although the parties said in April the deal was expected to close by the end of this year.

The deal foresees OMV getting a 24.98% stake in the project to develop sections 4A and 5A of the Achimov formation of the Urengoyskoye field, in return for Gazprom getting a share in upstream assets offshore Norway.

The deal followed several signings in St. Petersburg and also included a crude supply agreement under which Gazprom will supply OMV's Schwechat refinery.

LNG PLANS

On LNG exports, Gazprom intends to maintain them flat on the year at 3.56 million mt/year both in 2016 and 2017, he said.

Gazprom leads the consortium operating Russia's only producing LNG plant at the moment, Sakhalin 2 in Russia's Far East on the Pacific coast, which produces 10.8 million mt/year of LNG via two equal trains. The third train is expected to be added in 2021, Medvedev reiterated previous forecasts.

The company is also planning to build its second LNG plant on the other side of Russia, on the Baltic Sea, together with Shell.

While market experts have questioned the competitiveness of the planned 10 million mt/year Baltic LNG in Europe, Medvedev said "the Atlantic region, the Middle East and South Asia markets are under consideration."

"Competition in the LNG market continues to grow, and we are ready to work in new market conditions," Medvedev said. "We are actively developing relations with our traditional partners in Japan, Korea, Taiwan, and with customers in fast-growing markets of Southeast Asia, the Middle East and other regions."

The plant's capacity could be expanded to 15 million mt/year at a later stage via an additional train, he said. In June, he said Baltic LNG's ultimate capacity could amount to 20 million mt/year with a total of four trains.

Despite US plans for LNG exports to Europe, Medvedev does not see US LNG as competition to Gazprom's gas in the region, he said, adding that only two US LNG cargoes have been delivered to Europe this year, while most volumes went to Latin America, the Middle East and the Asia-Pacific Area.

"So far, LNG from the US is no competition for us in Europe," he said.

--Kassia Micek, kassia.micek@spglobal.com
--Nastassia Astrasheuskaya, nastia.astrasheuska@spglobal.com
--Ana-Maria Tolbaru, ana-maria.tolbaru@spglobal.com