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From abandoned fields to salt caves, Gazprom's gas storage is almost full

Gazprom's domestic storage is almost full, giving the Russian state gas giant leeway to increase exports this winter, officials and industry experts say, potentially encouraging news for Europe as it toils under surging power prices.

Russia, whose gas production and exports to European Union are already near record highs, said last week it needed to finish filling its own gas storage reserves before it could increase supplies to Europe's spot market.

Energy Minister Nikolai Shulginov said on Wednesday that domestic gas storage was 97% filled, without disclosing the specific figure. Ronald Smith, senior oil and gas analyst at Russia's BCS brokerage, estimates that the storage stands at around 69 billion cubic metres (bcm), close to the company's publicly disclosed target full-storage level of 72.6 bcm.

Gas markets in Asia and Europe have sky-rocketed this year, with benchmark Dutch gas hub spot prices jumping by 365% since the year-start, fuelled by low inventories and surging demand as economies recover from the COVID-19 crisis.

This has put Gazprom, Europe's biggest gas supplier, front and centre, with its exports rising by 13% and production up 17% since the start of the year.

The former Soviet gas ministry, which became a state company in 1990s, runs a network of 23 gas storage sites in various locations; from abandoned gas fields to salt caves, securing between 20% to 40% of all domestic supply in the heating season.

If storage is full by Nov. 1, then "unlike Europe, Russia will start the withdrawal season at a healthy storage level and should have some flexibility to ramp up gas sales to Europe," said Marina Tsygankova, an analyst with Refinitiv.

"The question is if Gazprom wants to do it before Nord Stream 2 is certified," she said, referring to the undersea gas pipeline from Russia to Germany opposed by a number of countries, including Ukraine and Poland, as it could deprive them of transit fees.

While finished and now being filled with the gas, the Nord Stream 2 is awaiting the go-ahead from Germany before it can start transporting supplies.

European inventories are about 14 bcm short of gas, including 8 bcm in Gazprom-linked facilities, partly due to Gazprom booking only a fraction of export capacity via Ukraine and Poland, said Dmitry Marinchenko, senior director at Fitch ratings agency.

"Until the end of the year, Russia should probably be able to provide at least an additional 5-10 bcm. November would be the right time to ramp up deliveries as in December Russia's own consumption will increase," he said.

Russia has said it would prioritise its home market over exports and Gazprom's supplies domestically have already risen by 17% so far this year, or by 26 bcm - equal to what Poland consumes annually.

But even with temperatures lower than usual across Russia last year, which Gazprom predicts may happen again this heating season, it used only 60.6 bcm from the storage at home, leaving another 12 bcm underground untouched.

Nonetheless, Smith of BCS brokerage cautioned that the Russian weather, and its influence on domestic consumption, could play a role in Gazprom's export plans.

"Gazprom's ability to export to Europe will be highly dependent upon Russian weather. September was cold, and October doesn't appear to be warm," he said.

And even if Russia increases supply, it's unlikely to have an immediate impact on European spot prices, analysts at the Sweden-based bank SEB said, as prices at the European gas market are linked to the globally set LNG price.

"We see that more natural gas from Russia would only calm the nerves a bit – and that the TTF will still depend on the global LNG price both now, for the coming winter, and in the years to come," SEB said.

Copyright © 2019. All market data is provided by Barchart Solutions. Futures: at least a 10 minute delay. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.

                                  CMEGroup                                     Icelogo


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