One of the biggest questions of 2021 for the European gas market was why Russia’s Gazprom did not supply more natural gas to the market at a time of record high prices.
After all, it had previously been supposed that Gazprom had spare production capacity and there was definitely enough spare transit capacity in pipelines via Belarus and Ukraine for higher deliveries.
Gazprom’s export arm even has its own auction tool — the Electronic Sales Platform — that since September 2018 has offered surplus gas to European buyers, with some 51 Bcm of gas sold in the three years since it was launched.
Traders — especially those without long-term Russian import contracts — enjoyed the flexibility that the platform offered for sourcing Russian gas and optimizing purchases at different hubs and at different times.
But things have now changed. No sales have been recorded on the ESP since mid-October and no auctions have been scheduled since the end of that month.
Has Gazprom Export halted auctions indefinitely and if so, why?
The company declined to comment when contacted by S&P Global Platts, but according to analysts, it may have everything to do with the uncertainty around Nord Stream 2.
Much of the gas sold on the ESP before auctions were halted was for delivery in 2022 or 2023, an indication perhaps of when Gazprom expected Nord Stream 2 to begin commercial operations.
But with the German regulator having suspended the certification process for the pipeline in November while Nord Stream 2 AG transfers assets to a new German subsidiary, it remains uncertain when the pipeline might start flowing gas.
“We don’t expect Gazprom Export to send any more than its long-term contract nominations require until the startup of Nord Stream 2,” S&P Global Platts Analytics analyst Henryk Vasilevski said.
“We don’t expect any spot sales on Gazprom’s ESP or any meaningful sales via its subsidiaries for delivery before June 2022,” Vasilevski said.
Jack Sharples from the Oxford Institute for Energy Studies also sees a link between ESP sales and Nord Stream 2.
“My inclination is to expect ESP sales to remain suspended until Nord Stream 2 actually launches,” Sharples said, adding that this was unlikely to happen before the end of winter.
There has been speculation that Gazprom may not have had enough gas to supply more to Europe given high domestic demand and a requirement to refill Russian stocks.
But Sharples said he believes Gazprom has been holding back spot volumes. “There should have been an upswing in the availability of Russian gas once Gazprom completed its domestic storage replenishment, and that didn’t happen,” he said.
“Even Gazprom’s replenishment of its European storage has been a trickle rather than a flood.”
Gazprom said in late October it would begin restocking at five sites in Europe — thought to be Rehden, Katharina, Jemgum, and Etzel in Germany and Haidach in Austria — once it had completed its domestic storage injection program on Nov. 8.
Gazprom chief Alexei Miller even acknowledged at the time that its European stocks were “very, very small.”
But it is Moscow’s repeated insistence that the startup of Nord Stream 2 will see new volumes of gas reach Europe to help with the energy crisis that suggests Russian flows will be subdued until the pipeline is approved.
“At present, it suits Gazprom to maintain the current pricing levels. But at the end of winter, prices are likely to come down, so then the calculation switches back to ‘additional prompt sales volumes at a healthy price’,” Sharples said.
According to S&P Global Platts price assessments, the TTF price for Q2 2022 delivery is currently a third cheaper than the day-ahead equivalent.
With the startup of Nord Stream 2, Sharples said transit via both Ukraine and Belarus will drop, as exports are switched to the new route to ensure supplies reach the pipeline’s target markets.
Gazprom will also likely be keen to be seen to be using Nord Stream 2 as much as possible given the obstacles it had to overcome to begin using it commercially.
“To ensure that Nord Stream 2 is utilized to a greater extent, Gazprom will start offering prompt volumes at the ESP again,” he said.
According to Danila Bochkarev, associate researcher at the Institute of Political Science Louvain-Europe, the evolution of the weather this winter is also set to play a part in Gazprom’s strategic thinking.
While Gazprom’s gas output is currently headed for a 10-year high in 2021, it is also an indication of increased domestic gas demand.
“By the end of December, there might be certainty of how much gas will be needed till the end of the heating season and sales via the ESP are likely to start in early January,” Bochkarev said.