Gazprom Monitor 51 August 2015
The
European
Geopolitical
Forum
www.gpf-europe.com
EGF Gazprom Monitor
Issue 51: August 2015
A Snapshot of Key Developments in the External Relations of the Russian Gas Sector
By Dr Jack Sharples, EGF Associate Researcher on the external dimensions of Russian gas and Lecturer in Energy
Politics at the European University of St Petersburg
Key points:
Gazprom and the EU: Gazprom-PGNiG gas price talks at ‘an advanced stage’; Gazprom and Eni pledge to
continue close cooperation; Calm before the storm: Gazprom Deputy Chairman meets EU Competition
Commissioner, with Gazprom due to reply to EU antimonopoly ‘Statement of Objections’ by the 28th of
September
Nord Stream: OMV CEO Seele confident of EU approval for Nord Stream II, meets with Gazprom CEO Miller to
discuss joint venture for the project
Turkish Stream: Stop and go – Russia and Turkey continue trading proposals, but real progress not expected
until formation of new Turkish government in November; SE European Foreign Ministers could meet in
September to discuss the ‘Tesla’ extension to Turkish Stream
Ukraine: EU Commissioner for Energy Union meets with Ukrainian Energy Minister and Naftogaz CEO, and
plans meeting with Russian Energy Minister in September ahead of next round of trilateral talks; Gazprom
CEO expresses concerns over Naftogaz winter gas storage
Belarus: Gazprom begins construction of Gazprom Centre in Minsk, set to be ‘the tallest building in Belarus’
Asia: Shell participation in Sakhalin-III in doubt as US imposes sanctions on the project; Gazprom reports
‘good dynamics’ in ongoing negotiations with PetroChina and CNPC over pipeline deliveries of Russian gas to
China, despite concerns over the commercial viability of the projects
Other: Gazprom’s annual gas production could reach record low in 2015, as the company also cuts its sales
price forecast
EGF Gazprom Monitor
Gazprom and the EU
Gazprom-PGNiG gas price talks at ‘an advanced stage’
Gazprom’s negotiations with PGNiG remain ongoing,
despite PGNiG’s request for arbitration. Negotiations
over the gas price formula in the Gazprom-PNGiG gas
supply contract began in November. After six months
www.gpf-europe.com
already see the great potential of the further
cooperation with Saipem under Gazprom’s current
and future projects”.
Despite the difficulties Gazprom currently faces on the
European gas market, it is clear that Eni (and its
Saipem subsidiary) remain key partners for Gazprom.
of talks, PGNiG requested arbitration, as they were
entitled to do in accordance with their contractual
agreement with Gazprom. However, upon the
Calm before the storm: Gazprom Deputy Chairman
meets EU Competition Commissioner, with Gazprom
initiation of arbitration proceedings, PGNiG refused to
due to reply to EU antimonopoly ‘Statement of
rule out continued negotiations.
Objections’ by the 28th of September
In August, the President of the PGNiG Management
Board, Mariusz Zawisza, told a news conference: "The
It has been a relatively quiet month for Gazprom on
the European gas market. However, that may just be
talks are of a quite advanced nature, but I can say
the ‘calm before the storm’, given that Gazprom has
nothing more at the moment".
until the 28th of September to submit a written
response to the ‘Statement of Objections’ issued by
Gazprom and Eni pledge to continue close cooperation
the European Commission, as part of its antitrust
investigation into Gazprom’s practices in Central,
At a meeting in Moscow the Gazprom CEO, Alexei
Baltic, and South-Eastern Europe.
Miller, and the Chief Operating Officer of Eni, Claudio
Descalzi, discussed the current dynamics of the
European gas market, and pledged to continue their
close cooperation on the Italian and broader
European gas markets with regard to existing
contracts and infrastructure projects.
There is still time for the two sides to reach an
agreement, before the case is settled in court. With
this in mind, negotiations between Gazprom and the
EU remain ongoing, with Gazprom Deputy Chairman
Alexander Medvedev meeting the EU Competition
Commissioner, Margrethe Vestager, on the 23rd of
It is notable that the pipeline-laying company, Saipem,
is a subsidiary of Eni. Saipem was scheduled to lay the
offshore section of South Stream before the project
July. The meeting was their first since the European
Commission issued its ‘Statement of Objections’ in
April. Following the meeting, Medvedev announced:
was cancelled in favour of Turkish Stream. Saipem
continued to hold its pipe-laying vessels in place for
seven months, before Gazprom cancelled the contract
in July 2015. However, Gazprom continues to insist
that Saipem remains a key partner for Gazprom. In
the meeting with Descalzi, Miller stated, “We can
As I have stated in the past, we prefer to settle
this case amicably and will continue to engage
with DG Competition… Today’s meeting
provided a good framework for future
discussions and we hope to make swift progress
toward a mutually acceptable solution.
Despite characterising the meeting as “productive”,
Issue 51: August 2015 - Page 2 of 9
EGF Gazprom Monitor
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Medvedev rejected claims that Gazprom had over-
to undertake the Nord Stream expansion.
charged its customers, arguing that Gazprom’s “prices
From the 11th to the 20th of August, the Nord Stream
are nearing a record low for our customers across
pipeline was shut down for annual maintenance.
Europe”.
However, this only had a minor impact on European
For its part, a European Commission spokesperson
hub prices, as Gazprom and its Nord Stream
stated that the meeting was an “informal exchange on
consortium
Gazprom’s preliminary views”, but declined to
maintenance plans well in advance, allowing their
comment further.
European partners to ‘price in’ the adjusted flows.
partners
had
communicated
the
In the coming month Gazprom will most likely
continue
its
talks
with
the
EU
Competition
Commission, whilst simultaneously preparing its
written response to the Statement of Objections.
Turkish Stream
Stop and go – Russia and Turkey continue trading
proposals, but real progress not expected until
formation of new Turkish government in November
Nord Stream
Nine months after its high profile conception – in a
OMV CEO Seele confident of EU approval for Nord
press conference on the 1st of December 2014 – the
Stream II, meets with Gazprom CEO Miller to discuss
Turkish Stream pipeline has yet to be born.
joint venture for the project
In an interview with local media on the 4th of August,
On the 12th of August, the OMV CEO, Rainer Seele,
one of the midwives of the project - the Turkish
gave a live web conference, in which he discussed the
Energy Minister, Taner Yildiz – explained the reasons
proposed expansion of the Nord Stream pipeline.
for delays in Turkish Stream into the world:
Seele announced his confidence that the European
Commission would approve the capacity expansion.
He also referred to Nord Stream as a European project
with “fascinating prospects” for OMV, which could
secure supplies of natural gas in all of Europe and
increase the capacity of the Baumgarten hub by 20%:
For OMV… this also means securing supply
flows to the Central European gas hub,
Baumgarten, which already handles 40
bcm/year – approximately one-third of the gas
transported to Europe.
Two weeks later, Seele travelled to Moscow, where he
met with the Gazprom CEO, Alexei Miller, and
discussed preparations for setting up a joint venture
[The delay] was caused because the Russian
side was late in delivering the coordinates for
the construction route, and because of talks to
form a new coalition government in Turkey…
The delivery date for the route coordinates had
been extended until June 10, or to a later date.
Turkey could not begin any construction
without these coordinates… The intergovernmental agreement for the project should
be ratified in parliament, and Turkey must first
form a new government through either a
coalition or a snap election.
Three days later, Russian sources reported an
announcement by the Russian Energy Ministry that it
had sent Ankara two proposals – the first for one line,
and the second for four lines. However, the press
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EGF Gazprom Monitor
www.gpf-europe.com
release issued by the Russian Energy Ministry did not
Russian gas delivered via Ukraine. However, in June,
specify when those proposals had been sent.
the Slovakian Prime Minister, Robert Fico, suggested
Finally, on the 19th of August, Yildiz confirmed that the
that Eastring be connected to Turkish Stream, thus
Turkish Energy Ministry had sent its proposals to
Moscow, and was awaiting a response, adding: "It will
not be us who delays the project".
Turkey currently has an interim government, and is
set to hold a snap election on the 1st of November. It
therefore seems unlikely that we will witness any
major developments until the new government is
formed.
SE European Foreign Ministers could meet in
enabling the partner countries to bypass Ukraine in
receiving Russian gas deliveries.
If history teaches us anything, it is that it is far, far
easier to plan a pipeline than it is to actually build it.
News archives and academic literature are littered
with discussions of now-defunct pipeline projects for
bringing gas to South-Eastern Europe, such as South
Stream, White Stream, and Nabucco.
Gazprom and Ukraine
September to discuss the ‘Tesla’ extension to Turkish
Gazprom and Naftogaz CEOs meet to discuss winter
Stream
gas supplies
Meanwhile, sources also report that the foreign
On the 21st of August Gazprom CEO Alexei Miller met
ministers of Greece, Macedonia, Serbia, and Hungary
with his Naftogaz counterpart, Andriy Kobelyev, in
could meet in September to discuss an extension of
Minsk to discuss preparations for the autumn-winter
Turkish Stream from the Greek-Turkish border to
period. It was reportedly the first bilateral meeting
Central Europe, with a proposed pipeline named
between the two CEOs since May 2014.
‘Tesla’. Russian sources suggest that the first meeting
of a working group examining the potential for the
project took place on the 25th of June. Initial
indications are that the project could be ‘finalised’ by
2019, with a capacity of 27 bcm and a cost of EUR 45bn.
However, Tesla faces competition from another
proposed pipeline project. The ‘Eastring’ project
proposes bringing gas from Veljke Kapuscany on the
Slovak-Ukrainian border south to Bulgaria, via
Hungary and Romania. The rationale behind such a
project appears to be about bringing gas from Central
Europe to South-Eastern Europe, as an alternative to
The EU Commissioner for Energy Union meets with
Ukrainian Energy Minister and Naftogaz CEO, and
plans meeting with Russian Energy Minister in
September ahead of next round of trilateral talks
Six days later, the European Commission VicePresident for the Energy Union, Maroš Šefčovič, met
with Ukraine's Minister for Energy and Coal Industries,
Vladimir Demchyshyn and Naftogaz CEO, Andriy
Kobolyev, in Vienna. Šefcovic will also meet with the
Russian Energy Minister, Alexander Novak, in Vienna
on the 11th of September. Both of these meetings
were held to discuss deliveries of Russian gas to
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Ukraine and the EU this winter. Indeed, the two
storage by the beginning of the winter heating season.
meetings can be seen as a precursor to the next
In an official press release on the 17th of August,
trilateral meeting between representatives of Russia,
Ukraine, and the EU, as the sides try to reach
agreement on a new ‘winter package’.
Naftogaz announced that it had paid $275 per 1000
cubic metres for its gas imports from Europe in Q2
2015. If this price is maintained in Q3 and Q4, and
Naftogaz wishes to reach 17 bcm in storage, this will
Conflicting reports on whether Naftogaz asked
Gazprom for an ‘advance’ on winter deliveries
Following the Miller-Kobelev meeting, the Russian
require gas purchases of 2.7 bcm, worth $742.5m.
With the $300m from the EBRD covering less than half
Naftogaz’s needs, the question remains of where
Naftogaz could find the remaining $442.5m.
business daily, Kommersant, reported that the
Naftogaz CEO had requested advance payment for
winter gas transit. This would give Naftogaz the cash it
Gazprom CEO expresses concerns over Naftogaz
needs to buy the Russian gas it needs to fill its storage
winter gas storage
systems, ready for the winter. This report was then
quoted and reposted by a number of other media
outlets. However, the Head of PR at Naftogaz, Alena
Osmolovsky, then gave a statement to Interfax
Ukraine, stating categorically that Naftogaz had not
requested advance payment.
The debate over whether Naftogaz did or did not
request advance payment from Gazprom was
preceded by an official announcement from Naftogaz
on the 10th of August that it would use $300m of its
loan from the European Bank of Reconstruction and
Development (EBRD) to pay for winter gas supplies
during Q3 2015.
The issue of Ukraine’s gas storage is a crucial one, as
In an interview with the Russian news agency, TASS,
on the 21st of August, the Gazprom CEO, Alexei Miller,
expressed his concerns over the situation, but denied
that Gazprom was prepared to place its own gas in
Ukrainian storage to ensure stability of winter
supplies:
By the start of the withdrawal season [last
year] Naftogaz accumulated 16.7 billion cubic
meters of gas in its storages. If it carries on like
this, Naftogaz will not achieve even the
mentioned figure... We have some concerns
about the situation, and the process has to be
accelerated… We believe that it is Naftogaz’s
responsibility to cover these issues and,
consequently, we are not going to inject our
own gas into Ukraine’s UGS facilities.
When asked what Gazprom needs to resume
the gas Ukraine has in storage at the beginning of the
deliveries to Naftogaz, Miller replied: “Just money.
winter heating season (October) ensures stable
But it is clear that Ukraine doesn’t have any”.
supplies to domestic Ukrainian consumers and stable
transit of Russian gas onward to the EU. Ukraine
currently has 14.3 bcm in storage, up from its low
point of 7.6 bcm in April. Naftogaz representatives
claim that the company aims to have 17-19 bcm in
Issue 51: August 2015 - Page 5 of 9
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Gazprom in Belarus
Gazprom in Asia
Gazprom begins construction of Gazprom Centre in
Shell participation in Sakhalin-III in doubt as US
Minsk, set to be ‘the tallest building in Belarus’
imposes sanctions on the project
On the 21st of August, the Gazprom CEO, Alexei Miller,
At the beginning of August, Shell reportedly agreed to
and the Belarusian President, Aleksandr Lukashenka,
swap ‘a stake in one of its international energy assets’
laid a time capsule to mark the beginning of the
for a stake in Gazprom’s Sakhalin-III project. The two
construction of the ‘Gazprom Centre’ in Minsk – a
sides declined to give further details at that stage.
multi-purpose complex. At 36 floors (189 metres), the
building is set to become the tallest in Belarus when it
The Sakhalin-III project is aimed primarily at
developing the Yuzhno-Kirinskoye sub-sea gas field,
is completed in 2018.
located off the coast of Sakhalin, in Russia’s Far East.
The Gazprom press release states that it “will be
Gas from Yuzhno-Kirinskoye has been earmarked as a
occupied by the Gazprom Transgaz Belarus staff and
source for the Sakhalin-II LNG export terminal, in
other Gazprom Group-owned companies in Minsk”.
which Gazprom and Shell are both shareholders. In
The press release also emphasised the benefits for
June, Gazprom and Shell agreed to add a third LNG
local residents, who will have access to the complex:
train to Sakhalin-II, raising its LNG production capacity
In addition, four class A office buildings will
welcome up to 5.5 thousand workers. A hotel,
a congress centre, a shopping area, 11
restaurants and cafes as well as spacious
underground parking will be incorporated into
the modern office area. Great attention will be
paid to public amenities. Thus, a multispecialist medical centre, a state-of-the-art
sports centre as well as a children’s education
and learning centre capable to host 200 visitors
at the same time – all these facilities will open
their doors to city residents.
A park area featuring a unique landscape
between the complex and Nezavisimosti
Avenue will offer both locals and metropolitan
visitors to take advantage of leisure activities.
An outdoor amphitheatre fenced by fountains
will be built, to host concerts and festivals in
summer. A public ice skating rink may be
available within the recreation area in winter.
In highlighting the value of the new office to the
citizens of Minsk, Gazprom is taking steps to ensure
the support of the Belarusian government and local
residents, whilst simultaneously providing high quality
from 10 to 15m tonnes of LNG per year.
However,
within
days
of
the
Gazprom-Shell
announcement in early August, the US government
added the Yuzhno-Kirinskoye project to its sanctions
list. This not only prevents the use of American
equipment on the project, but more importantly,
sends a clear symbolic message to Shell to back away
from participation in the project. For its part, Shell
responded with a written statement:
We engage with the relevant authorities and
take action to ensure we comply with all
applicable sanctions or related measures… Shell
remains committed to working in Russia and we
value working with our Russian partners.
The Russian President’s Press-Secretary, Dmitrii
Peskov, issued a more robust response, telling the
Russian media: “the tendency of continuing dialogue
in the language of sanctions further erodes our
bilateral relations, unfortunately”.
facilities for its own personnel.
Issue 51: August 2015 - Page 6 of 9
EGF Gazprom Monitor
Gazprom
reports
‘good
www.gpf-europe.com
dynamics’
ongoing
of the Gazprom-CNPC contract was not revealed,
negotiations with PetroChina and CNPC over pipeline
experts calculated it to be approximately $350 per
deliveries of Russian gas to China, despite concerns
thousand cubic metres – a level that would be barely
over the commercial viability of the projects
profitable, given the expenditure necessary to make
On the 18th of August, the Gazprom CEO, Alexei Miller,
the project a reality.
hosted a meeting with the Vice President of
With Brent Crude now at a level of $50 per barrel, and
PetroChina, Huang Weihe. The Gazprom press release
Gazprom’s 2015 gas export price predicted to average
notes that negotiations over the ‘Western Route’
out at $235-242 per thousand cubic metres (see
showed “very good dynamics”, adding that:
below), there is a real sense that – if current price
in
The main terms and conditions of supply had
already been specified, for instance, a RussianChinese border crossing corridor for the future
gas pipeline.
dynamics remain in place – Gazprom faces a choice
between abandoning the project, or operating it at a
substantial loss for the first decade, in the hope of
making a long-term profit. Such uncertainties may
With regard to the Eastern Route, also known as the
Power of Siberia pipeline, the press release noted that
“project operations in Russia and China are running
account for the delay in wrapping up a deal for the
‘Western Route’.
according to the schedule”.
Eight days later, Miller visited Beijing, where he met
In other news…
with Zhang Gaoli, First Vice-Premier of China’s State
Gazprom’s annual gas production could reach record
Council, and Wang Yilin, Chairman of the Board of
low in 2015, as the company also cuts its sales price
Directors of CNPC. At the meeting:
forecast
The participants addressed the issues of
bilateral
cooperation,
particularly
the
preparations for the contract on Russian
natural gas supply to China via the western
route. The parties highlighted that they aimed
for the successful conclusion of negotiations
which were progressing steadily.
2015 could be a year to forget for Gazprom, if
However, experts have expressed concerns that both
foundation in 1991. Such a level of gas production
projects could be undermined by a continuation of
would be lower than in the ‘crisis year’ of 2009 (461
lower oil prices, which would render both pipeline
bcm) and significantly lower than in the ‘post-crisis’
projects non-commercially viable for Gazprom. When
peak year of 2011 (513 bcm). A production level of
the contract for the ‘Eastern Route’ was signed in May
414 bcm would also be a significant decline against
2014, Gazprom’s average gas export price was $387
stable production of 487 bcm in 2012 and 2013, and
per thousand cubic metres, indexed to a Brent Crude
444 bcm in 2014.
oil price of $110 per barrel. Although the ‘base price’
Such a drop may be attributed to a gradual decline in
predictions from the Russia’s Ministry of Economic
Development prove accurate. The Ministry predicts
that Gazprom’s gas production could fall to just 414
bcm in 2015 – a record low for the company since its
Issue 51: August 2015 - Page 7 of 9
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Russian gas consumption, from 425 bcm in 2011 to
Gazprom has also reduced its sales-price forecast for
414-416 bcm in 2012-13, and 409 bcm in 2014. In a
2015 for gas sales outside the former Soviet Union,
shrinking
faces
from its April prediction of $242 per thousand cubic
increasingly stiff competition from Novatek and
metres to an August prediction of $235-242 per
Rosneft. Gazprom’s domestic sales fell from 265 bcm
thousand metres. The decline in Gazprom’s export
to 217 bcm between 2011 and 2014, and are
prices is due to its oil-indexed pricing formula, which
expected to fall again in 2015. In terms of exports,
has suffered from the dramatic decline in oil prices
Gazprom’s gas sales beyond the former Soviet Union
over the past year.
domestic
market,
Gazprom
(FSU) fluctuated between 150 bcm ad 175 bcm in
2010-14 (159 bcm in 2014), but sales in the FSU fell
every year between 2011 and 2014, from 82 bcm to
48 bcm.
The IMF (Commodity Price Statistics) reports that the
price of Russian gas at the German border fell by onethird between Q3 2014 and July 2015, from $10.1 per
Million British Thermal Units (MMBtu) to $6.7 per
In terms of developments in 2014-15, the Russian
MMBtu ($360 per 1,000 cubic metres to $240 per
Central Bank reports that Russian (i.e. Gazprom) gas
1,000 cubic metres).
exports fell from 103.5 bcm in H2 2013 to 72.6 bcm in
H2 2014, and that Q1 exports fell 10 bcm year-on-year
from 54 bcm in Q1 2014 to 43.5 bcm in Q1 2015. In
short, the period from July 2014 to March 2015 was a
disappointing one for Gazprom, and the rest of 2015
does not look promising.
Issue 51: August 2015 - Page 8 of 9
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European
Geopolitical
Forum
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EGF Gazprom Monitor
Issue 51: August 2015
Fig. 1. Model of the Gazprom Centre in Minsk (construction launched on the 21st of August)
Source: Gazprom website (http://www.gazprom.com/f/posts/21/792761/209300-10.jpg)
Disclaimer
The information presented in this report is believed to be correct at the time of publication. Please note that the contents of the report are
based on materials gathered in good faith from both primary and secondary sources, the accuracy of which we are not always in a position to
guarantee. EGF does not accept any liability for subsequent actions taken by third parties based on any of the information provided in our
reports, if such information may subsequently be proven to be inaccurate.
EGF Gazprom Monitor
Published by European Geopolitical Forum SPRL
Copyright European Geopolitical Forum SPRL
Director and Founder: Dr Marat Terterov
Email: Marat.Terterov@gpf-europe.com
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Issue 51: August 2015 - Page 9 of 9
European
Geopolitical
Forum
www.gpf-europe.com
EGF Gazprom Monitor
Issue 51: August 2015
A Snapshot of Key Developments in the External Relations of the Russian Gas Sector
By Dr Jack Sharples, EGF Associate Researcher on the external dimensions of Russian gas and Lecturer in Energy
Politics at the European University of St Petersburg
Key points:
Gazprom and the EU: Gazprom-PGNiG gas price talks at ‘an advanced stage’; Gazprom and Eni pledge to
continue close cooperation; Calm before the storm: Gazprom Deputy Chairman meets EU Competition
Commissioner, with Gazprom due to reply to EU antimonopoly ‘Statement of Objections’ by the 28th of
September
Nord Stream: OMV CEO Seele confident of EU approval for Nord Stream II, meets with Gazprom CEO Miller to
discuss joint venture for the project
Turkish Stream: Stop and go – Russia and Turkey continue trading proposals, but real progress not expected
until formation of new Turkish government in November; SE European Foreign Ministers could meet in
September to discuss the ‘Tesla’ extension to Turkish Stream
Ukraine: EU Commissioner for Energy Union meets with Ukrainian Energy Minister and Naftogaz CEO, and
plans meeting with Russian Energy Minister in September ahead of next round of trilateral talks; Gazprom
CEO expresses concerns over Naftogaz winter gas storage
Belarus: Gazprom begins construction of Gazprom Centre in Minsk, set to be ‘the tallest building in Belarus’
Asia: Shell participation in Sakhalin-III in doubt as US imposes sanctions on the project; Gazprom reports
‘good dynamics’ in ongoing negotiations with PetroChina and CNPC over pipeline deliveries of Russian gas to
China, despite concerns over the commercial viability of the projects
Other: Gazprom’s annual gas production could reach record low in 2015, as the company also cuts its sales
price forecast
EGF Gazprom Monitor
Gazprom and the EU
Gazprom-PGNiG gas price talks at ‘an advanced stage’
Gazprom’s negotiations with PGNiG remain ongoing,
despite PGNiG’s request for arbitration. Negotiations
over the gas price formula in the Gazprom-PNGiG gas
supply contract began in November. After six months
www.gpf-europe.com
already see the great potential of the further
cooperation with Saipem under Gazprom’s current
and future projects”.
Despite the difficulties Gazprom currently faces on the
European gas market, it is clear that Eni (and its
Saipem subsidiary) remain key partners for Gazprom.
of talks, PGNiG requested arbitration, as they were
entitled to do in accordance with their contractual
agreement with Gazprom. However, upon the
Calm before the storm: Gazprom Deputy Chairman
meets EU Competition Commissioner, with Gazprom
initiation of arbitration proceedings, PGNiG refused to
due to reply to EU antimonopoly ‘Statement of
rule out continued negotiations.
Objections’ by the 28th of September
In August, the President of the PGNiG Management
Board, Mariusz Zawisza, told a news conference: "The
It has been a relatively quiet month for Gazprom on
the European gas market. However, that may just be
talks are of a quite advanced nature, but I can say
the ‘calm before the storm’, given that Gazprom has
nothing more at the moment".
until the 28th of September to submit a written
response to the ‘Statement of Objections’ issued by
Gazprom and Eni pledge to continue close cooperation
the European Commission, as part of its antitrust
investigation into Gazprom’s practices in Central,
At a meeting in Moscow the Gazprom CEO, Alexei
Baltic, and South-Eastern Europe.
Miller, and the Chief Operating Officer of Eni, Claudio
Descalzi, discussed the current dynamics of the
European gas market, and pledged to continue their
close cooperation on the Italian and broader
European gas markets with regard to existing
contracts and infrastructure projects.
There is still time for the two sides to reach an
agreement, before the case is settled in court. With
this in mind, negotiations between Gazprom and the
EU remain ongoing, with Gazprom Deputy Chairman
Alexander Medvedev meeting the EU Competition
Commissioner, Margrethe Vestager, on the 23rd of
It is notable that the pipeline-laying company, Saipem,
is a subsidiary of Eni. Saipem was scheduled to lay the
offshore section of South Stream before the project
July. The meeting was their first since the European
Commission issued its ‘Statement of Objections’ in
April. Following the meeting, Medvedev announced:
was cancelled in favour of Turkish Stream. Saipem
continued to hold its pipe-laying vessels in place for
seven months, before Gazprom cancelled the contract
in July 2015. However, Gazprom continues to insist
that Saipem remains a key partner for Gazprom. In
the meeting with Descalzi, Miller stated, “We can
As I have stated in the past, we prefer to settle
this case amicably and will continue to engage
with DG Competition… Today’s meeting
provided a good framework for future
discussions and we hope to make swift progress
toward a mutually acceptable solution.
Despite characterising the meeting as “productive”,
Issue 51: August 2015 - Page 2 of 9
EGF Gazprom Monitor
www.gpf-europe.com
Medvedev rejected claims that Gazprom had over-
to undertake the Nord Stream expansion.
charged its customers, arguing that Gazprom’s “prices
From the 11th to the 20th of August, the Nord Stream
are nearing a record low for our customers across
pipeline was shut down for annual maintenance.
Europe”.
However, this only had a minor impact on European
For its part, a European Commission spokesperson
hub prices, as Gazprom and its Nord Stream
stated that the meeting was an “informal exchange on
consortium
Gazprom’s preliminary views”, but declined to
maintenance plans well in advance, allowing their
comment further.
European partners to ‘price in’ the adjusted flows.
partners
had
communicated
the
In the coming month Gazprom will most likely
continue
its
talks
with
the
EU
Competition
Commission, whilst simultaneously preparing its
written response to the Statement of Objections.
Turkish Stream
Stop and go – Russia and Turkey continue trading
proposals, but real progress not expected until
formation of new Turkish government in November
Nord Stream
Nine months after its high profile conception – in a
OMV CEO Seele confident of EU approval for Nord
press conference on the 1st of December 2014 – the
Stream II, meets with Gazprom CEO Miller to discuss
Turkish Stream pipeline has yet to be born.
joint venture for the project
In an interview with local media on the 4th of August,
On the 12th of August, the OMV CEO, Rainer Seele,
one of the midwives of the project - the Turkish
gave a live web conference, in which he discussed the
Energy Minister, Taner Yildiz – explained the reasons
proposed expansion of the Nord Stream pipeline.
for delays in Turkish Stream into the world:
Seele announced his confidence that the European
Commission would approve the capacity expansion.
He also referred to Nord Stream as a European project
with “fascinating prospects” for OMV, which could
secure supplies of natural gas in all of Europe and
increase the capacity of the Baumgarten hub by 20%:
For OMV… this also means securing supply
flows to the Central European gas hub,
Baumgarten, which already handles 40
bcm/year – approximately one-third of the gas
transported to Europe.
Two weeks later, Seele travelled to Moscow, where he
met with the Gazprom CEO, Alexei Miller, and
discussed preparations for setting up a joint venture
[The delay] was caused because the Russian
side was late in delivering the coordinates for
the construction route, and because of talks to
form a new coalition government in Turkey…
The delivery date for the route coordinates had
been extended until June 10, or to a later date.
Turkey could not begin any construction
without these coordinates… The intergovernmental agreement for the project should
be ratified in parliament, and Turkey must first
form a new government through either a
coalition or a snap election.
Three days later, Russian sources reported an
announcement by the Russian Energy Ministry that it
had sent Ankara two proposals – the first for one line,
and the second for four lines. However, the press
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release issued by the Russian Energy Ministry did not
Russian gas delivered via Ukraine. However, in June,
specify when those proposals had been sent.
the Slovakian Prime Minister, Robert Fico, suggested
Finally, on the 19th of August, Yildiz confirmed that the
that Eastring be connected to Turkish Stream, thus
Turkish Energy Ministry had sent its proposals to
Moscow, and was awaiting a response, adding: "It will
not be us who delays the project".
Turkey currently has an interim government, and is
set to hold a snap election on the 1st of November. It
therefore seems unlikely that we will witness any
major developments until the new government is
formed.
SE European Foreign Ministers could meet in
enabling the partner countries to bypass Ukraine in
receiving Russian gas deliveries.
If history teaches us anything, it is that it is far, far
easier to plan a pipeline than it is to actually build it.
News archives and academic literature are littered
with discussions of now-defunct pipeline projects for
bringing gas to South-Eastern Europe, such as South
Stream, White Stream, and Nabucco.
Gazprom and Ukraine
September to discuss the ‘Tesla’ extension to Turkish
Gazprom and Naftogaz CEOs meet to discuss winter
Stream
gas supplies
Meanwhile, sources also report that the foreign
On the 21st of August Gazprom CEO Alexei Miller met
ministers of Greece, Macedonia, Serbia, and Hungary
with his Naftogaz counterpart, Andriy Kobelyev, in
could meet in September to discuss an extension of
Minsk to discuss preparations for the autumn-winter
Turkish Stream from the Greek-Turkish border to
period. It was reportedly the first bilateral meeting
Central Europe, with a proposed pipeline named
between the two CEOs since May 2014.
‘Tesla’. Russian sources suggest that the first meeting
of a working group examining the potential for the
project took place on the 25th of June. Initial
indications are that the project could be ‘finalised’ by
2019, with a capacity of 27 bcm and a cost of EUR 45bn.
However, Tesla faces competition from another
proposed pipeline project. The ‘Eastring’ project
proposes bringing gas from Veljke Kapuscany on the
Slovak-Ukrainian border south to Bulgaria, via
Hungary and Romania. The rationale behind such a
project appears to be about bringing gas from Central
Europe to South-Eastern Europe, as an alternative to
The EU Commissioner for Energy Union meets with
Ukrainian Energy Minister and Naftogaz CEO, and
plans meeting with Russian Energy Minister in
September ahead of next round of trilateral talks
Six days later, the European Commission VicePresident for the Energy Union, Maroš Šefčovič, met
with Ukraine's Minister for Energy and Coal Industries,
Vladimir Demchyshyn and Naftogaz CEO, Andriy
Kobolyev, in Vienna. Šefcovic will also meet with the
Russian Energy Minister, Alexander Novak, in Vienna
on the 11th of September. Both of these meetings
were held to discuss deliveries of Russian gas to
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Ukraine and the EU this winter. Indeed, the two
storage by the beginning of the winter heating season.
meetings can be seen as a precursor to the next
In an official press release on the 17th of August,
trilateral meeting between representatives of Russia,
Ukraine, and the EU, as the sides try to reach
agreement on a new ‘winter package’.
Naftogaz announced that it had paid $275 per 1000
cubic metres for its gas imports from Europe in Q2
2015. If this price is maintained in Q3 and Q4, and
Naftogaz wishes to reach 17 bcm in storage, this will
Conflicting reports on whether Naftogaz asked
Gazprom for an ‘advance’ on winter deliveries
Following the Miller-Kobelev meeting, the Russian
require gas purchases of 2.7 bcm, worth $742.5m.
With the $300m from the EBRD covering less than half
Naftogaz’s needs, the question remains of where
Naftogaz could find the remaining $442.5m.
business daily, Kommersant, reported that the
Naftogaz CEO had requested advance payment for
winter gas transit. This would give Naftogaz the cash it
Gazprom CEO expresses concerns over Naftogaz
needs to buy the Russian gas it needs to fill its storage
winter gas storage
systems, ready for the winter. This report was then
quoted and reposted by a number of other media
outlets. However, the Head of PR at Naftogaz, Alena
Osmolovsky, then gave a statement to Interfax
Ukraine, stating categorically that Naftogaz had not
requested advance payment.
The debate over whether Naftogaz did or did not
request advance payment from Gazprom was
preceded by an official announcement from Naftogaz
on the 10th of August that it would use $300m of its
loan from the European Bank of Reconstruction and
Development (EBRD) to pay for winter gas supplies
during Q3 2015.
The issue of Ukraine’s gas storage is a crucial one, as
In an interview with the Russian news agency, TASS,
on the 21st of August, the Gazprom CEO, Alexei Miller,
expressed his concerns over the situation, but denied
that Gazprom was prepared to place its own gas in
Ukrainian storage to ensure stability of winter
supplies:
By the start of the withdrawal season [last
year] Naftogaz accumulated 16.7 billion cubic
meters of gas in its storages. If it carries on like
this, Naftogaz will not achieve even the
mentioned figure... We have some concerns
about the situation, and the process has to be
accelerated… We believe that it is Naftogaz’s
responsibility to cover these issues and,
consequently, we are not going to inject our
own gas into Ukraine’s UGS facilities.
When asked what Gazprom needs to resume
the gas Ukraine has in storage at the beginning of the
deliveries to Naftogaz, Miller replied: “Just money.
winter heating season (October) ensures stable
But it is clear that Ukraine doesn’t have any”.
supplies to domestic Ukrainian consumers and stable
transit of Russian gas onward to the EU. Ukraine
currently has 14.3 bcm in storage, up from its low
point of 7.6 bcm in April. Naftogaz representatives
claim that the company aims to have 17-19 bcm in
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Gazprom in Belarus
Gazprom in Asia
Gazprom begins construction of Gazprom Centre in
Shell participation in Sakhalin-III in doubt as US
Minsk, set to be ‘the tallest building in Belarus’
imposes sanctions on the project
On the 21st of August, the Gazprom CEO, Alexei Miller,
At the beginning of August, Shell reportedly agreed to
and the Belarusian President, Aleksandr Lukashenka,
swap ‘a stake in one of its international energy assets’
laid a time capsule to mark the beginning of the
for a stake in Gazprom’s Sakhalin-III project. The two
construction of the ‘Gazprom Centre’ in Minsk – a
sides declined to give further details at that stage.
multi-purpose complex. At 36 floors (189 metres), the
building is set to become the tallest in Belarus when it
The Sakhalin-III project is aimed primarily at
developing the Yuzhno-Kirinskoye sub-sea gas field,
is completed in 2018.
located off the coast of Sakhalin, in Russia’s Far East.
The Gazprom press release states that it “will be
Gas from Yuzhno-Kirinskoye has been earmarked as a
occupied by the Gazprom Transgaz Belarus staff and
source for the Sakhalin-II LNG export terminal, in
other Gazprom Group-owned companies in Minsk”.
which Gazprom and Shell are both shareholders. In
The press release also emphasised the benefits for
June, Gazprom and Shell agreed to add a third LNG
local residents, who will have access to the complex:
train to Sakhalin-II, raising its LNG production capacity
In addition, four class A office buildings will
welcome up to 5.5 thousand workers. A hotel,
a congress centre, a shopping area, 11
restaurants and cafes as well as spacious
underground parking will be incorporated into
the modern office area. Great attention will be
paid to public amenities. Thus, a multispecialist medical centre, a state-of-the-art
sports centre as well as a children’s education
and learning centre capable to host 200 visitors
at the same time – all these facilities will open
their doors to city residents.
A park area featuring a unique landscape
between the complex and Nezavisimosti
Avenue will offer both locals and metropolitan
visitors to take advantage of leisure activities.
An outdoor amphitheatre fenced by fountains
will be built, to host concerts and festivals in
summer. A public ice skating rink may be
available within the recreation area in winter.
In highlighting the value of the new office to the
citizens of Minsk, Gazprom is taking steps to ensure
the support of the Belarusian government and local
residents, whilst simultaneously providing high quality
from 10 to 15m tonnes of LNG per year.
However,
within
days
of
the
Gazprom-Shell
announcement in early August, the US government
added the Yuzhno-Kirinskoye project to its sanctions
list. This not only prevents the use of American
equipment on the project, but more importantly,
sends a clear symbolic message to Shell to back away
from participation in the project. For its part, Shell
responded with a written statement:
We engage with the relevant authorities and
take action to ensure we comply with all
applicable sanctions or related measures… Shell
remains committed to working in Russia and we
value working with our Russian partners.
The Russian President’s Press-Secretary, Dmitrii
Peskov, issued a more robust response, telling the
Russian media: “the tendency of continuing dialogue
in the language of sanctions further erodes our
bilateral relations, unfortunately”.
facilities for its own personnel.
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Gazprom
reports
‘good
www.gpf-europe.com
dynamics’
ongoing
of the Gazprom-CNPC contract was not revealed,
negotiations with PetroChina and CNPC over pipeline
experts calculated it to be approximately $350 per
deliveries of Russian gas to China, despite concerns
thousand cubic metres – a level that would be barely
over the commercial viability of the projects
profitable, given the expenditure necessary to make
On the 18th of August, the Gazprom CEO, Alexei Miller,
the project a reality.
hosted a meeting with the Vice President of
With Brent Crude now at a level of $50 per barrel, and
PetroChina, Huang Weihe. The Gazprom press release
Gazprom’s 2015 gas export price predicted to average
notes that negotiations over the ‘Western Route’
out at $235-242 per thousand cubic metres (see
showed “very good dynamics”, adding that:
below), there is a real sense that – if current price
in
The main terms and conditions of supply had
already been specified, for instance, a RussianChinese border crossing corridor for the future
gas pipeline.
dynamics remain in place – Gazprom faces a choice
between abandoning the project, or operating it at a
substantial loss for the first decade, in the hope of
making a long-term profit. Such uncertainties may
With regard to the Eastern Route, also known as the
Power of Siberia pipeline, the press release noted that
“project operations in Russia and China are running
account for the delay in wrapping up a deal for the
‘Western Route’.
according to the schedule”.
Eight days later, Miller visited Beijing, where he met
In other news…
with Zhang Gaoli, First Vice-Premier of China’s State
Gazprom’s annual gas production could reach record
Council, and Wang Yilin, Chairman of the Board of
low in 2015, as the company also cuts its sales price
Directors of CNPC. At the meeting:
forecast
The participants addressed the issues of
bilateral
cooperation,
particularly
the
preparations for the contract on Russian
natural gas supply to China via the western
route. The parties highlighted that they aimed
for the successful conclusion of negotiations
which were progressing steadily.
2015 could be a year to forget for Gazprom, if
However, experts have expressed concerns that both
foundation in 1991. Such a level of gas production
projects could be undermined by a continuation of
would be lower than in the ‘crisis year’ of 2009 (461
lower oil prices, which would render both pipeline
bcm) and significantly lower than in the ‘post-crisis’
projects non-commercially viable for Gazprom. When
peak year of 2011 (513 bcm). A production level of
the contract for the ‘Eastern Route’ was signed in May
414 bcm would also be a significant decline against
2014, Gazprom’s average gas export price was $387
stable production of 487 bcm in 2012 and 2013, and
per thousand cubic metres, indexed to a Brent Crude
444 bcm in 2014.
oil price of $110 per barrel. Although the ‘base price’
Such a drop may be attributed to a gradual decline in
predictions from the Russia’s Ministry of Economic
Development prove accurate. The Ministry predicts
that Gazprom’s gas production could fall to just 414
bcm in 2015 – a record low for the company since its
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Russian gas consumption, from 425 bcm in 2011 to
Gazprom has also reduced its sales-price forecast for
414-416 bcm in 2012-13, and 409 bcm in 2014. In a
2015 for gas sales outside the former Soviet Union,
shrinking
faces
from its April prediction of $242 per thousand cubic
increasingly stiff competition from Novatek and
metres to an August prediction of $235-242 per
Rosneft. Gazprom’s domestic sales fell from 265 bcm
thousand metres. The decline in Gazprom’s export
to 217 bcm between 2011 and 2014, and are
prices is due to its oil-indexed pricing formula, which
expected to fall again in 2015. In terms of exports,
has suffered from the dramatic decline in oil prices
Gazprom’s gas sales beyond the former Soviet Union
over the past year.
domestic
market,
Gazprom
(FSU) fluctuated between 150 bcm ad 175 bcm in
2010-14 (159 bcm in 2014), but sales in the FSU fell
every year between 2011 and 2014, from 82 bcm to
48 bcm.
The IMF (Commodity Price Statistics) reports that the
price of Russian gas at the German border fell by onethird between Q3 2014 and July 2015, from $10.1 per
Million British Thermal Units (MMBtu) to $6.7 per
In terms of developments in 2014-15, the Russian
MMBtu ($360 per 1,000 cubic metres to $240 per
Central Bank reports that Russian (i.e. Gazprom) gas
1,000 cubic metres).
exports fell from 103.5 bcm in H2 2013 to 72.6 bcm in
H2 2014, and that Q1 exports fell 10 bcm year-on-year
from 54 bcm in Q1 2014 to 43.5 bcm in Q1 2015. In
short, the period from July 2014 to March 2015 was a
disappointing one for Gazprom, and the rest of 2015
does not look promising.
Issue 51: August 2015 - Page 8 of 9
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European
Geopolitical
Forum
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EGF Gazprom Monitor
Issue 51: August 2015
Fig. 1. Model of the Gazprom Centre in Minsk (construction launched on the 21st of August)
Source: Gazprom website (http://www.gazprom.com/f/posts/21/792761/209300-10.jpg)
Disclaimer
The information presented in this report is believed to be correct at the time of publication. Please note that the contents of the report are
based on materials gathered in good faith from both primary and secondary sources, the accuracy of which we are not always in a position to
guarantee. EGF does not accept any liability for subsequent actions taken by third parties based on any of the information provided in our
reports, if such information may subsequently be proven to be inaccurate.
EGF Gazprom Monitor
Published by European Geopolitical Forum SPRL
Copyright European Geopolitical Forum SPRL
Director and Founder: Dr Marat Terterov
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