Author Archives: RAA Research

Donald Trump and me

This should be the mantra of every one of us these days. From any number of high-flying politicians anywhere in the world to every one of us at the bottom of the pile. The outcome of the US Presidential elections will determine the lives of billions of us. This is what happens when one global power dominates all others and as such the Americans are voting for all of us.

The current US administration is in a sense the end of the line, for many of us. Joe Biden looms as the crumbling figurehead of the post-war world order: past its best, hypocritical, self-serving, rotten to the core. While the post-war decades brought creature comforts to many of us, happiness and fulfilment remain elusive.

The consumerism has proved to be a blind alley: a shiny neon lights pointing to oblivion. Crowded in the polluted dead end, we panic into a mayhem. Some of us are screaming blue in the face that the global warming will kill us all. Some of us are using modern weaponry in a frustrated rage against their neighbours. That might get us all to the bitter end just a little bit faster. The American voter, as anyone of us, must be looking for a way out of this pandemonium. For many Americans Trump seems to be the ticket.

For Russia and Russians, the Trump presidential win could bring a swift conclusion to the bloody mess of the Ukrainian war. But this will be on the American terms and in the American long-term interests. For the Russian administration, the exercise will be limited to selling whatever is the deal they can’t refuse to the Russian public and paying the full whack in reparations to Ukraine. Trump might be the only US politician who can make a deal with the current Russian administration, and there are politicians in Ukraine who are already positioning themselves for such an outcome.

Arguably it was not Putin’s Russia that trashed the post-war world order, and it is not for Putin’s Russia to cobble it back together. This is to give too much credit to the administration which has been deluded into thinking that it is still running a global power. And the last two years have been an exercise in cutting down Russia to size. It has been ruthless and brutal with much help (read self-harm) from the Kremlin itself.

The second stage of the cutting down is well on the  way. Sanctions have started to bite in a meaningful way after a slow start. Over a few days in January we have learnt that bank transfers for Russian companies via Indian and Turkish banks have ground to a halt (source), the Western-built equipment is failing and cannot be replaced (source), there are not enough vegetable seeds to go into the ground in spring (source), there are looming US restrictions on the Russian agricultural exports (No Russian Agriculture Act). Drone attacks on Russian industrial capacity continue and might become more frequent and painful. This stage of the war be less costly in direct human casualties but will be more painful and expensive for Russia in any other way. By the time of the US elections in November 2024, it might become obvious (for the Russian administration ) that they should cut their losses and take the American offer when it comes.  

The alternative for Kremlin is to run down the country to the ground by militarising the economy, nationalisation and mobilisation. This might result in food shortages, collapse of the infrastructure and the financial sector, and serious public discontent. The standard of living might deteriorate quickly. This might even lead to popular unrest and pose a direct threat to the regime. This would push the Kremlin to a deal with Ukraine, still on American terms. This outcome is more likely if the Biden administration scrapes through to win the US elections.

The isolationist Trump administration and a deal with Russia on Ukraine would mean that Europe would have to deal with the costly aftermath both politically and economically. But handled with care this could bring some stability in the European affairs.

Russian gas export price up in Dec, but Jan 2022 likely to slide to sub $500/mcm

  • Based on the Russian customs data released on February 7, the weighted-average price of Russian-origin gas to all export destinations (exc. China was $517 per 1,000 cubic meters (mcm) in December 2021, compared to our forecast of $580/mcm.
  • Based on customs data, we estimate that the price for Russian gas in Europe only (excluding FSU, Turkey and ESP sales) was $711/mcm in December. This is at a 28% discount to the average price of TTF December futures of $1,005/mcm. While the majority of Russian contract prices is linked to TTF futures, some of the contracts might be based on long-term/fixed prices, which explains discounts to hub prices.
  • Our pricing model shows that the weighted average price of Russian-origin gas to all destinations (exc. China) in January 2022 declined 8% MoM to $475/mcm and export volumes fell 20.9% MoM to 12.7 bcm. The fall in price is on the back of higher proportion of sales to FSU and Turkey, where prices are below the European level. Russian customs will report the relevant data in early March.
  • The Russian gas price to European customers is estimated at $749/mcm, at a 46% discount to the average price of January TTF futures ($1,392/mcm) and 25% discount to TTF average spot price for January 2022 ($1,005/mcm).
  • This means that some Gazprom customers in Europe were buying Russian gas at a deep discount to headline hub prices. At the same time, Russian gas contracts with prices linked to next-month futures (est. 21% of total export to Europe in January) would have been more expensive ($1,392/mcm) than spot volumes in January ($1,005/mcm).

In the first week of February, the average price of TTF next-day futures ($935/mcm) has been below Russian contract prices based on dated futures ($1,002-$1,375/mcm). At the same time, Russia gas export to Europe (exc. Turkey and Ukraine) was up 24% MoM to 312 mn cu m/d (1-5 February), up from 251 mn cu m/d on average in January.

Gazprom in January: output near capacity points to higher export in coming months

  • In January, Gazprom produced 47.4 bcm of gas, up 1% YoY, according to the company’s statement on Telegram. This means that the average daily gas output was 1,529 mn cu m/d, up 16 mn cu m/d on the same period of last year. We note, however, that the daily average output is down from 1,540 mn cu m/d in mid-January to estimated 1,518 mn cu m/d in the second half of January.  
  • In our estimate the Chayanda field which feeds the Power of Siberia pipeline was the main source of additional output (up 17 mn cu m/d to 48 mn cu m/d). Outside East Siberia the gas production was only marginally lower (down 1.4mn cu m/d to 1,480 mn cu m/d). This might be close to Gazprom production capacity which is around 1,500 mn cu m/d.
  • Gazprom deliveries to domestic consumers in January were up 3.2% YoY to 35.4 bcm (1,144 mn cu m/d). The pace of growth in domestic demand continues to slow down YoY. We expect Gazprom deliveries to Russian customers to flatten out YoY in the remainder of winter, 
  • In January Gazprom export to Europe, Turkey and China fell 41% YoY to 11.4 bcm (368 mn cu m/d). Gas export was also down 16% MoM (compared to December last year).
  • There are signs that gas export to Europe might start to recover in the coming months. Gazprom doubled transit via Ukraine on February 1. We also believe that Gazprom would need to restore gas export to Europe to meet export target for this year.
  • Our modelling of Gazprom gas balance in January indicates that the company reduced withdrawal from Russian and European gas storage by 6.5 bcm (210 mn cu m/d) YoY, to offset for a reduction in export to Europe and Turkey (down 8.4 bcm or  273 mn cu m/d YoY).
  • This means that Gazprom gas storage was around 52 bcm as of end January, up 14 bcm YoY and 15% above 3-year average. At the end of the heating season in Russia (end March), Gazprom gas storage might be as high as 38 bcm, up 23 bcm YoY. The surplus storage could be used to supply additional volumes to Europe in the coming months, in our view.

Gazprom: positive signs for the European gas market

  • Russian gas export to Europe so far in January averaged 246 mn cu m/d, down 31% year-on-year (data as of January 26). However, there are indirect signs that Gazprom might be looking to increase supplies in the coming months.
  • According to Interfax[1], at a meeting with analysts Gazprom management pointed to high prices under long-term contracts as one of the reasons for a sharp drop in Russian gas supplies to Europe. Prices for around 50% of export deliveries are linked to month-ahead futures price. In December the average price for January deliveries was over $1,390 per 1,000 cubic meters. So far in January, the average next-day spot price was around $1,000 per mcm, according to our calculations.
  • Russian gas export to Europe could recover in February-Mach on more favourable pricing, according to the Interfax report.
  • Separately Gazprom might be placing Eurobond as soon as February if the geopolitical situation improves. This could reopen credit markets for Russian bond issuers, Interfax said[2].  Gazprom has just released an updated Eurobond prospectus. This usually indicates an approaching Eurobond placement. The company might want to raise money to refinance $1.3bn bond due on March 7. At the same time, Gazprom has a substantial cash pile to pay the debt if required.
  • A bond placement is usually accompanied by a roadshow and meetings between Gazprom top management and bondholders. This could be good news for the market if the company clarifies its strategy in Europe and provides more detail of production and export targets for the year.  Bond investors might want to hear confirmation that Gazprom might restore export flows to Europe to meet its operating and financial targets for the year. It would be also hard to expect a successful bond placement by Gazprom unless sanction and other risks are much reduced in the near future.
  • In another piece of news on January 26 Nord Stream-2 AG announced that it had set up a subsidiary to operate the 54-km section of the NS-2 pipeline which runs in the German territorial waters. The founding of a subsidiary was the requirement of the German Federal Network Agency. This might reopen certification of the NS-2 pipeline which was suspended in November 2021.
  • We believe that the announcement could be a sign that the NS-2 certification process is alive. We also note that opposition of the Ukrainian officials to the project appears to have shifted from a complete rejection of the pipeline on security grounds to more technical issues, such as a requirement to certify the entire pipeline rather than just the 54-km section in Germany. At the same time, it has been made clear to Russia that NS-2 pipeline would be mothballed if Russia makes a military move into Ukraine.

[1] Европа в январе полагается на запасы в ПХГ, СПГ и спот, переживая последствия шока декабрьских цен на газ, Ifax, 27 January 2022

[2] Газпром в феврале может выйти с новыми евробондами, если геополитика даст шанс – источник. Ifax, 28 January 2022

Russian-origin gas price to all export markets at $503 in November, export to Europe drops by 29% YoY

  • The weighted-average price of Russian-origin gas to Europe, Turkey and the Former Soviet Union (FSU) was $503 per 1,000 cubic meters (mcm) in November, compared to our forecast of $511/mcm. This is based on the Russian customs data, released on January 14. It does not include sales to China.
  • Russian customs report the total value of Russian-origin gas shipped across the border. We work out average prices paid for Russian gas by customers in the FSU, Europe and Turkey. 
  • We estimate that Russian gas price to Europe only (excluding FSU, Turkey and ESP sales) was $668/mcm in November. This is at a 39% discount to the average price of TTF November futures of $1,112/mcm.
  • Based on our pricing model, the weighted average price of Russian-origin gas to all destinations (Europe, Turkey and the Former Soviet Union) in December was $580/mcm. The Russian gas price to Europe only (excluding FSU, Turkey and ESP sales) is estimated at $855/mcm, at a 14% discount to the average price of December TTF futures ($1,001/mcm) and 38% discount to TTF average spot price for December. 
  • We estimate that Russian gas export to FSU, Europe, Turkey and China was 16.08 bcm in November 2021, down 22% YoY. This is based on various data points released by Russian customs and Gazprom. Detailed data for November with a breakdown of gas export by country is yet to be published by the Russian customs. However, the preliminary numbers indicate that Russian-origin gas export to Europe was down 29% YoY in November.

Gazprom output hits 13-year high in 2021 to meet domestic needs

  • Gazprom Group gas production was up 62 billion cubic meters (bcm) to 514.8 bcm in 2021. These additional volumes have mostly stayed in Russia.
  • Gazprom sales to domestic customers went up 31.9 bcm YoY to 257 bcm. Export to Europe, Turkey and China was up 5.8 bcm YoY to 185 bcm. Injection into Russian gas storage was up an estimated 28 bcm YoY to 61 bcm in 2021. Russian gas storage was 83% full as of 29 December, at 60.2 bcm.
  • In December, Gazprom production might have been close to capacity (47.2 bcm or 1,523 mn cubic meters per day). As in previous three months, the company was sending more gas to domestic consumers and much less gas to export markets compared to last year.
  • There was a significant YoY drop in gas export to Europe (including Turkey) in December (down 5.7 bcm or 185 mn cu m/d). This was offset a reduction in Russian storage withdrawal of 6.9 bcm (225 mn cu m/d) vs last year.
  • Over the next three months we assume that Gazprom output will remain at seasonally high level, domestic demand will be at around three-year average and export will remain tagged to long-term contracts. This would mean that Russian gas storage level might be 34 bcm full at the end of March this year, up 19 bcm compared to 2021.
  • These volumes could be used for additional export, or, in its absence, it could lead to a drop in Gazprom output and sales in 2022.
  • See the report for charts and analysis.

Russian gas storage still 83% full after a cold spell in December

  • Russian gas storage was 83% full at 60.2 billion cubic meters (bcm) as of 29 December. The storage has not been much dented by a cold spell in mid-December with14.2 bcm of gas withdrawals over the last couple of months. A late start of the withdrawal season and YoY decline in exports might explain why Russian gas storage is at its highest level over the last five years.
  • Unusually, Gazprom may have had relatively full gas storage in Russia (close to working capacity of 72.6 bcm) in early November, before the company started withdrawals. This could partially explain a relatively high gas storage volume as of end December, in the middle of the heating season.
  • As of December 29, Russian gas storage was 9 bcm fuller than at the end of last year. If the winter gas demand in Russia is close to the five-year average during the remainder of the heating season (January-March next year), Russian gas storage would stand at 34 bcm at the end March 2022. This would be 19 bcm above the level of the previous year.
  • The high level of Russian gas storage might also reflect a YoY fall in gas export in October-December. And If Gazprom export (to Europe, Turkey and China) remains at the current level of around 14-15 bcm per month, exports might drop to around 170 bcm in 2022, down 16 bcm YoY.
  • Fuller Russian gas storage and lower YoY exports could lead to a drop in Gazprom Group output in the coming year. We estimate that the company’s gas output could decline by as much as 35 bcm to 480 bcm in 2022. This could happen if Nord Stream-2 pipeline is not operational and export to Europe is limited to volumes under long-term contracts.

Please see below for more detail.

Gazprom in mid-December: output high, export low, storage full

  • In the first 15 days of December, Gazprom average daily gas output was 1,520 mn cu m/d, up 68 mn cu m/d on last year, based on data released by the company.
  • Gazprom deliveries to domestic consumers were running below last year levels at 1,045 mn cu m/d, reversing some gains in domestic demand seen in September-November.  
  • Gazprom export to Europe, Turkey and China fell 161 mn cu m/d YoY but increased 17 mn cu m/d MoM to 440 mn cu m/d.  Based on the current data, Gazprom annual exports (including China) might reach 185 bcm in 2021, up 3.3% YoY.

  • Our model of Gazprom gas balance for December indicates that the company might have an estimated 61 bcm of gas in Russian storage as of end 2021, up 10 bcm YoY. Our calculations show Gazprom might have some extra 20 bcm of gas in Russian storage at the end of winter season of 2021/2022.
  • Please see below for more detail.

Russian-origin gas price to Europe in October and other stats

  • The weighted-average price of Russian-origin gas to Europe, Turkey and the Former Soviet Union (FSU) was $444/mcm in October. This is based on the Russian customs data, released on December 13.
  • Adjusted price to Europe only (excluding FSU, Turkey and ESP sales) was $556/mcm, according to our estimates. This is at a 31% discount to average price of TTF October futures.
  • In the first ten months of the year, the total volume of Russian-origin gas sold to Europe, Turkey and China was 144 bcm (473 mn cu m/d) , up 8.5% YoY. However, in October, export volumes fell 27% YoY to 11.8 bcm (381 mn cu m/d) in our estimates. Shipments of Russian-origin gas to Germany, Netherlands and Austria dropped sharply YoY. This may be partially explained by high demand from domestic consumers and, unusually, net injections into Russian storage in October.
  • Total gas exports by Gazprom to Europe, Turkey and China rose 10.9% YoY to 158.8 bcm (521 mn cu m/d) in the first 10 months of the year, according to Gazprom. Additional 15.7 bcm of gas sold by Gazprom was mostly of Russian origin (up 10 bcm YoY) with an increase in net sales from European gas storage and a small YoY decline in sales volumes of Central Asian gas, in our estimates.
  • Based on our pricing model, the weighted average price of Russian-origin gas to Europe, Turkey and the Former Soviet Union in November was $511/mcm. The Russian gas price to Europe only (excluding FSU, Turkey and ESP sales) is estimated at $660/mcm, at a 40% discount to the closing price of November TTF futures.

Please see the full update below.