Russian gas balances in December 2021 and into 2022: swinging back to normal

• Swings in Russian gas demand and supply, that have contributed to a supply squeeze in the European gas markets in 2021, might go into reverse late in 4Q21 and in 2022.

• Unusually, Gazprom Group (Gazprom) was still filling Russian gas storage in October-November. In addition, the weather in Russia in early autumn was closer to seasonal norms and colder than last year, increasing domestic gas demand. In October, Gazprom output (up 4% YoY) may not have been sufficient to compensate for net injections into Russian storage as well as a rise in domestic gas consumption. This might have led to lower exports. As of mid-November, this supply and demand pattern was still evident.

• In December, Gazprom may be able to revert to a more normal seasonal supply and demand pattern. We expect domestic gas consumption to be slightly down YoY, based on Russian weather forecasts, we also forecast higher YoY output and storage withdrawals close to the three-year average. This should allow for a 16% month-on-month rebound in exports. It might restore the company’s role as a reliable gas supplier to Europe. The alternative (and riskier) strategy for Gazprom is to hold back on storage withdrawals in Russia, and to keep gas supplies ready to meet European and domestic demand during colder weather and later in the winter season. This stored gas may potentially be used for deliveries via the Nord Stream-2 pipeline in 2022.

• In 2021, the Russian gas system had to cope with an estimated 77 billion cubic meters (bcm) of additional demand compared to last year. In contrast, total gas demand is expected to go down by 13 bcm in 2022 in our base case scenario. We forecast a fall in domestic gas consumption, and lower injections into Russian gas storages next year, provided the 2021/22 winter demand is close to the five-year average. At the same time, Russian gas exports into Europe (inc. Turkey and the Ukrainian backhaul) are expected to rise by 17 bcm YoY to 193 bcm in 2022, if the Nord Stream-2 pipeline is operational.

• We look at two scenarios for the Russian gas balances in 2022: with and without the launch of the Nord Stream-2 (NS2) pipeline. In our base-case scenario, the NS2 pipeline will be operational and will ship 11 bcm of gas in 2022. It should allow Gazprom to increase exports to Europe (exc. Turkey and the Ukrainian backhaul) to an estimated 158 bcm, an additional 14 bcm YoY. This scenario ties with our assumption of a rebound in exports to Europe in December and early 2022.

• If the NS2 pipeline is not operational in 2022, we expect Gazprom to fully utilise the Yamal-Europe pipeline, and book additional transit capacity via Ukraine during cold spells to meet peak demand. In this scenario, Gazprom will still increase exports to Europe (exc. Turkey and Ukraine) by 4 bcm a year to 148 bcm in 2022. We forecast the company’s output would be down by 18 bcm YoY to 496 bcm.. 

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