Experts: Russia will have gas disaster following the oil collapse
Russia's largest company Gazprom risks becoming unprofitable at the end of this year.
Network analyst Anatoly Nesmiyan believes that the gas crisis that follows the oil crisis will be much like it:
“There is an excess of supply on the market with reduced demand, and it is already obvious that demand, even after the end of the epidemic, will not return to its previous levels - the economies of the leading countries (and they are the largest gas consumers) will sink from 7 to 12 percent following quarantine measures. Unless something else happens.
The same problem arises - either a reduction in gas production, or a significant reduction in gas prices. But unlike the oil market, there are no cartels or producer unions on the gas market. Each for himself, and all agreements can be strictly separate in nature. It is enough for one large producer to start acting, as the rest will be forced to react, and it is absolutely not necessary symmetrically.
There is one more nuance of the gas market. Due to its state of aggregation, gas is not so easy to store. More precisely, it can be stored either in a liquefied state or in underground gas storages. Their volumes are finite, and the gas itself decreases with storage - say, to store it in the form of LNG, it needs to be evaporated in order to remove heat from the main volume due to evaporation.
The gas market is divided into two segments depending on the method of transportation - pipeline gas and LNG. The pipeline is protected by complex schemes of long-term contracts, which are concluded in such a way as to balance the risks of both the seller and the buyer. In the uncertain and crisis period, these schemes work poorly, and often a situation arises when the penalty for non-compliance with the terms of the contract is less costly than fulfilling the bad conditions. However, this market is relatively stable, although right now a drop in pipe sales is starting to cause serious problems for everyone. Gazprom, for example, has already lost about 20% of its volume compared to last year, and most likely, by the end of the year, the decline in exports will only increase.
The situation is even more tense for LNG, since in addition to long-term contracts, liquefied gas enters the spot market - that is, one-time contracts. It is this market that is currently causing the greatest imbalance, since all producers are trying to “add” excess volumes of liquefied gas at any cost, which means that prices at terminals are falling, and very quickly. If by the end of 2019, the price of $ 100 seemed unrealistic, and the forecast of $ 90 per thousand cubic meters seemed fantastic. today the price of $ 60 is already a reality. In the European market, prices are already lower than domestic ones and continue to fall.
In general, you can describe the situation for a long time and sadly. The question is different - what can happen. Contradictions have been growing for a long time, and now comes the time of a full-blown and acute crisis. The question is who will launch it.
It is obvious that the crisis will begin on the LNG market - this is the most market segment of the gas market, and it is on it that it is possible to balance the price, demand and supply with relatively understandable actions. In a crisis environment, minimal predictability is the main condition for any decisions.
There are two major producers on the LNG market - Qatar and Australia (77 and 75 million tons of exports, respectively) and four second-tier exporters - the USA (34 million tons), Russia (29 million tons), Malaysia (26 million tons) and Nigeria (21 million tons). Four more exporters included in the top ten - Indonesia, Trinidad and Tobago, Algeria and Oman - do not reach 20 million tons.
There are two main LNG sales markets - Europe and Southeast Asia (China, South Korea and Japan in the first place). Excess gas supply in each of them is already estimated at about 10%, that is, supply and demand can only be balanced by reducing production volumes, since a fall in prices is a palliative that only prolongs the agony of the market. But the reduction in volume undertaken separately will only mean a loss of market share. Qatar may cut supplies, but Australia will immediately replenish its volumes in Asia. If you reduce supplies to Europe, they will be replaced either by the Americans or by pipeline gas from any direction.
It is also impossible to agree - the gas OPEC has not been created, and it is not a fact that it will become the basis for the agreements, since the United States will definitely not enter into it, and the question with Australia is unclear.
Therefore, the gas market very quickly falls deeper, and the only way to somehow keep volumes is to lower prices. What does not solve the problem is that such a quantity of gas is no longer required. Gas storage capacities are not endless, which means that soon we will see a repetition of the same picture as in the oil market - negative gas prices. The storage price will become more expensive than the sale price. Moreover, the storage of gas, as already mentioned, reduces its volume due to the need for technological evaporation.
According to approximate estimates, even without some kind of “black swan” that happened with oil in March, when the wise Russian leadership slammed the door in Vienna, even in the current mode of subsidence of the gas market by fall, it will enter a pre-catastrophic state, when any insignificant factor ( up to the disease of some leading politician or manager) can trigger a disaster. And most likely, such a plot is most likely, since project actions in the market are extremely difficult due to the lack of tools and arrangements for it.
Some actions and decisions of Qatar can become a trigger - he is the largest producer, and it is he who will suffer the most damage from the disaster (a large cabinet falls louder). And that means - it is for him to take the first steps, although frankly speaking, no one has a chance for a relatively successful resolution of the impending catastrophe. The only question is who will suffer less than others ... "
It is not difficult to guess what this situation will mean for Russia. Experts from the World Economy Day by Day channel report that, according to the results of the year, Gazprom has every chance to go “minus”, which sounds very ominous for the “national treasure”:
“A prolonged economic decline triggered a sharp drop in Russian gas prices in Europe.
According to the results of the reporting, Gazprom, became unprofitable in cash flows. Gazprom spent 190 billion rubles on capital construction. This is more than he received from operating activities.
In April, spot prices on European gas hubs dropped to $ 60 per thousand cubic meters and were lower than Russian ones. For example, Gazprom sells 1 thousand cubic meters for $ 63 in the Leningrad region and $ 67 in the Southern Federal District.
Fitch predicts that by the end of the year, Gazprom is likely to receive negative cash flow again due to record low gas prices.
To fill up holes in the budget, since the beginning of the year, Gazprom has twice borrowed in foreign currency, placing Eurobonds worth $ 3.9 billion. However, about half of this amount was spent on paying off existing debts. According to economists, the total amount of loans by the end of the year could be up to $ 10 billion.
Such a debt will be very problematic in the future. If the economy does not recover to its previous level before the end of the year, you will have to rely on government support and third-party capital raising ... "
Journalist Vasily Alenin drew attention to the other side of the question: why, faced with such a severe crisis, the Gazprom leadership continues to ramp up money uncontrollably?
“...A big football fan, Alexey Miller, does not spare the money of the impoverished Russians on“ teams of millionaires ”buying up packs of players, such as SKA and FC Zenit (and its“ farm clubs ”FC“ Orenburg ”and FC“ Sochi ” ) But there is still a German “Schalke” from Gelsenkirchen, a Belgrade-based “Crvena Zvezda”, a sponsorship contract with the UEFA Champions League ”...
Despite the fact that Gazprom itself began this year with billions of dollars in losses, and hydrocarbon prices fell, it didn’t occur to state-owned companies to refuse unnecessary expenses now and support their citizens. At least not to raise gas tariffs for them during the pandemic this year. But no, this is just as fantastic if Sechin lowered prices at Rosneft's gas stations due to falling world oil prices.
Instead, our Gazprom national treasure plans to spend 5.336 billion rubles. (!) For the construction in St. Petersburg of the exposition marina for a replica of the battleship Poltava from the time of Peter I.
Such hand-made "patriots". So they will cut loot until their inglorious end, and buy fake images abroad for their leftovers for our money, build cardboard Reichstag and spend billions on fireworks that are forbidden to view citizens in Moscow.
And for you, the Russians, there is no money..."