blue fuel - gazprom export
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BLUE FUELMay 2016/ Vol. 9/ Issue 2
www.gazpromexport.com | [email protected] | +7 (812) 646-14-14 | [email protected] 1© Gazprom Export
www.gazpromexport.com | [email protected] +7 (812) 646-14-14 | [email protected]
Blue Fuel Focus: LNGAlexander Medvedev: Transforming LNG – New Rules of CommercePage 5
LNG on Board – “Blue Corridor-2016” and the Importance of LNG in Marine BunkeringPage 7
Gazprom and OMV Agree to Deepen Strategic CooperationPage 9
Gazprom Export Completes Gas Auction for the Baltic StatesPage 14
BLUE FUELMay 2016/ Vol. 9/ Issue 2
Gazprom Export Global Newsletter
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BLUE FUELGazprom Export Global Newsletter
© Sakhalin Energy
Publishers Contact Info:www.gazpromexport.com | [email protected] +7 (812) 646-14-14 | [email protected]
In this issueMay 2016/ Vol. 9/ Issue 2
To Our Readers .........................................................................................................4
Blue Fuel Focus: LNG ................................................................................................5
Alexander Medvedev: Transforming LNG – New Rules of Commerce ..........5
St. Petersburg to Host LNG Conference in 2022 ...........................................6
Gazprom and Fluxys to Cooperate on Small-Scale LNG Development .........6
LNG on Board – “Blue Corridor-2016” and the Importance of LNG in Marine Bunkering ...........................................................................7
Gazprom Germania in First Ever LNG Bunkering at Port of Rostock ............8
Ahoy! How to Make Maritime Shipping More Climate-Friendly ....................9
Gazprom’s LNG Vessel Completes First Magellan Strait Journey ...............11
US LNG – The Wild Card for the European Gas Market ..............................12
Gazprom Export Completes Gas Auction for the Baltic States ..............................14
Gazprom and OMV Agree to Deepen Strategic Cooperation .................................15
Gazprom Export Holds Spring Charity Events for Children ...................................16
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To Our ReadersNatural gas has been an essential part of the energy sector for decades due to the unique combination of economic and ecological benefits it offers. However, just 20 years ago almost the entire gas demand in the world was met by pipeline supplies, while liquefied natural gas (LNG) was only at the very start of its journey towards becoming a global commodity. Until the mid-1990s, LNG demand was mainly concentrated in the region of Northeast Asia.
As years passed, the market environment changed, energy companies and consumers started appreciating the advantages of LNG. Relatively low prices allowed new importers to enter the market and gain access to environmentally friendlier energy supplies. Nowadays, nearly 20 countries worldwide produce and export LNG and more than 30 countries are able to import the commodity. In 2015 alone, Floating Storage Regasification Units have been commissioned in Egypt, Jordan and Pakistan – countries which previously had no capabilities to import natural gas in liquid state.
Looking back to 2004, LNG accounted for less than 10% of the world’s natural gas demand, while nowadays one-third of the world natural gas trade falls on LNG. The commodity is transported across seas and oceans by more than 400 LNG carriers, and soon this fleet will be amplified with nearly 150 additional tankers.
Gazprom, traditionally exporting the majority of natural gas volumes via well-developed pipeline systems, does not stand aside of the trends taking place on the global LNG market. The company is a major shareholder of the Sakhalin-2 project that has been successfully delivering LNG cargoes to customers in Asia-Pacific since 2009. In 2015, the output from the LNG plant exceeded its nominal capacity again and reached 10.8 mmt. Together with the other shareholders of the Sakhalin-2 project Gazprom is planning to build a 3rd train for the LNG plant. The company is also actively working on the Baltic LNG project designed to bring natural
gas to the Atlantic region, as well as to some European countries, which are inaccessible for Russian pipeline gas for logistical and commercial reasons. Our trading arm Gazprom Marketing & Trading is actively involved in the global LNG trade, expanding the delivery destinations from the Gazprom Group’s contracts portfolio by Malaysia and Egypt in the last two years.
In the middle of the 20th century very few people could imagine that deliveries of such a specific resource as natural gas to destinations thousands of kilometers away were physically possible and commercially viable. Nevertheless, Gazprom in cooperation with its European partners created a sustainable business based on a vast infrastructure network, allowing it to bring heat and light to millions of people at reasonable prices and with low carbon emissions. Similarly, there was also a degree of skepticism regarding the possibilities, both technical and commercial, to supply LNG, which is to be stored at extra low temperature of -162 °C. However, in just a few decades it turned to a reality as well and LNG is traded across the world.
One cannot deny that there are challenges on the market. The oil price has substantially decreased, consumers are not eager to sign long term deals amid demand uncertainties – these circumstances worsened the economics of a number of LNG projects, and in some cases even forced to delay final investment decisions. But Gazprom with its operating and planned LNG plants is able to progress even in a challenging environment – the company’s vast resource base and proximity to its customers provide priceless advantages to the company’s projects.
As history has shown, sooner or later demand and supply will get into an equilibrium. Then LNG will take an even greater role in the global energy market, and Gazprom will keep up with the trend towards becoming a truly global energy major.
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Transforming LNG – New Rules of CommerceSpeech by Alexander Medvedev, Deputy Chairman of Gazprom’s Management Committee, at LNG 18 conference in Perth, Australia
It’s great to be in Australia, one of the world’s leading liquefied natural gas exporters. Here you can hear the heartbeat of the booming LNG industry louder than anywhere else in the world.
And we are especially happy to be here due to our successful bid for the LNG 2022 International Conference. I am proud to announce that in May 2022 St. Petersburg will host this important energy event.
LNG is emerging as a truly global commodity. The facts speak for themselves. Today there are around 20 LNG exporting countries in the world and more than 30 importers of LNG, and these numbers have almost doubled since the mid-2000-s. There are now more than 400 LNG carriers in operation and more than 150 on order. This abundance of LNG shipping capacity provides a greater connection between all the continents than ever before and allows to bring LNG cargoes to the places previously regarded as terra incognita for the natural gas industry.
The low-price environment gave new importers a unique chance to enter the market. More people are now able to enjoy the economic and environmental benefits of natural gas. Such a quick entry of new players in the market would not be possible if not for the revision of future consumption growth expectations that came with the lower cost of energy and accessibility of floating regasification technology.
The fall in oil prices and growing supply have left hardly any room to maneuver for producers. In these harsh market conditions the key to competitiveness for proposed LNG developments lies in their performance: to succeed they need to show cost-effectiveness, efficiency in contracting and flexibility.
The contracting routine itself has also changed. Today, buyers tend to diversify their portfolios by bringing in more short- and medium-term volumes in an attempt to adjust to demand uncertainty. But this is not so straightforward. I am confident that despite the major changes in the global LNG market environment, some things remain unchanged: the nature of highly capital-intensive LNG projects still implies the need for long-term contracts.
These recent developments fuel the discussion that LNG has already become a mature commodity and, thus, it may be the
time to move away from an oil-linked pricing model. But in reality widespread introduction of hub pricing is not a universal remedy. Will there be enough liquidity at hubs? How big will the share of direct sales at the hubs be? How will it correspond to the actual consumption volume in the market? These are just a few questions that come to my mind.
We presume that oil-linked pricing paradigm will remain the guiding landmark for other pricing mechanisms. It is possible that the pricing system will evolve into a situation that we currently observe on the European market - a hybrid system with long-term oil-linked contracts as a basis and hubs as a balancing tool.
It is an econometric fact that the correlation between oil-linked prices of pipeline gas and hub prices is extremely high nearing to 90%. In this regard a simple question emerges: what is the need to switch from a well-reputed pricing model to another one heavily exposed to financial speculation?
Gazprom closely monitors the changes that the global LNG market is currently experiencing and does its best to adjust to the new market environment by providing flexible and secure supply to its customers under both term and spot contracts. We as a global gas company decided to not only build gas pipelines, but also develop LNG projects. These are the expansion of the Sakhalin 2 LNG project and the construction of the Baltic LNG project. Our colleagues at Novatek develop the Yamal LNG project. The LNG industry in Russia is developing steadily and is projected to boom in the foreseeable future.
In spite of the challenging times, we are continuously exploring new opportunities, because as the Chinese proverb says “only hard times give you imagination on how to overcome them.”
Alexander Medvedev
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In March 2016, Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee, and Pascal De Buck, Managing Director and Chief Executive Officer of Belgian Fluxys, signed a Framework Agreement on small-scale LNG cooperation in the European market.
The agreement reflects the intention of the parties to collaborate on joint projects for the construction and
operation of LNG receiving terminals, LNG filling stations, and LNG bunkering infrastructure in Europe.
“Small-scale LNG is not just a cost-effective and eco-friendly alternative to conventional fuels in different fields of the economy including industry and transport. It is one of the key growth areas in European gas consumption. By developing this segment, Gazprom will further diversify its export potential and
St. Petersburg will host the International Conference & Exhibition on Liquefied Natural Gas in 2022. The announcement was made on 12 April 2016, during the opening ceremony of LNG18, the LNG International Conference & Exhibition in Perth, Australia. The forum is the largest global event in the LNG sector, comparable in scale to the World Gas Conference. The LNG International Conference & Exhibition is held every three years, alternating between producing and consuming countries.
“Russia plays an increasingly important role in the international LNG market. It
is therefore only logical that the largest international conference in the industry will take place in St. Petersburg. We are convinced that Gazprom Group’s current LNG projects will make a significant contribution to the development of global LNG trading,” said Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee.
The application for holding the 2022 LNG International Conference & Exhibition in St. Petersburg was submitted by Gazprom acting as a representative of the Russian Federation.
St. Petersburg to Host LNG Conference in 2022
Gazprom and Fluxys to Cooperate on Small-Scale LNG Development
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LNG on Board – “Blue Corridor-2016” and the Importance of LNG in Marine BunkeringBy Eugene Pronin, Head of Petrochemical Products Export Division, Gazprom Export LLC
increase sustainable supplies of energy to Europe,” Alexander Medvedev commented.
“Developing the required infrastructure for small-scale LNG is key to implementing the EU’s sustainable strategy for alternative fuels. It will enable small-scale LNG to further unlock its vast potential for mitigating the environmental impact of waterborne
and heavy transport, as well as for powering remote industrial sites not connected to gas trunklines,” Pascal De Buck said.
Belgian gas transmission company Fluxys is engaged in natural gas transportation and storage. It also provides infrastructure services in the field of large-scale and small-scale LNG.
On 26 May 2016, the participants of the 10th “Blue Corridor-2016” NGV rally will start their engines in St. Petersburg to drive along the ancient amber trade route around the Baltic Sea. This year’s rally focuses on a very promising sphere for natural gas use: LNG marine bunkering on the Baltics. Round tables events, gathering politicians, port administrators, ship-owners and -builders, automakers, equipment manufacturers,
transportation and logistics companies, as well as media will be organized in key ports along the Amber Route.
The “cool” gas, frozen down to extremely low -162°C for liquefaction, is increasingly becoming a hot topic. The use of natural gas in marine bunkering and transport is a crucial part of a more environmentally conscious and friendly world. Since January 2015, new restrictions on sulphur content in marine fuels in the Baltic and the North Sea zones have been in effect. Similar emissions control areas had already been enforced on the Pacific and Atlantic coasts of the USA and in the Caribbean. There the restrictions significantly limit the use of heavy oil or gasoil without being filtered through “scrubbers”.
As the COP21 conference in Paris in December 2015 has shown, momentum is growing globally towards a ‘greener’ and lower emissions world. What was once a decision driven by purely commercial reasons, has now turned into a selection of a shipping fuel that seriously considers all ecological aspects. LNG remains one of the most environmentally-friendly transportation fuels: It contains no sulphur, emits 95% NOx less than marine diesel fuel and has almost zero particulate matter (PM) emissions.
Entirely exotic until the mid-2000s, the use of LNG as bunkering fuel is still in its infancy in terms of absolute figures, but has
been expanding exponentially. According to DNV GL, as of the end of March 2016 there were 77 LNG-fueled vessels worldwide; another 85 have been ordered with most to be delivered in 2016-2018. Norway is the global leader in this sphere, with 69% of all LNG-fueled ships crossing Norwegian waters. Next stands the EU where every fifth LNG vessel operates. Another promising region for marine and inland LNG bunkering is China. Here, the use of LNG for vessels started later than in Europe, but grows much faster. Chinese authorities plan to construct more than 150 LNG bunkering facilities along the Yangtze and Pearl Rivers, Grand Canal and the coast of the Bohai Gulf before 2030.
What is fascinating about the global LNG-fueled shipping fleet is its diversity. Despite modest numbers, there are car/passenger ferries, chemical tankers, gas carriers and military patrol ships in operation. Platform supply vessels, tugs and even icebreakers are also part of the global LNG-fueled marine transport sector.
We at Gazprom Group follow these trends closely and are developing our own projects in this field. In the German port
Eugene Pronin
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city of Rostock, Gazprom Germania is progressing with the construction of a small-scale LNG terminal with a marine bunkering facility. On 27 February 2016, a ship was supplied with LNG in Rostock for the first time ever in the Southern Baltic Sea. Other LNG projects planned or under construction in the Leningrad region of Russia will also be equipped with LNG bunkering facilities. International cooperation is also underway. We have signed agreements with Gasunie of the Netherlands and Fluxys of Belgium. Together we will consider opportunities for cooperation in the marine LNG sector.
Some may argue that the amount of LNG marketed for bunkering in Europe will never come near the volumes of Gazprom’s pipeline gas supplies to Europe. In the short-term, this niche complements and diversifies our existing business portfolio, giving us access to new state-of-the-art technologies and premium customers. It is in the long-term that we see this sector show significant growth. Gazprom Export estimates demand for LNG in bunkering in Europe to reach 25 bcm by 2025 – the current annual gas consumption of Spain. Not a small figure indeed.
Gazprom Germania GmbH, a subsidiary of Gazprom Export, bunkered a ship with liquefied natural gas (LNG) for the first time in the Port of Rostock, Germany.
In the early hours of the morning of 27 February 2016 Germany’s largest Baltic Sea port witnessed a ship being supplied with LNG for the first time ever in the Southern Baltic Sea.
The M.V. Greenland, a cement carrier operated by the Norwegian shipping company KGJ Cement AS, was filled with this alternative and environmentally friendlier fuel. To make this possible, LNG had been transported to Rostock by road tanker.
“We believe there is great potential for the use of natural gas in the maritime sector. Environmentally friendlier natural gas could replace thousands of tonnes of heavy fuel oil every year,” Timo Vehrs, Director of Business Development at Gazprom Germania pointed out. “We have now taken a crucial first step in Rostock, where this project has shown that the vision of using LNG as bunker fuel has already become a reality.”
“We are very pleased to witness this new development at our port,” Jens Aurel Scharner, Managing Director of port operator Hafen-Entwicklungsgesellschaft Rostock mbH added. “We are certain
Gazprom Germania in First Ever LNG Bunkering at Port of Rostock
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that the opportunity to bunker alternative fuels like LNG will contribute to making us more competitive and encouraging more environmentally friendly ships to call in Rostock.”
LNG continues to gain importance with shipping companies that operate in the North and Baltic Seas, where stricter environmental standards have been applied to shipping since January 2015. Under the new standards, ships’ emissions
are limited to 0.1% sulphur instead of the previous 1.0%. This was part of the reason why Gazprom Group in 2014 signed a memorandum of understanding with Rostock Port on cooperating in the LNG market. This cooperation focuses on the development, marketing, and usage of LNG in road transport and shipping in the German federal state of Mecklenburg-Western Pomerania.
Ahoy! How to Make Maritime Shipping More Climate-FriendlyNatural gas is one of the most promising fuel alternatives in the transport sector – the road transport sector, to be precise. By 2020, the share it accounts for in road transport in Germany is expected to increase to 4%. Meanwhile, natural gas presents great potential for maritime shipping, as well. In its liquefied form (LNG), it is currently the only ready-to-use alternative to petroleum-based fuels. Among its other advantages, LNG produces significantly lower nitrogen oxide emissions, which helps shipping companies comply with the increasingly strict environmental regulations in their industry.
While Germany does not have any maritime LNG loading stations at present, that is about to change: Gazprom has
earmarked an eight-figure sum for a planned terminal project in Rostock. The energy company has long since reached an agreement with both the city’s administrators and state officials in Schwerin. The travel company AIDA Cruises has also recognized the potential of LNG and plans to use LNG to power all of its next-generation cruise ships. But what can business leaders and policy makers in Germany do to avoid missing the boat when it comes to LNG in maritime transport?
Blue Fuel spoke with Ole von Beust, former mayor of the port city of Hamburg and current chairman of Maritime LNG Plattform, about LNG’s chances in the future of sea transport.
Ole von Beust
Mr von Beust, you came up with the idea for Maritime LNG Plattform and founded the organization in early 2014. What goals are you working towards for the maritime industry?
Unlike heavy goods transport, which has drastically reduced its emissions following the Euro 6 standard and various other regulations, the sea transportation sector still has considerable potential to improve its environmental performance. Switching to a significantly more
climate-friendly fuel like LNG poses tremendous challenges not only to the maritime industry, but to port cities and the authorities who work there, as well. Maritime LNG Plattform was founded in 2014 as an industry initiative seeking to facilitate LNG’s entry into the German market. In cooperation with countries like Norway, Sweden, and the Netherlands – which already have extensive experience in this sector – it brings together more than 80 relevant members and partners from Germany and around the world. The platform serves as a sounding board that articulates the shipping industry’s interests to the realm of politics and works to have them met.
Why are alternative fuels needed for ships?
For one thing, the limits on harmful emissions have gotten tighter: The North Sea and the Baltic Sea have become SECA zones where sulphur dioxide levels are not allowed to exceed 0.1%. Since the beginning of 2016, stricter nitrogen oxide thresholds have been applied to new ships, and the EU directive on sulphur will take effect in 2020. Besides that, there is the basic question of whether maritime shipping is going to continue to produce significant emissions through its use of heavy fuel oil outside of the areas where these limits apply. We are talking about most of the world’s oceans and seas here. Meanwhile, we are seeing more and more reservations being expressed about the use of diesel. Our port cities are bearing the brunt of diesel usage in the form of fine dust and nitrogen oxide emissions. If we continue to use diesel generators for shore-side electricity generation, cities like Hamburg will not be able to get a handle on their air quality problems. This is where LNG offers a real alternative.
Germany has some catching up to do when it comes to reducing greenhouse gases, especially in the transport sector. Now that the Paris climate agreement has been signed, are you expecting LNG to get a significant boost in maritime operations – including in connection with infrastructure expansion?
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The related infrastructure will be expanded based on demand; one-sided investments in expensive infrastructure will not lead to more ships, after all. The benefits of LNG are much more meaningful in reducing fine dust, nitrogen oxide, and sulphur oxide than they are in lowering CO2 emissions. According to the World Health Organization, fine dust is the leading cause of death. Politicians first need to recognize the potential at hand and offer corresponding incentives. Demand is not going to increase until shipowners are put in a position to bear the added cost of investing in LNG infrastructure.
What obstacles do you see preventing the comprehensive use of LNG in sea transport, and how can they be removed?
There needs to be a support programme, and policy makers have expressed a clear commitment to assembling one; some initial projects are already receiving funds as part of the German federal government’s Mobility and Fuels Strategy. Maritime LNG Plattform is participating in the formulation of a corresponding support guideline.
However, there is no effective approval management system in place to uphold uniform standards. The authorities need to gain more expertise and collaborate closer with agencies in Scandinavia that have years of experience in this area. Right now, we are lending a hand in organizing these exchanges. Finally, the German government could be another driving force behind this movement: With more than 700 ships publically owned, gradually converting these vessels to run on LNG would send a clear signal to the market.
Maritime LNG Plattform has been in action for nearly two years now. What advancements have been made with regard to LNG in that period?
Thanks in part to our efforts, policy makers have taken up the cause and committed themselves to working with Maritime LNG Plattform on bringing this fuel to market. It’s clear that opinions have changed in favour of LNG, and the conditions have also improved for the long term. Even though Germany got a very late start on this topic and some major challenges remain, I’m confident that LNG will be the fuel of the future for marine transport.
© Hafenentwicklungsgesellschaft Rostock
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Gazprom’s LNG Vessel Completes First Magellan Strait JourneyThe Lena River, one of six vessels in Gazprom’s LNG fleet, recently completed a journey through the Magellan Strait, marking the first time a Gazprom LNG ship has travelled this historic route.
She left Bonny, Nigeria on 6 April 2016, transiting the Magellan Strait on 20 April, before arriving in Manzanillo, Mexico for discharge 26 days later.
After Portuguese maritime explorer Ferdinand Magellan first traversed the channel at the Southern tip of South America in a successful attempt to find a passage from the Atlantic to Pacific Ocean in the 16th century, the Magellan Strait became an important waterway for sailing ships, especially before the completion of the Panama Canal in 1914.
Narrow, complicated and stormy, this challenging passage was one of two practical maritime routes between the Atlantic and Pacific. Today, it remains a common but considerably safer passage for those ships rounding South America that too large to transit the Panama Canal before its expansion is completed in July 2016.
The 155,000 cubic metre Lena River is time-chartered by Gazprom Global LNG, a wholly owned subsidiary of PAO Gazprom.
© Hafenentwicklungsgesellschaft Rostock
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US LNG – The Wild Card for the European Gas MarketBy Valery Nemov, Deputy Head of Contract Structuring and Price Formation Directorate,
Gazprom Export
LNG from the US entering the European market has become one of the hottest topics among gas market analysts in the past several months. Politicians, industry professionals and media widely speculate on the possible volumes to come to the European gas market and the impact they could have. According to the United States Federal Energy Regulatory Commission, as of 6 January 2016 there were six LNG export projects in the US, which were both approved and under construction. In April 2016, Portugal received the first cargo from the Sabine Pass LNG export terminal in Louisiana. First deliveries from Cameron and Cove Point are expected in 2018. Start-ups of Corpus Christi and Freeport are scheduled for 2019. The second phase of Sabine Pass shall come on stream in 2019 and 2020. The total capacity ready to supply LNG to global markets may consequently reach 61 million tons by 2020, with the bulk of the volumes already contracted.
In the coming years we will see a selection of contracts for LNG deliveries from the
US, which in total almost cover the volume of liquefaction capacity. Contracts are shaped by a Henry Hub based pricing formula, which is not an entirely new way of pricing, but a specific “cost plus” scheme, where the feed gas component is a market traded value.
If we look at the contracts which have been signed with operators of projects under construction, they show growth from 5.1 million tons in 2016 to 57.2 million tons in 2020 (Figure 1). Around 31 million tons of LNG is theoretically available to be delivered to the European market by 2020 as they imply either determined destination in Europe or multiple destinations around the world, which in practice means that volumes would go to more commercially attractive markets.
A typical buyer is not obliged to take US LNG if it does not make economic sense, but they have to pay fixed tolling fees, which currently equal between $2.37 and $3/mmbtu ($85-125/mcm) to capacity holders regardless of whether buyers takes delivery or not. Thus liquefaction
Figure 1. Contracts for US LNG by destination
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projects are hedged of any risks, while LNG off-takers may face difficulties trying to sell it to consumers.
The current environment and expectations for the gas market’s development let us assume that full costs of US LNG are materially higher than prices on European liquid hubs (Figure 2).
A market of this kind does not exclude the possibility of LNG supplies in itself, but for off-takers it means that they can practically cover only their variable costs, while fixed costs of liquefaction turn into a burden. In other words, an off-taker would prefer to sacrifice some money rather than to simply pay obligatory tolling fees for the whole contract without taking any volumes. Only if the difference between the full cost of LNG and prices on a target market exceed the mentioned $2.37-3/mmbtu, this loss-making scheme turns to be completely unreasonable, and supplies will set to zero.
It has been a common view among analysts to emphasize that tolling fees are allegedly “sunk costs”. Hence we should neglect them and take into account only variable cost when trying to find out if deliveries are reasonable or not. After deducting tolling fees the price range for US LNG delivered to Europe currently lies slightly below the NBP forward curve, as seen on Figure 2. In the sense of “sunk costs” the commercial logic of LNG deliveries from the USA to Europe is justified.
In the meantime, “sunk costs” are defined as money already spent and permanently lost. They are irretrievable and, therefore, should be considered irrelevant to future decision making. This term originally comes from the oil industry where the decision to abandon or operate an oil well is made on the basis of its expected cash flow and not on how much money was spent drilling. A crucial difference between real “sunk costs” and situation around US LNG is that tolling fees do not represent money spent in the past but money that will be needed for regular payments for the whole period of a contract’s duration. We would say that investments into liquefaction plants are “sunk costs”, as were the investments to former regas capacities, but tolling fees are not. The “sunk costs” logic would only work if contracts are revised so as to exclude a “liquefy-or-pay” condition and to stipulate buying liquefaction capacities on spot. In that case, money would be permanently lost for those who have invested in liquefaction. We do not exclude this scenario; because we know better than others that there are no buyers in the market, which are ready to incur losses for decades.
We should also consider that the feed gas price in the case of US LNG is a variable value. It currently amounts to just around $2/mmbtu, but can easily get several times higher, when the US natural gas supply and demand balance alters. Taking into account the fact that signed contracts have a duration of 20 years, we should not rule it out that the price can skyrocket at some point, as it has happened in the past, and remain on high levels for months if not years. A glance at 20-years retrospective dynamics reveals how the market structure has been principally changing once and again, while forecasts have been rearranged and turned around. In this respect we can assume that a scenario when the market is short, prices in the US are at similar levels to those in Europe or Asia, and thus LNG exports from the US would be lossmaking, is likely to happen in the next 20 years with 100% probability.
Making any projections, how much LNG from the US will come to Europe in 2017 or 2020, is an ungracious task. We assume that there will definitely be at least some volumes, but too many mismatches make forecasting difficult. What cannot be denied is that with the number of both liquefaction and regas facilities being developed, the US is becoming a corner stone in the global supply and demand of LNG.
Figure 2. Full costs of US LNG are higher than European hub prices
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Gazprom Export Completes Gas Auction for the Baltic States
The most recent auction of OOO Gazprom Export for sales of natural gas for the Baltic States successfully closed in March 2016. This sales mechanism had been initiated to supplement Gazprom Export’s traditional long-term contracts. As a result of the auction, deals for 80 lots with six clients were concluded, with a total volume of over 420 mcm being sold, representing 75% of the volumes offered.
“We have managed to sell more than three quarters of the volumes offered for the Baltics in this latest auction, generating additional revenues, and also allowing us to gain valuable experience,” Deputy Chairman of Gazprom’s Management Committee Alexander Medvedev said.
“The results of this auction clearly demonstrated that demand for gas trade via this mechanism exists, and that it can successfully work on the Baltic market too. We are satisfied with the results of our second gas auction, and we will use this model for other European gas
markets as well,” Director General of Gazprom Export Elena Burmistrova said.
Gazprom Export carried out the first gas auction in September 2015. Addressing the challenges of the evolving energy market, the company tested a new mechanism of sales for gas delivered via Nord Stream. As a result over forty lots were sold to 15 clients, with a total volume of over 1.2 bcm
The auction for gas supplies to the Baltic States was announced by Gazprom Export on 27 February 2016. The deadline for bid submission was 8 March 2016 and bids had to be submitted from 15 to 17 March 2016. Gas sold at the auction is to be delivered in the second, third and fourth quarters of 2016 to the delivery point at the Kotlovka gas metering station located at the border of Belorussia and Lithuania. Gas volumes in the Incukalns Underground Gas Storage in Latvia were also included in the auction that in total saw more than 560 mcm of natural gas on offer.
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Gazprom and OMV Agree to Deepen Strategic Cooperation
In April 2016, Alexey Miller, Chairman of the Gazprom Management Committee, and Rainer Seele, Chairman of the Executive Board of OMV AG, signed a number of documents aimed at further developing the strategic cooperation between the two companies.
The signing ceremony was held in the presence of Alexander Novak, Minister of Energy of the Russian Federation, Hans Joerg Schelling, Minister of Finance of Austria, and Suhail Al Mazrouei, Minister of Energy of the United Arab Emirates.
The companies signed further documents related to an asset swap between the two companies and an agreement for oil supply to OMV from Gazprom Group’s portfolio.
Gazprom and OMV also agreed to strengthen their scientific & technical cooperation and partnership in gas production, transportation, processing, underground storage and sales, process safety, information security, energy efficiency, environmental protection and R&D.
Furthermore, the two executives signed a Memorandum of Understanding on cultural cooperation. At the initial stage, this cooperation will lead to the organization of a music festival in St. Petersburg and Vienna.
“Today, we signed a number of important documents aimed at further advancing the dialogue with our strategic partner OMV. Our relationship is no longer limited to business. By consistently enhancing our cooperation, we are moving toward our ambitious goals – increasing the supplies of Russian oil and gas to Europe and developing the scientific and technological potential of our companies,” Alexey Miller said.
“Our 48-year partnership with Gazprom has a strong economic foundation. The documents signed today constitute a crucial step toward even closer cooperation in the future. I am especially pleased to highlight the Russian-Austrian cultural exchange process that we are launching today. As the world faces more and more conflicts, it is time to build collaboration that goes beyond business and expands cultural and spiritual connections,” Rainer Seele commented.
Seated: Rainer Seele (left) and Alexey Miller (right). Standing: Hans Joerg Schelling (left), Suhail Al Mazrouei (centre) and Alexander Novak (right)
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Gazprom Export Holds Spring Charity Events for Children
Spring has brought some busy months as Gazprom Export together with our partners, the nonprofit organization Home of the Future, organized numerous children’s charity events.
An event called “Pancake Day in Tsarskoye Selo” took place in the town of Pushkin on 12 March 2016 and was attended by disabled children from orphanages and other social institutions in St. Petersburg and the Leningrad Region. Children of Gazprom Export and partner company employees also attended the event. The little guests and their parents were treated to traditional folk festivities including making pancakes, drinking tea from a samovar, interactive games, a workshop and theatrical performance. The party opened with
some entertainment that gave children the opportunity to make toys out of balloons, answer riddles, and take part in all kinds of games. After visiting a Pancake Day fair, the children moved on to a festive program organized for them at the House of Youth in Tsarskoye Selo, where they took part in a Pancake Day tapestry-making workshop hosted by the residents of the Yartsevo orphanage in the Smolensk Region. The children also watched a theatrical performance with masked characters and an interactive fairy tale based on the works of Alexander Pushkin. The party concluded with traditional tea-drinking with a samovar and pancakes – and presents, of course.
Just a month later, on Astronautics Day, another major charity event for children took place at the St. Petersburg Planetarium. It was dedicated to the 55th anniversary of Yuri Gagarin’s first spaceflight. Over 250 children attended the festivities. As they entered the planetarium, the little guests were greeted by space exploration heroes who talked to the kids and posed for photos with them. The actual event started with a science show in the planetarium’s main hall, focusing on Yuri Gagarin’s mission and the history of spaceflight. In the Star Hall, the kids watched the film From
BLUE FUELMay 2016/ Vol. 9/ Issue 2
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Gagarin to the Present Day, learning more about space science, spaceflights, and astronauts. The party continued with a colorful sand show and an entertaining trip across the starry sky, during which the children peeked into the depths of outer space, seeing constellations, stars, and planets, tracking the flight of comets, and even had time to make a wish. At the end of this event, every guest received a souvenir.
Creating a warm festive atmosphere, erasing all barriers to communication, children’s active participation in group games, contests, and performances and seeing children’s happy faces and smiles – this is the main goal of the charity events sponsored by Gazprom Export. In particular, the company is looking at integrating children with special health and development needs into mainstream society.
“It is very important to have positive things in life. Especially for those who for some reason are differently abled. Being together, sharing emotions and skills, learning from each other brings children together. Love, tolerance and acceptance is what such events stand for. It’s great to be able to support life and the future of our children,” said Ilya Kochevrin, Deputy Director General for Communications of Gazprom Export.
Gazprom Export, in cooperation with Home of the Future, has been working for several years to assist with projects that focus on supporting children with cerebral palsy, orphans, and disadvantaged children. Social and recreational programs are organized regularly, and educational equipment as well as assistance for the refurbishment of institutions for disabled children is provided.
