1 www.energypolicy.columbia.edu | @ColumbiaUenergy

Gazprom’s response to U.S. LNG exports and the changing global market

Tatiana Mitrova

October 19, 2018

2 www.energypolicy.columbia.edu | @ColumbiaUenergy

U.S. and Russia have long been the world largest natural gas producers, but they have not faced off in direct competition

-

100

200

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800

900

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

US USSR / Russia

0

50

100

150

200

250

1985

1987

1989

1001

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

USSR / Russia US

US and Russian Gas Production

1985–2017 (billion cubic meters) US and Russian Gas Exports

1985–2017 (billion cubic meters)

3 www.energypolicy.columbia.edu | @ColumbiaUenergy

The current impact of US LNG on Russian gas exports

• Shtokman termination

• Contract revisions

• More flexible pricing

• Russia speeding up the pipeline projects

• Growing domestic pressure on Gazprom

• Russian LNG development

4 www.energypolicy.columbia.edu | @ColumbiaUenergy

European gas market consists of two segments: LTCs and spot, Gazprom has secured strong portfolio of LTCs…

* Europe-41 without Turkey

European gas balance

0

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2005

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BCM

Uncontracted Market Niche

Minimal ContractualQuantaties LNG

Minimal ContractualQuantaties Russian pipelinegasMinimal ContractualQuantaties other pipeline gas

Indigenous Production

Range of Demand

Sources: Nexant WGM 2017, IEA World Energy Balances 2017, IEA Natural Gas Information 2017

5 www.energypolicy.columbia.edu | @ColumbiaUenergy

... and is well placed to compete on spot with LNG

Short run marginal costs to Europe

(Russian pipeline gas and US LNG)

Long run marginal supply costs to Europe

(Russian pipeline gas and US LNG)

0,4

0,5

3

0,45

1,2

1,5

0,53

0,4

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

West Siberia-EuropeUS LNG-Europe

Regas

LNG transportation

Export duty

Transportation tothe Russian border

15% Henry Hub

Henry Hub

Upstream Taxes

Production

0,7

1,2

1,0

3,4

3,5

2,1

1,7

1,4

1,9

2,9

4,7

0,9

1,5

2,1

0,4

0,7

1,7

2,1

0,0 5,0 10,0

Nigeria LNG

Qatar LNG

Russian pipelinegas

Algeria LNG

US LNG

Mozambique LNG

Production and Upstream Taxes

Liquefaction

Transportation

Regas

6 www.energypolicy.columbia.edu | @ColumbiaUenergy

Even with the next generation gas fields Gazprom still has low upstream costs

Gazprom’s reported average cost of production

Source: Gazprom

0,2 0,1 0,1 0,2

0,5 0,5 0,5

0,3 0,3

0,5

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0,4

0,5 0,5 0,5

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0,9

1,1 1,0

0,7 0,7

0,9

0,0

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0,4

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0,8

1,0

1,2

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Gas MRET, Gazprom, $/mmBtu Production Cost, $/mmBtu

Total Cost of Production in $/mmBtu

$/MBtu

7 www.energypolicy.columbia.edu | @ColumbiaUenergy

Gazprom`s target – 33% of the European market

"Our strategic task is to keep

a one-third share of European

consumption and we will

carry out the strategy in a

peaceful way without a price

war”.

Elena Burmistrova, Gazprom Export CEO

FLAME, May 2017

8 www.energypolicy.columbia.edu | @ColumbiaUenergy

Low oil price High oil price

High Asian

demand

(no LNG

glut)

Low LNG availability

Gazprom expanding gas exports

NO CHANGE

Increasing competition for LNG

with Asia/

Further contract revisions by

Gazprom

Weak Asian

demand

(LNG glut)

Increasing competition between

pipeline gas and LNG

Gazprom voluntarily decreasing

contractual prices

Tough competition between

pipeline gas and LNG

PRICE WAR (voluntarily

increasing supply in order to

drop prices and crowd away

competitors)

European scenario matrix

Global oil prices and Asian gas demand will define situation on the European gas market

9 www.energypolicy.columbia.edu | @ColumbiaUenergy

Gazprom’s strategy in Europe

• Gazprom`s position in Europe is well protected by the existing LTCs,

which guarantee 2/3 of the current export volumes up to 2030

• Gazprom is not looking to take more European market share. It has

learnt the lesson: the company will no longer fight for high gas prices

(as in 2009-2012).

• Compared to most of its new competitors, Gazprom has lower cost

gas. Nevertheless it would prefer to avoid price war with the US and

Qatar LNG in order to maintain export revenues.

• Post 2020 Gazprom`s strategy could be theoretically challenged by

the gas market liberalization and opening of the pipeline export for

Rosneft and Novatek

10 www.energypolicy.columbia.edu | @ColumbiaUenergy

Thank

You