Russia: Gazprom boosts oil trade

Russian gas giant Gazprom fresh from an annual loss of US$7 billion, has increased its activity in the oil business to offset weaker natural gas trade over the past year, reports Reuters.

Kremlin-owned Gazprom has suffered from the loss of the European gas market, once the source of around two-thirds of its gas revenue, due to a deep rift between Russia and the West over the conflict in Ukraine.

It also cut natural gas production by 13% to an all-time annual low of 359 billion cubic meters (bcm) in 2023 from 412.94 bcm in 2022.

Gazprom's oil arm, Gazprom Neft has fared better than the parent company thanks to the flourishing oil business.

Now Gazprom Group, via its Gazprom Export division, is trying to raise its exposure to the oil business and increased handling of Asia-bound ESPO oil grade as well as Siberian Light oil exports.

Russian oil exports have been a stable profit maker for Moscow during the past two years despite Western sanctions, as Russia was able to diver to India and China.

Gazprom Export, which was a minor oil exporter prior to 2022, has boosted oil exports in the second half of 2023 and plans to increase shipments even more in 2024.

Gazprom's oil pipeline exports have doubled in 2023 and are expected to double again in 2024.

Russia's Pacific port of Kozmino is a key outlet for Gazprom's crude exports. ESPO Blend oil exports provide one of the best revenues for Russian oil producers compared to other routes thanks to premium quality of the grade and proximity to main customers in Asia.

Gazprom's oil loadings from Kozmino have jumped from between 30,000 metric tons and 50,000 tons per month last year to around two to three 100,000-ton vessels per month this year. These volumes are supplied in addition to the exports of Gazprom Neft, which is also an ESPO Blend oil exporter.

In May 2024, Gazprom also loaded 80,000 tons of Siberian Light grade from Novorossiisk and the company plans to continue diversifying its oil supply.

In May, the company started production at the Urengoysky oilfield that is expected to produce 1.5 million tons of condensate per year.

 

 

Kazakhstan and Russia to construct gas pipeline up to China

Kazakhstan and Russia have established the route for a future gas pipeline to support shipments between the two countries and to China, Kazakhstan's energy minister said on Tuesday.

The pipeline would help Russia, hit by Western sanctions over its invasion of Ukraine to boost sales of its energy and commodities in Asia while also ensuring that Kazakhstan secures supplies for its central, northern and eastern regions.

"The issue of building a gas pipeline from Russia through the northern territories of Kazakhstan to China is being discussed, the route has been preliminarily determined, the conditions for the construction of this gas pipeline are being discussed," Kazakhstan's energy minister Almasadam Satkaliyev said.

Russia has been discussing a possible gas union with Kazakhstan and Uzbekistan to support shipments between the three countries and to other energy buyers, including China.

Russia's pipeline gas exports to Europe, which used to be the main supply market for oil and gas from Russia, almost halved last year following the start of what the Kremlin says is a special military operation in Ukraine.

To make up for the loss of the European market, Moscow is forging close trade and political ties with Asia, which has become the main buyer of Russian oil, a major source of revenue for the Kremlin.

Keen to increase sales of natural gas to China, Russia has been in talks with Beijing on the construction of a second pipeline, the Power of Siberia 2, with an annual capacity of 50 billion cubic meters (bcm), roughly in line with the 55 bcm capacity of the damaged and idled Nord Stream 1 undersea pipeline to Germany.

The talks have been fractious and there is still no agreement on the gas price.

Last year, Kremlin-controlled Gazprom also agreed to supply Chinese state energy major CNPC with 10 bcm of gas each year from Russia's far eastern island of Sakhalin.

Currently, Russia supplies China via the only one route - Power of Siberia pipeline, which is expected to reach full annual capacity of 38 bcm by 2025.

 

 

Blast shuts part of Russia-Ukraine gas pipeline

A blast ripped through a gas pipeline in central Russia, killing three people and disrupting some of the limited amount of Russian gas that is still reaching Europe, reported Reuters on Tuesday.

The flow of gas through a section of the Urengoi-Pomary-Uzhhorod pipeline that takes gas from Russia's Arctic to Europe via Ukraine had been halted at 1050 GMT, the local officials said on the Telegram messaging app.

Oleg Nikolayev, governor of the Republic of Chuvashia, told state TV that three people, who were carrying out servicing work, died in the accident, while another, a driver, "was in a state of shock".

He said it was unclear when gas supplies via the pipeline could resume, and authorities were trying to work that out.

The Chuvashia regional Emergencies Ministry said an explosion had ripped through the pipeline during planned maintenance work near the village of Kalinino, about 150 km west of the Volga city of Kazan. It said the resulting gas flare had been extinguished.

The pipeline, built in the 1980s, enters Ukraine via the Sudzha metering point, currently the main route for Russian gas to reach Europe.

Europe's gas prices have surged this year after Russia cut exports through its main gas pipeline route into Germany, leaving only pipelines via Ukraine to ship Russian gas to European consumers.

Gazprom said earlier on Tuesday it expected to pump 43 million cubic metres of gas to Europe via Ukraine through Sudzha in the next 24 hours, a volume in line with recent days.

Forward prices on the Dutch TTF hub rose following the news. The benchmark TTF front-month contract was up 1.10 euros to 108.10 euro per megawatt hour by 1347 GMT. It had traded around 105 euros/MWh earlier in the day.

Nord Stream owners in insurance limbo

With the mystery of the blasts that destroyed undersea gas pipelines between Russia and Germany unsolved, insurers and reinsurers of Nord Stream 1 are grappling with how to respond to hundreds of millions of dollars in potential claims.

Munich Re and syndicates within the Lloyd's of London market are among the major underwriters for Nord Stream 1. Industry sources with knowledge of the situation said, it was unclear whether they would renew its cover.

If the insurance is not renewed, the prospect of the pipeline bringing gas to Europe under the Baltic Sea ever being repaired and restarted becomes more remote.

Even before leaks were found, supplies via Nord Stream 1 had been halted as a result of a dispute over Western sanctions on Russia, while the newly-built Nord Stream 2 pipeline had not started commercial deliveries.

While a claim has not yet been made for the damage and disruption to the pipeline, two of the sources told Reuters, Nord Stream 1 underwriters may dispute any submitted on the grounds that the damage was an act of self-sabotage, or of war, neither of which are generally covered by insurance.

Amid speculation as to who was behind alleged sabotage that severed the pipelines at the centre of an energy crisis prompted by Russia's invasion of Ukraine, Danish police said on October 18, 2022 that the damage to Nord Stream 1 was caused by powerful blasts.

While damage itself would not necessarily affect the renewal of a property policy, insurers might ask for more premium, said Tim Shepherd, a litigation partner at Mayer Brown.

For the underwriters of the pipeline system, which Nord Stream's website says was built with 7.8 billion euros (US$7.6 billion) of investment, the stakes are high.

"Even if you are taking a small size (of cover), it is a big risk," one of the four industry sources said.

"The issue is going to be what happens if you can't prove it is a state sponsor (responsible for the blasts), you end up with a massive claim for damage," the source added.

Nord Stream 1 majority shareholder with a 51% stake is a subsidiary of Russian energy group Gazprom, which is subject to sanctions by the United States, Britain and Canada as well as some European Union restrictions.

Two of the sources said renewal of Nord Stream 1 cover by the Lloyd's syndicates would be challenging given the risk of tighter sanctions on Gazprom, which would prevent paying claims.

German energy groups Wintershall and E.ON, meanwhile, hold 15.5% each. Wintershall did not immediately respond to a request for comment.

An E.ON spokesperson said Nord Stream 1 operating company was responsible for operational issues, including insurance.

"Nord Stream AG remains in close contact with relevant authorities on the recent incident. Due to prevailing uncertainties, we as a shareholder continuously monitor developments and are in close contact with the other relevant stakeholders," the spokesperson said.

Gazprom and Swiss-based Nord Stream AG, did not respond to requests for comment, while French energy provider ENGIE, which has a 9% stake, declined to comment.

Dutch natural gas infrastructure company N.V. Nederlandse Gasunie, which also has a 9% stake, said it would assess the situation as soon as there was more clarity.

"The exact extent of the damage and possible follow-up actions can only be determined after inspection of the pipelines and that is not yet possible at this moment," Gasunie said.

"We are in close contact with our European partners and the relevant government authorities," it added.

Nord Stream's insurers will have to prove that its policy does not cover the damage caused by the blasts in order to avoid paying out on any claim, lawyers said.

Although property policies typically exclude malicious damage, policy holders often buy extra cover, which is likely in Nord Stream's case, legal and insurance sources said.

Russian President Vladimir Putin has said the United States and its allies blew up the pipelines, an allegation that has been dismissed by the White House. US President Joe Biden has said damage to Nord Stream was a deliberate act of sabotage.

The West has not directly pointed the finger at Moscow, which has denied any involvement.

French President Emmanuel Macron said earlier that Nordic leaders had told their European partners it was still impossible to say at this stage who was behind the damage.

If a Western state actor was found to be responsible, the damage might be designated as an act of terror, which one broking source said might be covered by insurance.

However, if investigations found Russia to have been involved, insurers could argue it was an act of "self-sabotage", given Gazprom is owned by the state.

"If there was a deliberate act by the policyholder, you are not going to have a covered claim," said David Pryce, managing partner at Fenchurch Law, which is not involved with the policy.

If there was any Russian involvement it could also mean the Nord Stream 1 damage being designated as an act of war, something that is typically excluded by insurance policies.

 

Germany takes temporary control of Gazprom subsidiary

Germany said Monday it has temporarily taken control of Russian gas giant Gazprom's German subsidiary to secure energy supply and critical infrastructure amid growing distrust between the trade partners in the wake of the Ukraine war.

Energy Minister Robert Habeck said the Bundesnetzagentur energy regulator would become the trustee of Gazprom Germania until September 30, 2022.

"The government is doing what is necessary to ensure security of supplies in Germany, and that includes not exposing energy infrastructures in Germany to arbitrary decisions by the Kremlin," Habeck said.

The move comes after state-owned Gazprom unexpectedly said it was withdrawing from Gazprom Germania last Friday, without disclosing a new ownership structure.

The German unit holds several key energy assets, including natural gas supplier Wingas, which has a market share of around 20% in Germany, gas storage firm Astora, a London-based trading arm and other foreign subsidiaries.

The German government made the decision to step in because of the current unclear legal structure behind Gazprom Germania and the mother firm's failure to comply with the obligation to inform German authorities of ownership changes, the Minister said.

Under German law, the government has the right to examine transactions involving non-EU firms deemed systemically relevant.

Habeck said Gazprom Germania operates critical infrastructure in Europe's biggest economy.

Under the interim arrangement, voting rights in Gazprom Germania will be transferred to the Bundesnetzagentur.

The energy regulator will also be allowed to dismiss management members and appoint new ones, as well as take all necessary measures to guarantee supplies, Habeck said.

Germany has backed sweeping Western sanctions against Moscow over its invasion of Ukraine.

But because of its heavy reliance on Russian energy imports, Berlin has so far resisted pressure to boycott Russian oil and gas.

Those calls have grown louder at home and abroad following the recent allegations of atrocities committed against civilians in the Ukrainian town of Bucha.

EU antitrust investigators last week raided the German offices of Gazprom, on suspicion the Russian state gas giant had illegally pushed up prices in Europe.

Russian Gazprom has no plan to export gas to Europe in February

Russian state energy giant Gazprom said it has not booked any capacity to pump gas to Europe through the Yamal pipeline in February, underscoring a sharp drop-off in Russian exports to the region so far this year.

Gazprom said pipeline exports of Russian gas have tumbled 41% from a year ago so far in January, underlining the impact of a reversal in the Yamal-Europe pipeline, which usually pumps Russian gas into Europe, from Germany to Poland. Data from German network operator Gascade showed that this was occurring for a 28th consecutive day on Monday.

Although, the Kremlin-controlled group has not booked any capacity through the pipeline for February, this could change as it is able to take part in daily auctions.

The link has been operating in reverse mode since December 2021, helping drive up gas prices, although these dropped on Monday thanks to robust liquefied natural gas (LNG) volumes and higher wind power output.

Exports of Russian commodities have been under the spotlight in recent months amid a broader standoff with the West over Ukraine. Moscow has initiated the talks with the United States and NATO in an effort to stop Ukraine from joining the bloc.

Russia has also been accused by some politicians and experts of deliberately withholding gas exports in order to obtain clearance from Germany and the European Union for its Nord Stream 2 gas pipeline, built to bypass Ukraine.

Russia denies any plans to attack Ukraine and says it meets all contractual obligations on gas exports.

It is not clear when the Yanal-Europe pipeline will revert to normal. A source close to Gazprom said the Kremlin-controlled company is expected to switch flows at some point this month, as Gazprom has paid for westbound volumes for January.

High gas prices present a major problem for European governments, utilities and consumers, with some firms forced out of business by last year's rapid rise in costs.

The Yamal-Europe pipeline usually accounts for about a sixth of Russia's annual gas exports to Europe and Turkey.

Gazprom has not booked any gas transit capacity for February via the route, according to a monthly auction results. Deputy Prime Minister Alexander Novak on Saturday repeated that Russia was ready to supply more gas to Europe, but only if there are new long-term contracts.

Capacity nominations for Russian gas flows from Ukraine to Slovakia via the Velke Kapusany border point, another major route to Europe, were 286,970 megawatt hours (MWh) on Monday.

That was steady compared to nominations seen so far in 2022 but well below levels of more than 900,000 MWh recorded in early December last year, data from Slovak pipeline operator Eustream showed.

Gazprom has not booked gas transit capacity for exports for February via two other crossing points into Ukraine, although some 11.14 mcm/day of capacity via Velke Kapusany were booked for Russian gas for the next month.