Russia's Gazprom has achieved a good balance between oil-indexed and hub-based gas pricing in its contracts with European buyers and has no intention in moving increasingly towards hub indexation in the future, the CEO of Gazprom Export said Tuesday.
Speaking at the Flame conference in Amsterdam, Elena Burmistrova also slammed the concept of a price war between Russian pipeline gas and LNG in Europe, saying that some of the commentaries on the subject were "conspiracy theories."At present, the share of hub-based and hybrid gas contracts (a mix of hub-based and oil-indexed pricing) makes up just more than 50% of the volumes of gas sold by Gazprom in Europe, she said.
"The rest are gas volumes with oil product indexation -- this is a great example of how our portfolio reflects the situation on the market," she said.
Asked whether there would be a move toward more hub pricing in the future, Burmistrova was categorical.
"In the short term, we are not going to do this. At the moment everyone is fully satisfied," she said.
"We make a lot of effort to balance our contracts, and at the moment we have the right balance," she said.
Burmistrova also made the point that despite oil indexation being unpopular while oil prices were high, consumers are now happier to have oil-based pricing given the lower oil price.
"Oil indexation, which was previously heavily criticized, has now become more appealing than ever before due to the drop in oil prices," she said.She also continued Gazprom's long-standing argument that hub prices in Europe were still not a reliable pricing point.
"I would say that we still don't feel that the hub prices are the most reliable instrument," she said.She said that with the exception of the Dutch TTF hub, many other market zones were not sufficiently developed to be used as an index for gas pricing.
"I wouldn't use the word 'manipulate' because it is too strong a word, but I would say they can be used by the big players to form a current price," she said.
GAS MARKET SHARE STRATEGY?
Russia's share of the European gas market grew in 2016 to 34%, Burmistrova said, adding that it was Gazprom's ambition to retain a share of around one third in Europe.
She said, however, that Gazprom was not looking to take more European market share, and dismissed the idea of using price to drive out rival suppliers.
"Market share is not a goal in itself for us. We don't want to take the market and die by doing this," she said.
"The European gas market is a territory of peaceful competition, not a war of 'all against all'. I'd like to cool the enthusiasm of the price war instigators: Gazprom never prioritizes volumes over prices or vice versa," she said.
Burmistrova said that the popular concept in the media of a price war was misplaced, adding that the debate ranged from "pure conspiracy theories to well-rounded analytics."
"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," she said.
There has been an expectation that much of the new supplies of US LNG -- which began to flow to world markets in February 2016 -- would land on European shores.
However, to date no US LNG cargoes have come to northwest Europe, with only a handful of cargoes arriving in Spain, Portugal and Italy.
Gazprom, meanwhile, hit an all-time European export high of 178.3 Bcm last year.
"This proves that Gazprom can compete with traditional pipeline suppliers, but also with LNG suppliers, including the ambitious LNG producers from the US," Burmistrova said.
"US LNG didn't really affect the market for us."
Asked how Gazprom would feel if its market share unintentionally exceeded one third because of increased European demand, she said Gazprom would theoretically be happy because it is a commercial company.
"But I'm not sure the European Commission would be," she said.
GAS AUCTIONS
Gazprom in recent years has introduced more flexible selling mechanisms, with some commentators saying it is part of the Russian company's strategy to appease the Commission.
Burmistrova said Gazprom was working on holding another gas auction in 2017 following three previous sales in 2015 and 2016.
"We are working on it quite carefully," she said, adding that the auction process was designed to help expand the European gas market, "not to conquer it and not to divide it."
Two of the previous three auctions were for delivery of gas into Germany, while the other was for delivery into the Baltic states.
She said that by 2025, Europe would need an additional 50 Bcm of imported gas given the decline in indigenous European natural gas production, giving an opportunity for "every supplier."
She pointed to the reliability of Gazprom's long-term contracts that give the company a competitive advantage.
"Last winter we witnessed cases when prices on gas hubs -- in particular in southern Europe -- hit the psychological mark of $500 [/1,000 cu m)," she said.
"At the same time, Gazprom's clients reliably received their volumes at prices below $200 [/1,000 cu m]. That is the benefit of the predictability of Gazprom's long-term contracts," she said.
She said that last year, the share of oil-indexed or quasi oil-indexed contracts in Europe was more than 54% compared with the share of hub-based contracts at just over 42%.
"Europe is still a hybrid market," she said.
https://www.platts.com/latest-news/natural-gas/amsterdam/gazprom-sees-no-increase-in-hub-based-gas-pricing-26731877
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