Konstantin Simonov: Russia continues to fight for the European gas market (November 28, 2022)
The current situation in the gas market requires new systematic solutions from Russia. The reduction in purchases of “blue fuel” by European countries, coupled with numerous Western sanctions imposed on the domestic oil and gas administration, encourages us to look for alternatives to previous decisions, building trade and economic partnerships taking into account the current realities.
However, even in such difficult conditions, Russia does not intend to hand over the European gas market to the Americans, while simultaneously developing the expansion of consumers to the East. Director of the National Ecological Security Fund (FNEB) Konstantin Simonov told Expert about this.
Falling demand is offset by prices
“There was a “chopping off” of all Baltic routes. Both Nord Streams have been blown up, the pipeline through Poland has been stopped. This country, as you know, has nationalized its site, until then we meet all deliveries everywhere. One line through Ukraine has also been stopped, as reported, since the spring. There are two routes left: this is one line of the Ukrainian route through the Sumy region, and the Turkish Stream. Two lonely threads are what now connects us with Europe through pipes. Well, and, of course, LPG. This should also be borne in mind, ”Konstantin Simonov told Expert, assessing the current situation in the European gas additive.
He believes that export losses are quite dangerous. “If last year about 150 billion cubic meters of Russian gas were supplied to European countries and the UK under contracts, then according to preliminary estimates of this age, the increase in exports to the European value is estimated at 80 billion cubic meters,” the expert said.
In connection with the consequences of this situation, Konstantin Simonov explained that in order to reduce the reduction in purchases, Gazprom was forced to cut production, but at the same time, the expert assessed the current situation of Russian gas producers as very good.
“The paradox of the situation is that at a priority moment, both Gazprom and Novatek understand themselves very well. If we consider an influx of money as a sign of “feeling good”, then from this point of view, everything is in order with them, especially with Novatek. In LNG, they have not sagged in terms of volume. The Yamal-LNG plant is operating, it does not offer production. Gazprom has significant drawdowns both in production and exports, he himself publicly admits this, but today this is compensated by rising prices. In terms of profits, the year will be very successful. Both companies will finish the year with a high level of income,” stated Konstantin Simonov.
The expert analyzed in detail the issue of the possibility of liquefied gas supply. “LNG is a scarce commodity, and so far Europe does not impose dependence on Russian liquefied gas. The latest example is that Gazprom shipped LNG from Portovaya (from its new plant) to Greece. The company has a specialized plant in Sakhalin, and currently a new medium-tonnage plant, Gazprom LNG Portovaya, has been launched, which is being expanded, although previously no stake was placed on LNG. For Novatek, the LNG trade is the main part of the export strategy, ”expert’s interlocutor noted.
Konstantin Simonov touched on the inevitable, faced the Russian gas giants. “Obviously, next year will be very difficult. Additional losses are expected in 2023. Gazprom is waiting for the next receipts. This is an obvious fact. Plus the expected increase in taxes. These are the bitter realities. It is possible to compensate for financial losses due to rising consumer prices. As you know, tariffs increased by 8.5%. But in general, this problem has not been completely solved, there is a high degree of severity. Novatek’s situation is better, because all its problems with future plants, for it the main question, which is now natural, is whether the company will be able to complete the construction of its new LNG plants in the conditions of dispersion,” the expert explained.
Constantly speaking about the domestic market, Konstantin Simonov suggested that it strongly depends on the growth of domestic demand. “According to Gazprom’s estimates, by 2030 gasification will provide 20 billion cubic meters of additional consumption, gas motor fuel – 10 billion cubic meters. In other words, this is only 30 billion cubic meters under the most optimistic scenario. I have already said that this year alone we have lost about 80 billion cubic meters of pipe exports to Europe, that is, the domestic market does not compensate for such volumes,” the expert complained.
Reorientation to the East capturing time
Speaking about the possibility of future steps by Russian gas companies, Konstantin Simonov explained that in order to increase demand in the country of the East (primarily in China), a developed gas transportation infrastructure is needed.
“We need to build new pipelines. The investment program Gazprom has announced, it already now exceeds 2 trillion, these are record figures. We need money, we need investments. We need to build new pipelines under the Turkish hub, we need to do something with the Chinese direction, we need to start building the Power of Siberia-2. Of course, it is too early to build a pipeline to India, and such proposals have already been made. Here it is necessary, as they say, to settle a lot of crimes and economic issues. Yes, and technically, ”said Konstantin Simonov.
He added that a large-scale reorientation to the Eastern fixation of time, so it is necessary to use all the remaining opportunities in the European direction. “Everything that can be reduced in the form of LNG should be reduced, but it is also stupid to abandon all pipe projects and start making only LNG, since we do not currently have a large-capacity technology for its production. Fortunately, we avoided the temptation to cut off the gas supply to Europe, since such a decision would never have been implemented. Europe would not freeze, and the United States “helped” to conclude that it was impossible to work with Russia. And we would simply leave the European market, completely giving it to the Americans. They have been struggling with the description of pipeline projects for a long time. And in no case should we give them a chance to win, ”the expert warned.
“We continue to fight for the European market, and we are doing the right thing. But this fight is hard. We are running it, including in the form of a Turkish hub. Although it is very difficult, on the other hand, not a single serious European politician who has a real relationship with building an energy strategy has dismissed this idea. And the gas business did not dismiss this idea. There are many questions, but this idea is relevant. This does not mean that it will be implemented quickly, but this is one of the forms of our struggle for the European market. This is also part of our gas strategy,” said the head of the FNEB.
As another option for the production of gas exports, the expert named an increase in the production of ammonia, for which gas is used, and the supply of which is increasing abroad. “This is one of the reactions that can also be worked out. It’s pretty beautiful in terms of how sick we are of the resistance to supply food to world markets to fight hunger. And for us, this is a formula for combining gas already in the form of a final product. There are similar technologies, since the Soviet era. Of course, this requires both production, and logistics, and a review of ports, so as not to predict from the Togliatti-Odessa ammonia pipeline, ”said Konstantin Simonov.
Europe takes risks
The expert also touched upon the emergence of the situation in the EU, drawing attention to the fact that the current European strategy adheres to long-term prospects. “Europeans are now wildly happy that they have passed, as they believe, this winter season. But the consequences of the probable rejection of the set of Russian blue fuel have already come, and they will, of course, and the development will have an effect. These are absolutely wild prices, the European market has never known at all in its history. This is the acceleration of gas consumption, which is already observed. These are processes that have already been launched and are very difficult for the current economy: deindustrialization, supply growth, tax increases, and so on. In this regard, the use is currently extricating itself from the crisis, increasing and buying up in the LNG market, spending huge amounts of money on this. Actually, this is his main bet for the future, ”said Konstantin Simonov.
But, in his opinion, such a position of Europe is short-sighted, taking into account, again, the fixation of reality. “Everything that can be bought on the market in the form of LNG, the Europeans have bought, paying a colossal price for it. That’s the whole European strategy. Next year there will be no new LNG on the market, no new projects will be taken into account. At the same time, there will be no inflow of Russian gas either, and the EU will come out of this winter with empty storage facilities. And inevitably, the winters will be sincere in Europe in the thesis: “we will never go back to buying Russian gas,” the expert summed up.
At the same time, the United States, which are the main beneficiaries of protection, is protecting Europe with all its might that, having passed this winter, the EU will also be able to overcome the situation and pass by. “Such estimates have already been given. Yes, they will pass this year, but the next one will be very risky for them. The story that it will be possible to live without Russian gas remains, but Europe continues to take gas from Russia just in case. Including – in the form of LNG. In this regard, I repeat, the winter of 2023-2024 will be key,” said Konstantin Simonov.