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    Gazprom continuing minimum gas supplies for transit via Ukraine amid low spot prices, favorable conditions for wind power


    May 25, 2022 - Interfax Russia & CIS Energy Newswire

     

      MOSCOW. May 25 (Interfax) - Ukraine's Gas Transport System Operator (OGTSU) has accepted a booking from Gazprom (MOEX: GAZP) for Wednesday to transport 44.2 million cubic meters of gas through the country compared to 46.1 mcm on Tuesday, data from OGTSU indicate, with capacity pumping through only the Sudzha metering station, one of two entry points into Ukraine's Gas Transport System, and no pumping via the Sokhranivka metering station.

      "Gazprom is supplying Russian gas for transit through the territory of Ukraine at the volume confirmed by the Ukraine side via the Sudzha metering station at 44.35 million cubic meters on May 25, with no booking via the Sokhranivka metering station " Gazprom spokesman Sergei Kupriyanov told reporters.

      The OGTSU has declared a force majeure regarding accepting gas for transit through Sokhranivka, saying that it cannot control the Novopskov compressor station.

      Gazprom believes that there are no grounds for the force majeure nor any obstacles to continuing operations as usual. Ukrainian specialists have worked regularly at the Sokhranivka and Novopskov metering stations all this time, and continue to do so. Transit through Sokhranivka has been ensured in full, and there have not been any complaints from counterparties, Gazprom said.

      EUROPEAN MARKET

      The European gas market has once again moved to the obvious optimization of supplies.

      Most of the contracts with Gazprom are pegged to the month-ahead market index, which could exceed $1,100 per thousand cubic meters in May. On the spot market, prices have already fallen to $880 per thousand cubic meters as the warmer summer weather sets in, and as policymakers and the market adopt the new Russian gas-payment system. Consequently, buyers are seeking a cheaper alternative in the spot market.

      As prices decrease on the market, Europe's imports of liquefied natural gas (LNG) are beginning to decline somewhat in May from the record high of April, when the European gas transport system took in 10.651 billion cubic meters, or 355 mcm per day from LNG terminals. As of the last reporting date, May 23, use of regasification capacity at European terminals was at 66%, which is far from the peak of 77% at the end of April.

      The region is continuing to inject gas into underground gas storage (UGS) facilities, whose reserves are currently 43.63%, up by 0.4 percentage points from the previous day, according to data from Gas Infrastructure Europe. Reserves in Europe's UGS facilities currently lag 2.9 percentage points behind the five-year average.

      The weather in Europe this May has been nearly five degrees warmer than it was last year, thereby increasing the region's ability to inject gas into storage. Injection into UGS facilities in April was slowed by high prices for imported gas. However, imports from Russia in May have increased, and the pace of injection has accelerated. Since the beginning of May, the pace of gas injection into UGS facilities has exceeded the five-year average by 39% compared to just 12% in April.

      Europe has imposed tight regulation of the use of UGS this year. Reserves are supposed to be at least 80% of UGS capacity by the start of the 2022 offtake season and increase to 90% in subsequent years.

      However, European Union officials continue to oppose Russia's new conditions for paying for gas. This could lead to the suspension of supplies to other countries as has already happened with Poland, Bulgaria and Finland, and makes it harder to fulfil this directive.

      In the new week, the situation with electricity generation from renewable sources has improved. Wind power contributed 13% of electricity generation across the European Union in the week of May 16 to 22, the figure was up to 15% on Monday, and up to 17% on Tuesday, according to data from WindEurope.

      NEW PAYMENT SYSTEM

      President Vladimir Putin signed decree No. 172 on March 31 on a "special procedure for foreign buyers to fulfill obligations to Russian suppliers of natural gas," according to which payment for Russian pipeline gas supplied after April 1 to foreign counterparties specified in the decree must be remitted in rubles only.

      Under the procedure, special "K" type ruble and foreign currency accounts are opened at the authorized financial institution, Gazprombank (GPB) (MOEX: GZPR), for foreign buyers. These accounts prohibit the suspension of transactions, freezing or debit of funds as part of foreign buyers fulfilling obligations not related to payment on contracts to supply natural gas. Foreign buyers pay for gas in the currency of the contract, which the bank sells on the Moscow Exchange (MOEX: MOEX) and then transfers the rubles to Gazprom, at which point payment for the gas is considered to be completed.

      If the condition is not met, then gas supplies are suspended. Further gas supplies are prohibited if the payment deadline for gas supplied under a contract has expired and the foreign buyer has not remitted the payment, or has rendered it in a foreign currency, neither in the full amount nor to the account of the authorized bank.

      Russia has suspended gas supplies to Poland, Bulgaria, and Finland because they have refused to comply with the new payment system.

      Cr of

      (Our editorial staff can be reached at eng.editors@interfax.ru)

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