Category Archives: Russian gas

25/11/18: Russian South Stream 2.0 Comes Out of the Shadows


Russia and Turkey have announced that the two countries have reached significant progress in reviving the November 2014-shut down South Stream gas pipeline intended to land Russian gas across the Black Sea. The project is the part of the already secured open tender contracts for purchases of gas signed between Gazprom, Bulgaria, Serbia, Hungary, Slovakia and Austria.

Source: Kommersant

The new Black Sea gas pipeline Turkish Stream will run under sea from Krasnodar to a landing hubv just west of Istanbul. On November 19, presidents Vladimir Putin and Recep Tayyip Erdogan met in Istanbul to announce the completion of pipeline's off-shore section.

Pipeline capacity is for 30 bullion cubic meters, bcm, although initial phase capacity will be closer to 17bcm (the first pipe). Currently, Gazprom supplies the above volume (30bcm) to Turkey (ca 16bcm), Bulgaria, Serbia, Slovakia, Hungary and Austria. Turkish market has been supplied via Blue Stream pipeline, and the other countries are supplied via Ukraine.

Based on reports from Russia's Kommersant (https://www.kommersant.ru/doc/3806415), Gazprom has managed to achieve two feats:

  1. Gazprom has completed laying two (not one) pipes for Turkish Stream, one intended to supply Turkey and another, to supply Southern Europe, 
  2. Gazprom secured tenders for purchases of gas from all EU states to be connected to the South Stream project (Bulgaria's open tender closes in December 2018, but all other countries have already signed onto supply agreements).


Significantly, the tenders were secured in compliance with the EU Energy Directives. This means that Gazprom latest venture has addressed the main cause of the EU's original objections to the same pipeline prior to 2014. In the case of open tenders process, Gazprom used exactly the same scheme to secure capacity orders for its Nord Stream 2 pipeline to Germany, Czech Republic and Slovakia back in 2017. According to the experts cited by Kommersant, this makes in impossible for the EU to shut down the project.

Of course, history reminder due, South Stream was primarily killed off not by the EU, but by the U.S. keen on protecting Ukraine's near monopoly on Russian gas transit. The Obama Administration exerted massive pressure on Bulgaria and other South Stream-receiving countries to prevent landing Russian gas in Southern Europe. So far, there has been little indication what Washington's position on the latest iteration of the South Stream might be, but I doubt it will be welcoming.

Kommersant-quoted stats on South Stream are impressive: according to the paper sources, Gazprom signed delivery tenders with Slovakia for seven years from October 2022 for 4.3bcm, of which Austria will get 3.8bcm, 4.7bcm will go to Hungary, 2bcm to Serbia, and 4.8bcm to Bulgaria. So, comes October 2022,  the South Stream (or Turkey Stream, or whatever you want to call this) will be pumping into Southern Europe the equivalent of the current transit through Ukraine.

Between two new pipelines, Gazprom can easily deliver its current supply contracts to Europe by-passing Ukraine, although, if European demand continues to expand at the current rates, it is likely that Gazprom will need to retain some Ukrainian transit capacity into the future. Even in 2021, before South Stream comes fully on stream, Russian gas transit via Ukraine can fall to below 10bcm per annum.

These developments are undoubtedly a major concern for Ukraine - the country already raised criticism of the South Stream on November 19 - as transit of Russian gas via Ukraine is a major revenue earner for Kyiv. Based on the European Council on Foreign Relations data, between 1991 and 2000, Ukraine accounted for 93 percent of Russian gas transit to Europe; by January 2014, this amounted to 49 percent. Naftogaz, Ukrainian State gas company, tried repeatedly to extract monopoly-level revenues from Gazprom. Back in 2008, Naftogaz tried to charge Gazprom $9 per tcm/100km in transit fees - triple the price charged for transit by Slovakia and Poland, and more than double the fee charged by the majority of the Western European states. This pricing came on top of Ukrainian authorities expecting Gazprom to supply gas to Ukraine for domestic consumption at severely subsidised prices. It is, of course, worth noting that Gazprom itself is a monopoly and has, in the past, used its dominant market positions to exercise market power. There are no innocents (other than European buyers of gas) in the long-running disputes between Naftogaz-Ukraine and Gazprom-Russia.

Nonetheless, the situation is asymmetric. Russia currently continues to rely on Ukraine for transit of its main traded commodity, while Ukraine continues to rely on Russia for a large share of its economic activity. In a recent note, Bruegel (http://bruegel.org/2018/01/the-clock-is-ticking-ukraines-last-chance-to-prevent-nord-stream-2/) estimated that Nord Stream 2 coming on line can cost Ukrainian economy ca 2-3 percent of GDP in foregone Russian gas transit earnings. South Stream is likely to add another 1.5 percent.  In the longer run, overall cost to Ukraine of losing Russian gas transit routes can cost as much as 5-6 percent of GDP.

Note: the latest developments in the Sea of Azov can put significant political pressure on the South Stream project, if the EU and the U.S. choose to significantly escalate their pressure on Russia in the wake of the Russian blockade of trade routes through Kerch Straits and in response to the naval incidents reported today. Both, the reported blockade and the naval incident, are worrying developments, and the onus is on Russia to rapidly de-escalate the already volatile situation in the Azov Sea. There are no justifiable reason for restricting Ukraine's access to trade routes, and for increasing military tensions in the region.

25/11/18: Russian South Stream 2.0 Comes Out of the Shadows


Russia and Turkey have announced that the two countries have reached significant progress in reviving the November 2014-shut down South Stream gas pipeline intended to land Russian gas across the Black Sea. The project is the part of the already secured open tender contracts for purchases of gas signed between Gazprom, Bulgaria, Serbia, Hungary, Slovakia and Austria.

Source: Kommersant

The new Black Sea gas pipeline Turkish Stream will run under sea from Krasnodar to a landing hubv just west of Istanbul. On November 19, presidents Vladimir Putin and Recep Tayyip Erdogan met in Istanbul to announce the completion of pipeline's off-shore section.

Pipeline capacity is for 30 bullion cubic meters, bcm, although initial phase capacity will be closer to 17bcm (the first pipe). Currently, Gazprom supplies the above volume (30bcm) to Turkey (ca 16bcm), Bulgaria, Serbia, Slovakia, Hungary and Austria. Turkish market has been supplied via Blue Stream pipeline, and the other countries are supplied via Ukraine.

Based on reports from Russia's Kommersant (https://www.kommersant.ru/doc/3806415), Gazprom has managed to achieve two feats:

  1. Gazprom has completed laying two (not one) pipes for Turkish Stream, one intended to supply Turkey and another, to supply Southern Europe, 
  2. Gazprom secured tenders for purchases of gas from all EU states to be connected to the South Stream project (Bulgaria's open tender closes in December 2018, but all other countries have already signed onto supply agreements).


Significantly, the tenders were secured in compliance with the EU Energy Directives. This means that Gazprom latest venture has addressed the main cause of the EU's original objections to the same pipeline prior to 2014. In the case of open tenders process, Gazprom used exactly the same scheme to secure capacity orders for its Nord Stream 2 pipeline to Germany, Czech Republic and Slovakia back in 2017. According to the experts cited by Kommersant, this makes in impossible for the EU to shut down the project.

Of course, history reminder due, South Stream was primarily killed off not by the EU, but by the U.S. keen on protecting Ukraine's near monopoly on Russian gas transit. The Obama Administration exerted massive pressure on Bulgaria and other South Stream-receiving countries to prevent landing Russian gas in Southern Europe. So far, there has been little indication what Washington's position on the latest iteration of the South Stream might be, but I doubt it will be welcoming.

Kommersant-quoted stats on South Stream are impressive: according to the paper sources, Gazprom signed delivery tenders with Slovakia for seven years from October 2022 for 4.3bcm, of which Austria will get 3.8bcm, 4.7bcm will go to Hungary, 2bcm to Serbia, and 4.8bcm to Bulgaria. So, comes October 2022,  the South Stream (or Turkey Stream, or whatever you want to call this) will be pumping into Southern Europe the equivalent of the current transit through Ukraine.

Between two new pipelines, Gazprom can easily deliver its current supply contracts to Europe by-passing Ukraine, although, if European demand continues to expand at the current rates, it is likely that Gazprom will need to retain some Ukrainian transit capacity into the future. Even in 2021, before South Stream comes fully on stream, Russian gas transit via Ukraine can fall to below 10bcm per annum.

These developments are undoubtedly a major concern for Ukraine - the country already raised criticism of the South Stream on November 19 - as transit of Russian gas via Ukraine is a major revenue earner for Kyiv. Based on the European Council on Foreign Relations data, between 1991 and 2000, Ukraine accounted for 93 percent of Russian gas transit to Europe; by January 2014, this amounted to 49 percent. Naftogaz, Ukrainian State gas company, tried repeatedly to extract monopoly-level revenues from Gazprom. Back in 2008, Naftogaz tried to charge Gazprom $9 per tcm/100km in transit fees - triple the price charged for transit by Slovakia and Poland, and more than double the fee charged by the majority of the Western European states. This pricing came on top of Ukrainian authorities expecting Gazprom to supply gas to Ukraine for domestic consumption at severely subsidised prices. It is, of course, worth noting that Gazprom itself is a monopoly and has, in the past, used its dominant market positions to exercise market power. There are no innocents (other than European buyers of gas) in the long-running disputes between Naftogaz-Ukraine and Gazprom-Russia.

Nonetheless, the situation is asymmetric. Russia currently continues to rely on Ukraine for transit of its main traded commodity, while Ukraine continues to rely on Russia for a large share of its economic activity. In a recent note, Bruegel (http://bruegel.org/2018/01/the-clock-is-ticking-ukraines-last-chance-to-prevent-nord-stream-2/) estimated that Nord Stream 2 coming on line can cost Ukrainian economy ca 2-3 percent of GDP in foregone Russian gas transit earnings. South Stream is likely to add another 1.5 percent.  In the longer run, overall cost to Ukraine of losing Russian gas transit routes can cost as much as 5-6 percent of GDP.

Note: the latest developments in the Sea of Azov can put significant political pressure on the South Stream project, if the EU and the U.S. choose to significantly escalate their pressure on Russia in the wake of the Russian blockade of trade routes through Kerch Straits and in response to the naval incidents reported today. Both, the reported blockade and the naval incident, are worrying developments, and the onus is on Russia to rapidly de-escalate the already volatile situation in the Azov Sea. There are no justifiable reason for restricting Ukraine's access to trade routes, and for increasing military tensions in the region.

5/3/15: Russian Oil & Gas: production and exports


Russian energy exports in the year of economic sanctions -  a nice survey Oil Price (h/t to @RussiaInsider) via http://oilprice.com/Energy/Energy-General/Impotent-Western-Sanctions-Fail-To-Disrupt-Russian-Energy-Exports.html.

Basic summary: volumes are up (coal), holding (uranium). But, tellingly, no discussion of oil and gas exports. Reason: both are under twin pressures of price and sanctions. So a quick add-on:

  • Oil revenues: switching wells off in Siberia in the winter is tricky, risky and hard to do, so the black gold continues to flow even at current prices. But 2014 oil exports revenues were down 11.4% to USD153.8 billion and volume of exports was down 5.6% y/y to 223.4 million tons. 
  • Oil production: OPEC estimates Russian oil production to decline by 70,000 bpd in 2015 with exports declining by 60,000 bpd y/y. Meanwhile some industry players have much more gloomy outlook: Lukoil sees a possible drop in Russian production of 800,000 bpd by the end of 2016: http://www.reuters.com/article/2015/03/03/russia-crisis-lukoil-idUSL5N0W537K20150303. Meanwhile, December 2014 saw a sharp rise in Russian oil exports to 4.4 million bpd as the Government cut export duty from 59% to 42%. New duty covers also 2015, so we can expect some support for production levels. OPEC estimated Russian production volumes to average 10.58 million bpd, with Q1 2015 forecast of 10.6 million bpd and Q2 forecast of 10.54 millions bpd.
  • Gas: full year estimates for Gazprom exports are down 18.6% y/y to USD54.73 billion, volume of exports down 12.1% to 172.6 billion cubic meters. Average contracted price in 2014: USD317 per 1,000 cubic meters, down 7.5% y/y.
  • Gas plans: Russia has been aggressively shifting new contracts for supplies to Asia Pacific and Turkey. By Energy Ministry estimates, Russian gas exports to Asia will rise from 14 bcm in 2014 to 130 bcm in 2035 and oil and coal exports will more than double.
  • Worth noting the increasing switch in favour of refined petroleum products exports, discussed here: http://www.reuters.com/article/2014/12/09/russia-oil-exports-idUSL6N0TS1XV20141209
  • Overall trade impact of the above was to drive down exports revenues to USD782.9 billion or down 7% y/y. Trade surplus was USD210.9 billion in 2014.
  • If imports remain where they were in 2014, and oil price averages of 2015 at USD45 pb, Central Bank of Russia estimates a decline in exports revenues (and trade balance) os around USD 160 billion - painful, but still leaving the country in a trade surplus.