Combined Russian and Norwegian gas exports to Europe increased by 23% year on year in the first quarter of 2016 to 68.6 billion cubic metres (bcm), helping to pressure European hub prices throughout the year's peak consumption period.
ICIS has compiled Norwegian export data published by operator Gassco and Russian exports to Germany, Poland, Slovakia, Hungary, the Balkans and flows to Turkey via the Balkans, as published by the importing nations' grid operators.
Based on this transparency data, Russian exports of 37.9bcm represented the greatest quarterly total for more than four years and accounted for a 55% share of the total. This was in line with the split in the fourth quarter of 2015 but up from 47% in the first quarter of last year.
Norwegian imports to Britain, France, Belgium, Germany and the Netherlands totalled 30.74bcm, representing the greatest European export volume in at least two years.
The abundant supply of piped gas to Europe in the first quarter was a key factor driving hub prices lower early in 2016. According to ICIS closing price assessments, the day-ahead and front-month contracts in Britain, the Netherlands and Germany all shed at least 15% of their value between 4 January and 31 March. The equivalent contracts gained between 6-10% in value in the same time last year.
Surging imports of Russian natural gas have been driven by weakness in the oil market, where front-month futures have been on a downward trend since the second quarter of 2014. This is because purchase prices within Russian supply contracts to Europe are indexed to the value of oil products, with a lag of six-to-nine months on average, and recipients have a degree of flexibility in their contracts to profile their receipts accordingly. Shippers are therefore benefitting now from the historic low oil prices that were repeatedly hit throughout 2015.
Despite rallying in February and March, front-month Brent crude futures still averaged their weakest price in more than a decade in the first quarter of 2016. This means the cheapest contractual import prices may be yet to come and recipients will continue to profile their volumes throughout 2016 to benefit from differences between European hub prices and Russian piped import prices.
In the first three days of April, entry flows to the NEL and OPAL pipelines – which carry gas delivered via Nord Stream inland through Germany – increased from a relatively flat 113 million cubic metres (mcm)/day rate through the first quarter, to an eight-month high 122mcm/day. However, flows from Ukraine to Slovakia dropped to a two-month low of 115mcm/day between 1-3 April, from a 122mcm/day average during the same quarter last year.
Key Norwegian exporter Statoil has been transitioning from oil-indexation towards greater hub-indexation within its European supply contracts in recent years. This means European energy companies have less opportunity and need to optimise their gas receipts across the year based on the developments in the oil market.
In February 2015, Statoil CEO Eldar Saetre said more than 75% of its supply contracts were now linked to spot gas prices, up from 50% in 2010.
Source: ICIS