Russian Oil and Gas Industry: News #3

So they are bitching about Russia not sending gas through NS2 while dragging their heels on certifying NS2?

What a schizophrenic spasm.

No.

They are complaining that Russia has pumped 117 mln cms into the NSII pipes so if they get the clearance to use them they can be used to deliver gas straight away.

So they have purged whatever was in the pipe... probably just normal air, and pumped gas into the pipes so the pipes contain gas and should therefore be much faster and easier to activate to provide gas direct to germany because that step has already been taken.

The EU are complaining that instead of using that gas to fill the pipeline they could have sent it directly to the EU presumably through the Ukraine and they could have used it to fill their storage tanks to a higher level for winter.

Ie they want freebies and they don't want to pay the increased price but they want the gas.

There is a minimum flow through the Ukraine that Russia has agreed to which should equate to the amount of gas that the EU has ordered minus the gas going through NSI and South Stream of course.

If Russia has to pump extra gas through the Ukraine then the addition of transit fees is included in the cost so Russia does not lose out... it just ends up costing the EU customer even more for their gas.

Once the NSII pipelines are operational the only transit fees AFAIK go to Denmark for their little island in the way that the pipeline passes through the waters of so without multiple transit fees the gas will be much cheaper even if it comes from the same source.

The thing to be aware of... the market price is rocketed up, but the production and deliver costs have not changed so any gas sold will deliver to Russia massive profit margins... but despite a spot market price now of over 1,000 per thousand cubic metres of gas they will likely still be offering 10 or 15 year contracts for 250 to 300 dollars per K cubic metres, because spot profits are not reliable and long term contracts means stability for everyone.

I don't think too many years of paying market prices will lead to a rethink in their market forces policy because market forces lead to instability and variability in the market and that always puts the price up, which snowballs... and creates feast and famine situations. Not good for something like energy which you want to be stable.

Well, we can expect a pure deja vu of the 00s.
Russians will pump the contracted gas for Europe, Ukrs will steal it, the pressure will be dropping, and Poland will be the first to yap about ze evil Ruskies switching off the flow.
Just as it used to be.
That pathetic case was well understood in the core EU, leading to the Nord Stream.
The story will repeat itself.

Ukraine will hope so because they can rely on the EU to support their position, and for Russia to be painted as the bad guy, but their problem this time around is that there are now alternative in place pipelines that bypass them... south stream and NSII... and more importantly Russia is starting to get sick and tired of the shit they are getting from the EU... they realise the dream of a Eurasian bloc from the atlantic to the pacific is dead... Europe is not interested... so there is a good chance if the Ukraine starts stealing gas and the EU chooses to punish Russia for not receiving the gas they paid for that Russia might just seal up the pipe to the Ukraine and tell the EU they will only pump through south stream and north stream because they are the only pipes where gas cannot be stolen by the Orcs.

The EU might have a tantrum over that and refuse to buy any gas... which means Russia can just liquify that gas and ship it to Asia and earn a much larger profit from it instead.

The Ukraine needs to learn the story of the boy who cried wolf.... the EU are not going to put up with freezing just to show solidarity with the Ukraine.

Both Poland and Ukraine will be switched off the flow just when the contracts cease to exist and can swallow all the freedom gas the mighty Murica can ship them, using freedom LNG terminals in the pribaltic Bantustans&Poland. That is null at the moment because they seem not be interested, while the whole of this herd can't afford present spot pricing.
And we will witness South Stream in realization, bringing gas to Italy via Balkans.
Business as usual.

Freedom gas is not coming to Europe... they get much better prices in Asia and that is where they are shipping all their gas for sale.

Word on the street was that Hungary got around 220 for 15 years in last months contract. Gazprom saying that they wanted stability and certainty on future revenue, not big profits. Given Russia's move away from the US$ I'd be surprised if the contract wasn't actually in Euros, the US$ just being quoted for comparison.

And that is the point... the gas does not cost 200 dollars per thousand cms to extract and deliver so they are making a good living from this price... getting 1,000 dollars for the same amount sounds nice... but it wont last because if gas costs that much then LNG becomes attractive instead and they will start looking for alternative energy sources to replace gas because gas wont be the cheap option any more.

Overcharging is shooting yourself in the foot... and destroying your own customer base.

Will definitely be in Euros... might even be in rubles if the EU keeps up with the sanctions because they might have as much trouble spending Euros soon as they would have spending dollars.

From the various analysis videos put out by Mercouris, who goes through vastly more articles than I do, it sounds
like there is a financial burden on Gazprom imposed by transit fees.

There is a minimum flow agreed and for any extra flow they need to pay extra transit fees, so even if they send no gas through the pipes they have to pay the Ukrainians the fees for the agreed to flow amounts so essentially they get a minimum fee... but that would also mean their fees would not reflect the value of the gas going through so whether it is a 220 dollar per kcm, or spot price bought gas at 1,200 dollars per kcm, the transit fees they get will be the same per kcm... which will be something they complain about too.

That means that while the gas prices are high any transit fee costs will be a minor fraction of the profit margin...

As Putin mentioned when he ordered Gazprom to pump gas through the Ukraine and bypassing Ukraine and just paying them the fees owed for what should have passed through their pipes was cheaper than actually pumping gas through the Ukraine... which suggests other routes are significantly cheaper.

I rather suspect the pipes in Ukraine are not in great condition either... not to mention the ongoing risk of theft makes it an undesirable option.

When Putin said he didn't want Ukrainians to freeze suggests he expected them to get "access" to enough gas to keep houses warm this winter... so he is expecting them to either pay for or steal gas.