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International gas pricing
Following substantial renegotiations of European gas supply contracts during 2010-2015, Gazprom’s current portfolio is dominated by hybrid contracts, where the selling price is, on the one hand, still determined by the oil price link (with an average sixto nine-month lag), but on the other hand needs to fall within a rather narrow band (such as +/-5% for example) set by the relevant spot hub. We estimate that spot prices account for c. 80% in
Gazprom’s total gas sales in Europe, either as a result of direct gas sales on the spot market, or having a spot price component in the long-term contract.
Figure 121 shows the historical relationship between the Brent price, Mediterranean quotes for heating oil (gas oil) and fuel oil, all with a lag of nine months, and the average non-FSU export price derived from Gazprom’s IFRS accounts. Figure 122 shows
Gazprom’s contract price (approximated by the German border price, BAFA) plotted against various spot market indicators. Both charts show a strong correlation – including in more recent years – suggesting that the overall correlation between the European spot natural gas price and the oil price has increased.
A stronger oil price and increased gas demand in 2018 lead to a 28% YoY increase in Asia LNG price to $9.8/mmbtu in 2018. UK’s NBP price grew 35% to $7.9/mmbtu, while Gazprom’s delivered price to the German border increased 17% YoY to $5.9/mmbtu. We note that prices have significantly deteriorated since the start of 2019, with the Asia LNG price down 50% YtD to $6.1/mmbtu on the back of increased LNG production globally. Warmer weather in Europe, combined with higher gas storage levels YoY, have caused a more sizable reduction in NPB price of 53% YtD to $5.4/mmbtu, while Gazprom’s delivered price to German border is down 10% to $5.8/mmbtu as of the date of this report.
Renaissance Capital
20 June 2019
Russian oil & gas
Hybrid contracts with spot price prevalent
Figure 121: Lagged oil and product prices ($/bl) vs the non-FSU gas export price Figure 122: European gas prices – Gazprom vs spot prices, $/mmbtu of Gazprom ($/mcm, rhs)
Heating Oil (LHS) |
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Fuel Oil (LHS) |
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Brent (LHS) |
20 |
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Non-FSU Gas Export Price (RHS) |
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140 |
450 |
18 |
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120 |
400 |
16 |
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100 |
350 |
14 |
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300 |
12 |
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80 |
250 |
10 |
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60 |
200 |
8 |
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40 |
150 |
6 |
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100 |
4 |
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20 |
50 |
2 |
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- |
0 |
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1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 |
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Source: Bloomberg, Gazprom, Renaissance Capital
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NBP |
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LNG Asia |
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Henry Hub |
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Germany BAFA import price |
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2004 |
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2010 |
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2015 |
2016 |
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2018 |
Source: Bloomberg, Renaissance Capital
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