Southern gas corridor may complicate the life of the Turkish stream

Southern gas corridor may complicate the life of the Turkish stream

Gazprom’s gas supplies to European countries are falling, Russian media reported, citing comments on the company’s international financial reporting standards.

Gazprom has already abandoned plans to deliver more than 200 billion cubic meters to Europe, which was expected at the beginning of the year. The strongest drop in supplies was recorded in Turkey. After the opening of the Southern Gas Corridor from Azerbaijan, for six months the country bought 8.1 billion cubic meters in Russia. While over the same period last year, shipments amounted to 12.7 billion.

Gazprom’s fall in revenues was also affected by the warm winter and the launch of liquefied natural gas (LNG) plants in the first half of 2019 around the world. Low gas prices in Asia led to the diversion of LNG to Europe, which allowed European countries to reduce costs. In 2018, the average price of Russian pipeline gas was $ 246. In 2019, Gazprom wanted to stop at 230-235 dollars, but now it expects 215 dollars per thousand cubic meters.

Amid falling gas supplies to Europe, Gazprom increased prices for post-Soviet countries. In dollars, the cost increased on average by 9%, and in rubbles – by 19, which allowed the company to earn an additional 18.8 billion rubbles.

On average, every thousand cubic meters cost CIS buyers $ 163.2, but gas supplies fell from 20.6 billion cubic meters to 19.1 billion. Gazprom also increased prices by 4% in Russia, and despite the drop in sales, the company received an additional profit of ten billion rubbles.

An analysis of the situation says that the European market is both the strongest and weakest place in Gazprom’s position as a global exporter of natural gas. The fact is that Gazprom’s sales markets are also not diversified. The basis of the financial power of the Russian gas giant is the European market. There is no second, more or less equivalent, direction of Russian gas export.

Gas trade with China has yet to be built. And this means that in the future the Southern Gas Corridor, even in comparison with the small reserves of Azerbaijani gas, can greatly complicate Gazprom’s life. If now, thanks to SGC, Turkey has reduced the volume of purchases of Russian gas by more than 4 billion cubic meters in six months, what will happen next?

For example, at the end of 2020, when Azerbaijan begins to supply gas not only to Turkey, but also to the countries of southern Europe. Most likely, Azerbaijani gas will be somewhat cheaper than Russian, and therefore more preferred. If, however, you take into account the European policy of diversifying your gas supply, this means that gas from the Southern Gas Corridor will have an advantage. That is, all other things being equal, first of all, they will buy it.

But until recently, some Russian gas market experts said that Azerbaijani gas is not a competitor to Russian, and most likely, Russian gas will have to be pumped through the SGC in order to fully load the pipe. It’s not so simple and straightforward to see, and this story can have the most unexpected sequels and consequences.