Russian gas flows to Europe, Turkey break new records

Russian gas continues to flow to Europe and Turkey at all-time high levels in 2017 following record-breaking volumes last year, as cold weather across Europe -- especially in the east -- triggers increased demand for Gazprom gas. Russian gas prices also remain competitive compared with European hubs -- the oil price rally of end-2016 will only filter through to oil-indexed gas contracts in the coming months -- so European buyers are thought to be maxing out their Russian gas purchases.

Gazprom said gas flows to what it calls the Far Abroad -- Europe and Turkey but not the ex-Soviet states -- hit a new daily record of 621.8 million cu m on Sunday. That is the highest ever daily flow of Russian gas to Europe and Turkey, and came on a weekend day, when European consumption is normally lower, Gazprom said. Gazprom's daily supplies to Europe and Turkey first broke a near nine-year record in mid-October and then repeatedly topped that mark throughout the winter. Exports hit a total of 179.3 Bcm in 2016, a significant jump on its previous highest level of 161.5 Bcm from 2013 and well above the 2015 total of 158.6 Bcm.

"The record result demonstrates the significant increase in demand for Russian gas in Europe and our ability to ensure that it exports are robust to the required extent," CEO Alexei Miller said Monday in a separate statement. He said that Gazprom produced 419 Bcm in 2016 and that the company had an additional spare production capacity of 150 Bcm. "This allows us to quickly increase the supply of gas within the country and abroad during the winter peak consumption," Miller said.

NORD STREAM

Russian gas flows via the Nord Stream pipeline to Europe continue to run at maximum capacity, with flows to Germany at 161 million cu m on Sunday. Of that, 76 million cu m was delivered into the OPAL pipeline to the Czech Republic, up on the average 44 million cu m/d in 2016 before Gazprom was granted additional capacity in OPAL in October by the European Commission. Flows into OPAL continue at these higher levels despite uncertainty over the legality of the European Commission decision to allow Gazprom to use more capacity in OPAL after an appeal by Poland's PGNiG.

The increased flows through Nord Stream come at the expense of exports of Russian gas via Ukraine, which have fallen by the same amount since mid-December. That implies volumes are simply being diverted to the Nord Stream route away from the Ukraine route, the former being a cheaper route to market for European buyers. European buyers have an incentive to continue to buy maximum volumes of Russian gas through January, February and into March as the oil price rally takes time to work through to the oil-indexed gas contract price. From Q2, however, Russian gas flows may fall as European hubs become increasingly competitive, according to the current forward curve. The top of the range blows out to Eur20-22/MWh in June-December this year, well above the corresponding TTF month-ahead price of Eur17-18/MWh in the period, according to Platts Analytics' Eclipse Energy data.

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