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Gazprom Export CEO lauds 'stable' long-term contract model amid market volatility


Elena Burmistrova: "It is impossible to ensure the stability of the European energy system without gas".

Gazprom Export CEO lauds 'stable' long-term contract model amid market volatility

The CEO of Russia's Gazprom Export Elena Burmistrova on January 27 said the company's long-term contract and pricing model ensured better market stability in light of the recent price volatility witnessed on the European spot market, S&P Global Platts analysed.

In a speech to an online conference Jan. 27, Burmistrova said market predictability was "in everyone's interest."  Last year, European day-ahead gas prices slumped to multi-year lows in the summer only to recover strongly toward the end of the year.

Burmistrova noted:
  • I think you will agree with me that price volatility is a huge disadvantage for our market
  • Difficult to predict volatility provides conflicting signals to both producers and suppliers, makes long-term planning impossible, and undermines investor confidence in the industry
  • It is not just Gazprom that is interested in market predictability. It is, of course, in everyone's interest
Indexation

Gazprom has long favored long-term contracts with pricing indexed to oil, as well as hybrid pricing with elements of spot indexation.

The increased prevalence of short-term and spot prices in export contracts was a "vulnerability" of the European gas market, Burmistrova said:
  • For a long time, we suppliers have been pushed to move to spot indices. But the past year has shown how high their volatility can be
  • Against this background, the strengths of the classic long-term contracts of Gazprom became apparent
  • Prices are more stable and predictable, since we use a variety of forms of indexing, and in the case of linking to hubs, we use long delivery bases
Burmistrova added that - despite the extreme market conditions - Gazprom Export signed 2 new long-term contracts in 2020 for gas supplies to Germany and Greece.

Gazprom Export in December began to supply gas to the trading arm of Austria's OMV for delivery into the German market under a new long-term contract signed at the end of October 2020. OMV already has a long-term Russian gas import contract with Gazprom for 6 Bcm/year for deliveries to Austria that is set to run until 2040.

In June, Greek industrial group Mytilineos signed a long-term contract with Gazprom Export for the import of Russian gas until 2030. Mytilineos - which holds a leading position in Greek power and gas trading - began importing Russian gas in 2017 under short-term contracts.

Energy security

Burmistrova also pointed to the role gas would still play in the European energy mix during the energy transition:
  • We hear more and more active calls for the soonest possible abandonment of gas as a fossil fuel
  • We hear calls not only to abandon new gas projects, but also to limit the possibilities for support for them
But, Gazprom Export´s CEO said, renewables could not be depended on solely to guarantee energy security:
  • It is impossible to ensure the stability of the European energy system without gas
  • As electrification grows, this gas demand will only grow.
  • Speaking about the future of our industry, I am confident that gas is fully compatible with the most ambitious climate targets, and it can and should occupy a key place in a rational and reliable energy system