The prices for Gazprom's long-term contracts are for now up to double those of European stock quotes, and on its own export trading platform, Gazprom is keeping prices at $110 per thousand cubic meters, using long-term forward contracts for the autumn and next year, when the company expects gas to be more expensive. For now, this enables the company to keep supplying gas to Europe with a minimal profit margin.
Yet the Russian giant, which supplies more than one-third of Europe's gas, is definitely feeling the strain. The company drew up its 2020 budget based on a price of $200 per thousand cubic meters. In January and February, it delivered gas at an average price of about $170 per thousand cubic meters, but the year's average, taking into account the collapse of oil prices in March, will clearly be lower.
It's also obvious that export volumes will be lower than Gazprom's 200 billion cubic meter target. The volume of gas exported in January and February was already at least 20 percent lower than that of the previous year, and remained at that level in March. There's no knowing yet how far European demand will fall over the next few months.
The slump in gas prices will create plenty of problems, but it could also provide a much-needed purging of an industry that in recent years has seen increasingly absurd projects unveiled for pipelines and LNG terminals. Many of those projects clearly fail to take into account that, in the long term, gas should be affordable, and preferably green, if it is to withstand the growing competition from renewable energy sources.
LNG supplies to the European market — mainly from the United States — doubled last year and continued to increase this year. At the current prices, newcomers to the market will be unable to pay back the multibillion dollar investment in their factories over the next decade at least.