Saint Petersburg International Mercantile Exchange. Latest Developments in the Russian Natural Gas Market

Transcription

1 Saint Petersburg International Mercantile Exchange Latest Developments in the Russian Natural Gas Market 11 th annual European Gas Conference, 30 January 2018

2 SPIMEX: Russia s largest commodity exchange Profile Incorporated by: Transneft, Transnefteproduct, Rosneft, Gazprom Neft, Zarubezhneft, Surgutneftegaz, Sovcomflot, Russian Railways and others. Advanced and liquid refined products market: Over 17 million metric tonnes traded annually. Since 2008 more than 109,8 million metric tonnes of refined products have been traded. Number of trading participants: 2,169+ In 2014, the SPIMEX Natural Gas Market launched Month Ahead trading. The 2017 trade volume 20.3 bcm. Slide 2 In 2016: the SPIMEX Urals Crude Futures launched.

3 SPIMEX: Volume Traded in 2017 The SPIMEX Refined Products Market: 9.8 bn The SPIMEX Natural Gas Market: 0.9 bn (excl. transportation charges); 1.4 bn (incl. transportation charges). Other SPIMEX markets: 0.8 bn Total volume traded in 2017: 12.1 bn (contracts with physical delivery only) Slide 3

4 Landmark Events in the Russian Natural Gas Market in Commissioning in December by Novatek of phase one of Yamal LNG plant (maiden cargo was delivered by Christophe de Margerie icebreaking LNG carrier from the Arctic port of Sabetta to the Grain LNG Terminal). 2. Russia s total natural gas production grew by 50.3 bcm (+7.7%) year-on-year. 3. Gazprom produced 51.9 bcm (+12.1%) more than in Russia exported (outside the CIS republics) 14.6 bcm (+8.1%) more than the year before. Slide 4

5 Natural Gas Transportation Infrastructure on Which the Russian On-Exchange Trading Relies Upon ## Indicators Quantity 1 Gas Producers Gas Transportation companies Regional Gas Supply Companies (subsidiaries of Gazprom) Regional Gas Distribution companies Length of high-pressure pipelines 171,400 km 6 Length of low-pressure pipelines 460,000 km Slide 5 7 Underground Gas Storage Facilities 22 8 Compressor Stations 253

6 Russia s Natural Gas Transportation Network: entry point hub exit point Nadym hub Exit point 3 Exit point 1 Entry point I Exit point 2 Entry point II km hub Slide 6

7 Slide 7 SPIMEX Natural Gas Market in Volume sold by Gazprom reached 17.5 bcm (the upper limit allowed for the company under the relevant Russian Government regulation #323 dated 16 April 2012) 2. Increase in figures: - physical volume traded grew up to 20.3 bcm (+19% y-o-y); - volume traded grew up to RUB 93.6 bn (+25% y-o-y); - number of constituent regions of Russia that participate in trades at the SPIMEX Natural Gas Market grew up to The share of Day-Ahead trades in the total monthly trades reached the level of 25.5%. 4. Two hubs (Vyngapur and South Balyk) were merged in a new one called kilometer (Lokosovo). 5. SPIMEX set the family of all-russia and regional price indices for natural gas for 48 constituent regions of Russia.

8 SPIMEX Natural Gas Market in Indicator / 2016 (%) Physical Volume Traded (Month-Ahead and Day Ahead, bcm) % Number of trades 1,185 6,031 11, % Number of Natural Gas Suppliers on SPIMEX Number of Natural Gas Buyers on SPIMEX % % Slide 8 Number of Natural Gas Consumers %

9 Monthly Trade Volumes & Prices at SPIMEX Regulated price in Yamal region Seasonal spread - RUB 294 /1,000 m Seasonal spread руб./1000 м Seasonal spread RUB 687/ 1,000 m 3 Oct 2014 Nov 2014 Dec 2014 Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Jul 2015 Aug 2015 Sep 2015 Oct 2015 Nov 2015 Dec 2015 Jan 2016 Feb 2016 Mar 2016 Apr 2016 May 2016 Jun 2016 Jul 2016 Aug 2016 Sep 2016 Oct 2016 Nov 2016 Dec 2016 Jan 2017 Feb 2017 Mar 2017 Apr 2017 May 2017 Jun 2017 Jul 2017 Aug 2017 Sep 2017 Oct 2017 Nov 2017 Dec ,150 1,950 1,750 1,550 1,350 1, млн. куб м Slide 9 Volume traded (1,000 m 3 ) Price at Nadum hub Price at Vyngapur hub RUB/1,000 m 3 (ex VAT) RUB /1,000 m 3 (ex VAT)

10 The Share of Day-Ahead and Weekend Trades in the Total Volume Traded millions of cubic meters % % 14.9% 6.6% 4.9% 2.9% 4.7% 4.0% 10.9% 10.4% 8.8% 18.6% 13.5% 8.8% 21.2% 24.9% 17.2% 25.5% 23.6% 22.4% 17.9% 16.9% 20.0% 17.3% 10.8% 16.1% 11.4% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Slide 10 Day-Ahead and Weekend trades (over each calendar month) The share of Day-Ahead and Weekend trades in the total volume traded

11 Regulated price premium (under long-term contracts) over SPIMEX spot price in Yamal Region 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% 2,5% 1,7% 1,3% 1.5% -0.7% -1,7% -3.3% -4.0% -3.9% 3,9% -3.1% 3,9% -8.0% -9.9% 8.1% 5.0% 9.9% 7.6% 3.1% 1.9% -1.2% -2.5% -3.2% 5.6% Oct 2014 Dec 2014 Feb 2015 Apr 2015 Jun 2015 Aug 2015 Oct 2015 Dec 2015 Feb 2016 Apr 2016 Jun 2016 Aug 2016 Oct 2016 Dec 2016 Feb 2017 Apr 2017 Jun 2017 Aug 2017 Oct 2017 Dec % 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% 2.0% 1.6% 1,2% -1.2% 5,4% -1.9% -2.1% -4.2% -3,6% -9.4% 2,6% -4.5% -7,3% 3.2% 2.6% 1.3% -1.7% -3.4% -4.6% 5.3% 3,1% 2.1% Oct 2014 Dec 2014 Feb 2015 Apr 2015 Jun 2015 Aug 2015 Oct 2015 Dec 2015 Feb 2016 Apr 2016 Jun 2016 Aug 2016 Oct 2016 Dec 2016 Feb 2017 Apr 2017 Jun 2017 Aug 2017 Oct 2017 Dec 2017 Slide 11 - Nadym hub - Vingapur hub

12 Slide 12 Some Conclusions Based on the 2017 results 1. Physical volume sold at SPIMEX by Gazprom reached 17.5 bcm (the upper limit allowed for the company under the relevant Russian Government regulation #323 dated 16 April 2012). 2. The majority of constituent regions of Russia may benefit from on-exchange trading in natural gas even in case prices of exchange-traded gas exceed the regulated prices applicable to those constituent regions where the SPIMEX designated delivery points (hubs) are located. 3. On-exchange prices in an unbiased manner reflect seasonal price and demand fluctuations regardless of numerous limitations and bottlenecks of the regulated commodity trading. 4. High seasonal spread indicates that in summer Russian gas producers have an opportunity to inject natural gas into storage facilities and in winter to sell it at SPIMEX.

13 Exchange-Traded Natural Gas as an Effective Tool of Reforming Russian Gas Market Slide Swift access to the gas transportation system is fully ensured. 2. Exchange and clearing house transactional charges in the on-exchange market are now 16 times lower than the mark-up charged in the segment of regulated prices. 3. Inter-region cross-subsidies have been lowered. 4. More efficient pipeline transportation routes have been identified and are being used. 5. On-exchange trades, settlements and transportation instruction issuance have been computerized. Lead time of all such technicalities has been shortened. 6. All key market participants (suppliers and consumers) got access to the gas transportation system under a new type of gas transportation agreement.

14 Key Objectives for To integrate on-exchange natural gas trading in Russia and the Gas Transportation System management system by: - improving natural gas supply and demand balance forecasts by introducing secondary trades; - transfer of all domestic industrial gas consumers to unregulated prices; - setting price indices for OTC-traded natural gas; - further development of the market of natural gas derivatives. Slide 14

15 Key Factors which Effected Liquidity at the SPIMEX Natural Gas Market in Novatek s focus on Yamal LNG and a slight decline in the company s production substantially curtailed its ability to place offers at SPIMEX and resulted in lower volumes traded by this key market participant. 2. Volumes offered by independent Russian natural gas producers at the commodity exchange fell due to a rise in demand for natural gas in Russia. 3. A rise in production by Gazprom coupled with the factors 1-2 above resulted in the dominance of this company in the Russian on-exchange gas market and in effect turned it into a supplier of last resort in the segment. Slide 15

16 Market Concentration Level a Measure of Commodity Market Efficiency Herfindahl-Hirschman Index Boundaries Market Concentration Level HHI 2000 HIGH 1000 HHI < 2000 MODERATE HHI < 1000 LOW A rise in Herfindahl-Hirschman Index of the Russian on-exchange gas market became one of the key concerns of the year Its current value illustrates a high level of market concentration in the segment. Slide 16

17 The 2016 Production of Natural Gas and APG in the Regions Covered by the National Gas System of Russia (EGS) and the Level of Market Concentration (HHI) Slide 17 Scenario Natural gas supplied to all types of consumers (industrial & social) HHI calculated for natural gas supplied to industrial consumers only, provided that gas producers and their subsidiaries are viewed as unified groups of companies HHI calculated for natural gas supplied to industrial consumers only, provided that gas producers and their subsidiaries are viewed as stand alone entities Natural gas supplies (bcm) Herfindahl- Hirschman index 609, , ,

18 Slide 18 Herfindahl-Hirschman Index for Russian Oil and Gas Companies Company I Gas production (bcm) GAZPROM GROUP Share (%) Herfindahl-Hirschman index 1.1 GAZPROM 62,4 20,0% SEVERNEFTGAZPROM 24,9 8,0% GAZPROMNEFT 11,7 3,8% ARKTIKGAZ 25,7 8,2% PURGAZ 11,3 3,6% NORTGAZ 10,1 3,2% TOMSKNEFT 1,3 0,4% 0,2 II NOVATEK GROUP 2.1 NOVATEK 50,9 16,3% ARKTIKGAZ See point 1.4 above III ROSNEFT GROUP 3.1 ROSNEFT 50,4 16,1% PURGAZ See point 1.5 above 3.3 TOMSKNEFT See point 1.7 above 3.4 SIBNEFTEGAZ 12,1 3,9% 15 4 LUKOIL 19,3 6,3% 38 5 SURGUTNEFTEGAZ 9,8 3,2% 10 6 Others 27,7 25,5% 15 TOTAL % 1 172

19 December 2017 Russian President s Decree # 618 State Policy Guidelines on Promotion of Competition Clause 3 of the Decree: the core principles of the state policy in the field of promotion of competition shall include: р) development of organized (on-exchange) trading in the Russian Federation. Clause 8 of the Addendum to the Decree: IN THE NATURAL GAS INDUSTRY: to switch to market pricing by setting price indicators on exchange-traded and OTC-traded natural gas which inter alia shall rely on a rising volume of natural gas traded on exchanges. Setting indices for exchange-traded and OTC-traded natural gas. Slide 19

20 THANK YOU! Contacts Address: 24 Timura Frunze St, Moscow, Russia Telephone: +7 (495) Website: Office in Saint Petersburg: bldg А, Marata St, Tel: +7 (812) Office in Irkutsk Office III-12, 36 B Gorkogo St, Tel: +7 (395) ; +7 (395)