Gazprom gas stores likely to empty end-winter 2021 as pipelines optimized: sources

London — Europe's largest supplier of gas, Russia's Gazprom, is expected to reach the end of the winter with empty storage facilities as delays to new supply routes and prices will encourage the company to withdraw volumes, market participants say.

Traders expect Gazprom to run existing gas pipelines at maximum rates during the winter months and to use storage facilities to meet peaks in demand and absorb extra supply.

Despite facing a tightness of transport capacity, in 2020-21 the company will not try and keep its storage sites full for as much as possible as it did a year earlier.

Rather, traders expect continued winter withdrawals from Gazprom's sites, which would result in empty storage facilities by the end of the winter.

"Gazprom will sell the stocks they have in Europe [during the winter], and if needed use Nord Stream 2 in summer 2021 to fill the storages again," a German energy broker said.

"[In the first quarter of 2021] I expect pipelines flows at max (North Stream 1, Mallnow, and Velke) and swing -- including selling spot volumes via the ESP platform -- via storage sites," the broker said.

Signs that this will be the strategy for the Russian major are already there, he said.

"Gazprom ESP platform for spot sales was offering Gaspool December contracts," the broker said. "But long-term buyers of Russian gas in the Gaspool, NCG and TTF area are running their contracts at max. So there would be no market for spot volumes in these areas right now, unless Gazprom is selling stored gas," the broker said.

Fitting in with price scenario

Pipeline running at the maximum and storage withdrawals will be encouraged by the price scenario, traders said.

"I think prices will hold this winter, so it makes sense for Gazprom to use its pipelines at max in Q1. LNG volumes are quite low and they will continue to be so in Q1," the trader said.

A similar storage strategy will also create much needed gas demand over the summer, traders said.

"Getting to the end of the winter with empty storage facilities means to put buying pressure on the Summer 2021 contract," the UK-based trader said.

This will be especially needed in a year where many expect Ukraine's vast storage facilities to remain untouched till winter 2021, an Italian gas trader said.

"In this scenario, I think it's strategically more convenient for Gazprom to withdraw gas in Q4 and lower the average level of stored volumes across Europe. This creates the condition for some stored volumes to be withdrawn from Ukraine's facilities and create demand for summer and winter 2021," he said.

Extra Ukraine capacity

Gazprom has yet to give clear guidance on 2021 expected gas exports to Europe. Platts Analytics expects that 2021 exports to Europe will be higher than those expected for 2020, which have been recently estimated by the Russian major at 170 Bcm.

This means that, despite an already agreed transit deal with Ukraine, the company will still have to deal -- as it did a year ago -- with export capacity tightness.

Both the 55 Bcm/year Nord Stream 2 pipeline and the 15.75 Bcm/year TurkStream extension across Serbia and Hungary won't be ready for January 2021, with market participants expecting their commercial availability in spring at the earliest.

At the same time, available transport capacity via Ukraine under the long-term deal signed by Gazprom and Ukraine's Naftogaz in December 2019 is dropping to 40 Bcm/year in 2021 from 65 Bcm/year in 2020.

The deal envisages a maximum daily capacity, which, if not used, is lost.

In 2021 the Russian major will have 125 Bcm/year of transport capacity available along the existing supply routes (55 Bcm/year along Nord Stream 1, 30 Bcm/year via the Yamal pipeline, and 40 Bcm/year via Ukraine) to deliver those 170 Bcm/year of planned exports.

The Russian major has the opportunity to buy extra spot capacity via Ukraine, and this, some market participants say, could also be an option, especially in the event of cold weather.

"The alternative for them is to book more transport capacity through Ukraine," a German gas trader said. "If it is getting very cold, it might be tough to fill the storages again in the summer," he said.

According to Ornela Figurinaite, gas analyst at S&P Global Platts Analytics, Gazprom will most likely use its stored volumes to cover sudden spikes in gas demand during the winter.

"Sudden increases in customer nominations are more likely to be covered by storage stocks than within-month capacity bookings [on the Ukrainian transit route]. Therefore, we expect Gazprom's storages to be more depleted at the end of Winter 20 compared to the average observed over the past five years," Figurinaite said.

However, additional transport capacity on the Ukrainian route would still be needed.

"We expect the company to book some additional short-term capacity as its operating costs are well below current market pricing," the analyst said.

Further purchases are needed in case of a delay of Nord Stream 2 beyond Q2 2021.

"In the event of Nord Stream 2 being delayed beyond Q2 2021, Gazprom would need additional short-term Ukrainian capacity bookings not only to fulfill contractual obligations, but also to refill the depleted storages ahead of Winter 2021," Figurinaite said.