Monday 1 October 2012

Gazprom: Total Capitulation on Oil

A recondite issue but interesting on several counts.  You may recall the ongoing saga of how Gazprom has refused, loudly and as a matter of high principle, to sell gas on any other basis than with price indexed to that of oil.  How they have been at loggerheads on this with their long-suffering customers since the great gas demand-collapse of 2009 (and have settled with some of them via a price reduction); how their persistent truculence on the issue has caused the Chinese - a natural customer for their gas - to tell them to a take a hike; and how the EC is proceeding against them for this and other behaviours.

(If you don't, click on the Gazprom tag below.)

Well lookee here, what do we find ? - they've sold a decent-sized chunk to Centrica, priced 'at index' - i.e. by reference to UK spot gas prices !  Ain't a buyers' market a wonderful thing for all us consumers ?  To think that this, from the Gazprom spin-machine, was only July !

"the gas pricing debate in Europe is nearing an inflection point with more and more commentators and counterparties accepting the longevity of the oil-price-link over the spot pricing model"

All very interesting, not to say highly gratifying, on at least three grounds. 
  • the principle at stake: They Were Wrong, and they know it
  • fulfillment of a prediction: you read it here first 
And finally, it neatly makes a point I have been trying to get across to our good friend Budgie.  Now Budgie, you will remember, is strongly of the view that only feeble-minded anglo-saxon free-marketeers (guilty as charged) would be so naive to imagine that other nations will do anything other than pursue their own narrow interests, and open-market fundamentals be damned.  

Well there you go.  The laws of supply and demand can be suspended for a while, by sheer force of stubbornness - but only for a while.  In the long run, this takes more money than, well, more than Gazprom can muster.

Welcome to the market.  It has a way of making itself felt, even to unbelievers.



measured said...

Well done, for drilling down into the fine print, ND.

Without obligation, would you still be a buyer of BG Group and what of Premier Oil? Txs.

Nick Drew said...

BG yes, PrO d/k; CU may have views.

Just MHO, no advice here etc etc

Budgie said...

Nice try, ND, but I don't suppose even you are claiming that the Russians have suddenly embraced the concept of a global free market, and rejected nationalism. So, a one off it is, then.

The English habitually pretend that we are not nationalistic, and, in a ghastly simplicity, assume that others shouldn't be either. We then affect consternation upon discovering that most nations in the rest of the world actually are. But usually too late for our own good.

No wonder we are regarded as weak negotiators by other countries, and perfidious too.

Nick Drew said...

Budgie I have lived in Russia and know very well that they are 'nationalistic'

(a very polite euphemism: some of their views would make a Guardian reader pass out on the spot: I once had to revive an American colleague when a Russian after-dinner speaker made a joke that compared Ukrainians very unfavourably with Africans ...)

my point is that they can wave their flags as vigorously as they like; but sooner or later they need to play the global game

a one-off ? watch this space

measured said...

Thanks ND. Regulation: I remember the old days when we use to send company notes to private clients if they enquired about a company. That made for free markets. Why can't fools have the right to self determination?

rwendland said...

Could this be linked to Nord Stream 2 coming online round about now? So Gazprom no longer has to pay a rake-off (ahem, percentage) to Ukraine, Poland etc, and probably now has spare pipeline capacity.

I recall some in the west (U.S.??) being somewhat resistant to the Russians building Nord Stream. Foolish resistance?

Nick Drew said...

Mr W, I'm not sure Nordstream is the answer at all

they were pinning their hopes on post-Fukushima gas (LNG) prices in the Far East, which have also been oil-indexed & running at twice European prices (just as ours are higher than US

but in 3rd Qtr this year, the Far Eastern spot price has collapsed (hey! market forces again)

Gazprom just want to signal they are open for business, to be high on everyone's 'potential supplier' list as opposed to struck-off-as-matter-of-policy

it's the only game they've got & they have to rejoin it