Weekly Overview: Anti-trust Probes, Consumers and Prices

It is unclear how Lithuania lost its arbitration case against Gazprom. Not many of the Russian export giant’s customers have come away empty-handed after seeking a refund on what they have claimed were over-priced gas deliveries over a prolonged period: in this case from 2006-15. Lithuania managed it though, perhaps by not being specific enough in the claim of unfairness that it submitted to the Stockholm Chamber of Commerce.

This 'final' decision was, unsurprisingly, welcomed at Gazprom’s HQ, as it ends a long run of pay-outs, price cuts, and other concessions to the market formalised in new contractual terms.

The case might also augur well for Gazprom in a broader context: the European Commission still has not pronounced on its examination of the allegations into anti-competitive behaviour made by a number of countries in eastern and central Europe.

Admittedly, those allegations were a little more specific than Lithuania’s: in April 2015, the EC said its preliminary view was that Gazprom was breaking EU antitrust rules by pursuing an overall strategy to partition central and eastern European gas markets, for example by reducing its customers’ ability to resell the gas cross-borders and by making the supply of gas dependent on obtaining unrelated commitments from wholesalers concerning gas transport infrastructure.

Nevertheless, Gazprom has sold out of supplier Lietuvos Dujos, and Gazprom Export has now held two rounds of auctions, the second being for winter 2016-17 gas on the Belarus-Lithuania border.

True, the volumes are not great but the Baltic markets are also small, and one has to start somewhere. More are expected this year, and are likely to be in other regions without the benefit of a nearby liquid hub that generates prices that could be used as a proxy. These are big moves forward for a company that before called the shots and stood by the principles of oil indexation for longer than its rival Statoil, even as the rationale – the absence of alternative prices – was crumbling.

It is not difficult to find explanations for this new approach. The more it changes its strategy of its own volition, anticipating the problems, the easier it will be for it to settle not only the EC’s ongoing probe but also to negotiate the onshore terms for gas flowing through Nord Stream 1&2 and onshore into Europe. Having a new CEO – the former trader, Elena Burmistrova is just the third in a few decades, following from Alexander Medvedev and before him, Yuri Komarov – will enable the company to break decisively with the past, if it chooses to, and reposition itself in a more market-oriented light.

At this rate, by the time Nord Stream 2 starts in Q4 2019, it is likely that the EU gas market – the players, the regulations and even the demand patterns – will have changed beyond recognition.

Scaling down from Gazprom and the EU to the Big Six retailers and the UK, there too things are looking anti-climactic and for the same reason: the market continued to evolve while consultants and lawyers busied themselves with economic modelling and competition law.

The UK Competition and Market Authority is to issue its findings on June 24, two years – and reportedly at an aggregate cost of £80mn – after being launched in response to high consumer bills, vertical integration of their generation and retail businesses, and very limited competition.

The matter had bothered members of parliament who had called for price freezes and the forced sale of generation assets among other intended remedies; but a few months after the probe began, the oil price fell, wholesale gas prices fell, and the savings to be had from switching supplier shrank still further.

And on top of that, more new entrants have taken joined the fray, leaving the ‘defendants’ with only 85.8% of the retail gas supply market as of early June, according to regulator Ofgem; and with 52% of those switching on both fuels opting for an independent supplier. Press reports say it will prove a damp squib, with daily The Times saying the inquiry "came in like a lion and is coming out like a lamb."

Further limiting its impact, its publication will coincide with the announcement of the result of the 'Brexit' referendum – which could lead to a fundamental shift in the UK's relations with the European Union.

This 'lower for longer', or possibly 'lower forever', gas price scenario seemed until very recently to go unchallenged; however, with the UK's giant Rough storage site being shut for at least six weeks, and the threat of another 3bn m³/yr being cut from the Dutch Groningen peaking field in an imminent court ruling, there are still bullish factors troubling the market. Winter prices have risen, even while a tidal wave of US LNG exports and fully opened valves in the Russian export pipeline system have the potential between them to more than compensate for these reductions at home. 

Centrica Storage said June 22 that tests and verification works on the Rough wells revealed an "additional issue" on one of them. "As a consequence, CSL has ceased all Rough injection and withdrawal operations. CSL will seek to expedite testing on the issue identified and expects this period of testing to last at least 42 days." This is right in the middle of the injection season, meaning the UK will start winter with a lot less gas than it would otherwise have in its long-range storage.

William Powell