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Gazprom continues to sell an increasing amount of gas to Europe

Russia’s state-owned gas giant Gazprom (ticker: OGZPY) announced its financial results for full-year 2016 Thursday, reporting a stronger profit despite lower sales prices.

The company supplied a record 178.3 Bcm to what it calls the Far Abroad (Europe plus Turkey, excluding members of the former Soviet Union), but reported sales volumes to those countries slipped 1.1% because of lower sales prices.

Total profit for the year reached 997,104 million rubles ($17.5 billion) for 2016, a 24% increase from the previous year, according to the company’s financial results. According to the report, Russian gas prices dropped to an average of $176 per 1,000 cubic meters in 2016, compared to $246 per 1,000 cubic meters in 2015.

Gazprom has traditionally pushed for oil-linked contracts for its sales of natural gas, but conceded in its annual report that “the share of gas sales linked to oil product prices is shrinking.” Buyers are increasingly winning concessions in their contracts to include more hub indexation.

Gazprom said its contract price includes a premium for reliability and flexibility of supplies “as opposed to the hub-traded gas which is supplied in standard equal lots over the contract term.”

It added that under the long-term contracts between Gazprom Export and counterparties, each party is entitled to request a revision of the contract price if any material changes occur on respective markets.

“Negotiations on price are currently underway with some of Gazprom Export’s customers,” it said, without giving details.

European markets are increasingly important to Gazprom as its share of the domestic market stagnates due to competition, reports Platts. The Russian company sent higher volumes of crude through its pipelines to the Far Abroad this year, with supplies through Nord Stream up 12% year-over-year to 43.8 Bcm, volumes to Turkey via Blue Stream up 17% to 13.1 Bcm, and some 41.7 Bcm reaching Europe via Belarus.

European countries looking to decrease dependency on Russian gas

Many countries in Europe and the Former Soviet Union (FSU) are looking for ways to decrease the volumes of gas they import from Russia. Gazprom has often been accused of acting as a tool of coercion, punishing purchasers and countries along transportation routes in order to realize Russia’s political goals. Because of this, many of Gazprom’s European and FSU customers are looking for ways to reduce their dependence on Russia’s natural gas.

Poland announced Thursday that the country signed its first deal to purchase liquefied natural gas (LNG) from Cheniere Energy (ticker: LNG) in order to reduce demand for Russian gas.

The head of Polish gas giant PGNiG, Piotr Wozniak, called it a “historic moment” for the company which is “gaining a new partner in LNG trade” in North America and becoming a “gateway” that opens for U.S. gas in northern Europe.

His deputy in charge of trade, Maciej Wozniak, said the one-time delivery will arrive at the Baltic Sea port of Swinoujscie in early June from the Sabine Pass terminal located on the border between Texas and Louisiana. It will be the first U.S. LNG delivery to northern Europe.

Maciej Wozniak would not reveal the size of the delivery or the price of the with Houston-based Cheniere Energy, Inc. He only said the price was “good and attractive,” reports the Houston Chronicle.

Prime Minister Beata Szydlo said the deal helps Poland cut its dependence on deliveries from Russia. The country has been seeking to reduce its reliance on Moscow, which has used fuel as a tool to pressure some countries in the region in the past.


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