Data from Russia’s Federal Customs Service shows they might be after Germany paid less for natural gas from the world’s largest exporter than most other buyers. Only the UK, which produces most of its own gas, had lower import costs among the biggest offtakers, according to the figures obtained by Bloomberg and detailed in the chart below.
Chancellor Angela Merkel has worked to strengthen the energy relationship with Russia, bucking U.S. pressure to punish Vladimir Putin’s interference in Syria and elections across the west. Germany has backed projects such as Gazprom PJSC’s Nord Stream 2 pipeline, which some other European nations and the U.S. have opposed because it would further increase Russia’s influence in the region.
“Germany is Europe’s biggest gas market, and its traders did a good job in renegotiating prices,” said James Henderson, director of the natural gas research program at the Oxford Institute for Energy Studies. While the lower rates may reflect strong diplomatic links, they also show “that Gazprom can be flexible if it needs to compete in Europe,” he said.
Germany gets more than half its gas from Russia, at a cost of more than $10 billion last year. The lower price in Germany may also be because the nation has better connections to alternative suppliers — especially Norway and the UK — than Italy or Austria, said Georg Zachmann, an economist with the Bruegel research group in Brussels.
Russian gas prices for Italy and France may also reflect increased costs of shipping the fuel to these markets by pipeline, as well as higher local spot prices, said Massimo Di-Odoardo, an analyst at Wood Mackenzie Ltd. In 2016, the average price for Germany was still higher than that for its biggest neighbors, according to the customs data.
Gazprom and its largest client in Germany, Uniper SE, declined to comment on the data. Germany’s overall bill for gas imported last year was about 17 billion euros ($21 billion) for some 87 Bcm, according to Gazprom estimates, its deputy head of department Dmitry Khandoga said Tuesday at an industry conference in Berlin.
The link between politics and gas prices isn’t certain. Merkel’s government doesn’t unequivocally support Russia, outlining plans to develop a liquefied natural gas industry and asking Russia to maintain some shipments to Europe through Ukraine, currently its primary transit route.
Britain doesn’t have long-term supply agreements with Gazprom. Germany would have paid about $1 billion more if its rates had risen at the same pace as those in Italy or France.
Gazprom has been trying to charge Uniper more after several years of price concessions. In February, the company filed an arbitration claim to increase the rate. It’s unclear if any price changes have been made since 2017, and the customs service declined to provide any more recent data.
Russia relies on oil and gas to fund more than a third of its government budget and has become adept at mixing its energy policies with broader political aims. Two years ago, Putin stepped up energy cooperation with west European countries, especially Germany, even as diplomatic relationships soured over the Ukraine conflict.
Source: World Oil