6 Feb 2019 11:17

Gas price at main European hub falls below Econ Ministry's baseline forecast

MOSCOW. Feb 6 (Interfax) - The gas price for 2019 at the main European hub, TTF, has fallen below the baseline prices for gas exports to non-FSU countries of $232 per thousand cubic meters set down in the Russian Economic Development Ministry's macroeconomic forecast.

The weighted-average price in forward contracts to the end of 2019 was $230.8 at the close of trading on February 5.

At the start of the current gas year, on October 1, 2018, the average forward price for 2019 was $298, and at the end of December it was $257.

The Econ Ministry's conservative price scenario for gas supplies to non-FSU countries in 2019 is $224.6 per thousand cubic meters, but even that looks optimistic at present, with the day-ahead contract price of gas falling to $220 on Tuesday.

Forecast, planned and actual data for Gazprom supplies to non-FSU in four years in USD per thousand cu m:

2016 2017 2018 2019
Forecast Econ Ministry 199 169 181 232
Budget Gazprom 199 166 197
Actual Gazprom 167 197
Actual TTF 160 202 278

Comparison of the forecast with Gazprom's budget indicates that the company does take this into consideration: the figures fully coincided in 2016 and 2017.

But in 2018 the company budgeted a more optimistic figure and was not mistaken. Over the years, the average export price for Gazprom's gas supplied to non-FSU countries has correlated ever more closely with the average spot price.

Against the backdrop of sustained price growth in 2017 and 2018, the company has factored into its budget for one year actual prices for a previous year. After all these are not essentially peak prices for the end of a year but average prices for a year, meaning there should still have ben a margin. And if the same approach was used in 2019 when compiling the corporate financial plan (and the average TTF price was $278 in 2018), then the gap between the budget price and the market price turns out to be more dramatic. The company has not yet said what price it has budgeted for 2019.

The price of gas supplies combined with the volume of those supplies is one of the key revenue components. If revenue falls, then the company might have to increase borrowing or delay investment projects.

Gazprom usually revises its budget once the first half of a year is over.

Gazprom, as a state-owned company, bases its own budget on the macroeconomic forecast. However the Russian gas giant's information department told Interfax that the company's budget had a "sufficient liquidity cushion in the event of adverse changes in macroeconomic and market indicators."

"The company drafts forecast budget amendments on a monthly basis, taking updated economic parameters into account. During the budget's execution, the company reacts promptly to any market changes," Gazprom said.