More Trouble For EU? Gazprom "Doesn't Expect Decline In Gas Prices In Coming Months"

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by Tyler Durden
Tuesday, Nov 30, 2021 - 10:45 AM

The massive rally in European gas prices isn't likely to fade anytime soon, according to the world's largest gas producer, Gazprom PJSC. 

Gazprom's finance unit head, Alexander Ivannikov, told investors on a third-quarter earnings call Monday that forward natural gas contracts "do not imply a noticeable decline in prices in the coming months." He said low levels of gas injections in European gas storages and the Northern Hemisphere winter would keep a bid under prices. 

"To be honest, even as direct beneficiaries of the current situation, we do not consider gas prices at around $1,000 per 1,000 cubic meters as sustainable. We see that they have already begun to negatively affect demand," Ivannikov continued. 

The world's largest gas producer announced record earnings and is on track for the highest dividend payouts in its history, thanks to soaring prices amid a terrible energy crunch in Europe. Flows from Russia to Europe, its largest export market, have declined amid domestic restocking. Increased gas flows to Asia have pushed prices even higher as Europe finds itself with the lowest gas stockpiles since 2013. 

Gazprom shares trading on the Moscow Exchange have jumped 150% since last October. The move higher was more pronounced in the previous past months as an energy crunch materialized. Shares have traded sideways since October on Nord Stream 2 pipeline project delays and US sanctions

"The massive rally in European gas prices should see profitability jump significantly again" in the first quarter of next year, Ron Smith, an analyst at BCS Global Markets, told clients following Gazprom's earnings release. 

What's great for Gazprom is disastrous for Europe as higher gas prices appear to be sticking around as the Northern Hemisphere winter is just three weeks away. Ahead of winter, Bloomberg's weather forecasts show average temperatures to be well below a 30-year average. 

Power prices across Europe spiked on Monday. In France, power for Monday jumped to the highest levels since 2012. 

Countries like Germany mainly use gas for heating, which means if a brutal winter is ahead, Gazprom is correct. Prices are headed higher.