Industry Trend Analysis - Gas Production Up On European Demand - SEPT 2017

BMI View: Improving gas demand and seasonally low storage levels in Europe will see Russian gas production increase sharply in 2017 as Gazprom reacts to meet strong demand.

We have revised up our Russian gas production forecast largely due to stronger than expected demand from Europe and forecast output of 670bcm in 2017, a 5.2% y-o-y increase. Over H117, Russian gas production has been at its highest rate in the last five years and was 11.7% higher than the same period in 2016.

H117 Production At 5-Year High
Russia Gas Production, bcm, monthly
Source: Department of Energy, BMI

Russia has a substantial gas production capacity, with Gazprom alone able to produce around 600bcm from its assets. Through this flexibility, Russian gas production is predominantly driven by meeting demand. The Russian economy is showing indications of a recovery after a torrid 2015 and 2016, providing support to domestic gas demand which has fallen each year since 2013. Of greater significance is the strengthening demand of in major European markets, which saw imports climb 6.8% y-o-y in the four months of January to April 2017.

European Demand Supporting Russian Production
Natural Gas Imports, mcm, monthly
Source: JODI

Strong import levels into Europe are also likely to persist over H2 as natural gas storage across the region languishes near five year lows. Storage sites across the 28 European Union member states are 55% full as of mid-July, around 7 percentage points lower than the five year average. With hub prices competitively low, imports into Europe are expected to remain strong, with Russia to be the major benefactor.

More Gas Imports To Replenish Storage
European Gas Storage, % Full
Source: GIE, BMI