Price of Russia’s gas in Germany dropped by 56%


The price of Russian gas for European consumers continues to fall despite rising oil prices.

In March, the average contract price for Gazprom’s gas on the border with Germany have reached their minimum for more than 10 years, and amounted to $147.2 per thousand cubic meters, the Ministry of Economic Development (MED) said in its monthly monitoring with reference to IMF data.

In one month Russian gas fell by 14.6%, and by 56% in the last year.

The average selling price for the first quarter was $167.6 per thousand cubic meters, which corresponds to a 2 times drop per annum.

In contracts with Gazprom the price is tied to the oil price – this system has been working since 1970s, when USSR built the first gas pipeline to Germany. However, according to the agreements, changes in gas price are behind the oil’s – there is a lag of 6 to 9 months, MED says.

Thus, at the beginning of 2016 Gazprom was hit by the second wave of decline of the oil market, which began last summer and lasted until January 21, 2016, when Brent reached the 12-year low of $27.2 per barrel.

The time lag of “oil binding” implies that Russian gas in Europe will continue to become cheaper, even if the oil price will continue to recover. The minimal contract price – around $100 per thousand cubic meters – is expected in the summer.

So far, Gazprom compensates the price decline by the growth of supply – gas exports to the EU soared by 28% in the first quarter, to 44.4 billion cubic meters.

At the same time, the combined volume of Russian exports to the EU, including gas, decreased: according to the Ministry of Economic Development, it fell by 38.3%, to $17.8 billion. Exports to Italy fell by 65.5%, to the Netherlands – by 38.4%, to Germany – by 30.9%.



Image: Vladimir Astapkovich, RIA Novosti