27.09.2021

Gas production since the beginning of the year – 14 455 636 thcm

Weighted average price of natural gas (resource of September) – 17 072 UAH/thcm excluding VAT (100% prepayment terms)

TTF – 68.26 EUR/MWh ($847) (+0.8%)

NCG – 68.11 EUR/MWh ($845) (+0.7%)

GPL – 68.43 EUR/MWh ($849) (+0.7%)

CEGH – 69.74 EUR/MWh ($866) (+1.3%)

July 2021. Monthly gas market report

11/08/21

PRODUCTION

Ukraine produced 1.66 bcm of natural gas in July, which is 3% less than in July 2020.

JSC Ukrgasvydobuvannya (Naftogaz Group) reduced gas production by 5% compared to the same period last year. At the same time, both PJSC Ukrnafta and independent gas producers were able to increase outputs of natural gas by 2% and 1% accordingly.

Hence, the share of state-owned enterprises in the total amount of gas production in July was 75%, independent companies – 25%.
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PRICING

July 2021 continues to impress with a record increase in natural gas prices. Traditionally, at the beginning of the month, the price was lower, which is fine, bearing in mind the ongoing trend of growth, and the month itself was marked by increased volatility. Therefore, the price during the first week fluctuated in the range of 35-38 EUR/MWh ($440-473 per 1000 cm), and as a result of the trading day on July 7th fell by 11% or 3.99 EUR/MWh ($50 per 1000 cm). The next day, the price decreased by 4% or 1.23 EUR/MWh ($15 per 1000 cm) to 32.58 EUR/MWh ($408 per 1000 cm), reaching its lowest level in July. During the period of July 9-12, the price of natural gas increased by 4.21 EUR/MWh ($53 per 1000 cm) to 36.79 EUR/MWh ($461 per 1000 cm). A series of fluctuations during July 13-26, when the price was in range of 33.81-36.13 EUR/MWh ($423-453 per 1000 cm) ended in a final increase during July 27-30 by 16% pr 5.52 EUR/MWh ($69 per 1000 cm), reaching the highest value of the month. Thus, in July, the difference between the lowest and the highest price was 26% or 8.51 EUR/MWh ($107 per 1000 cm).
Summing up, the average cost of natural gas at the TTF hub in July was 36.04 EUR/MWh ($451 per 1000 cm), which means an increase of 25% compared to the values of the last month. Compared to July 2020, the growth was 644%, as the average price for the same period last year was 4.84 EUR/MWh ($59 per 1000 cm).

The average price at the TTF hub, including the cost of transportation to the Ukrainian border, in July amounted to UAH 13 395 ($492 per 1000 cm) net of VAT. It increased by 20% compared to June 2021.
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Among the main reasons caused the biggest upward consequences on the market:

  • refuse by Gazprom to reserve annual capacity for transit to Europe,
  • reduction of supplies and forced withdrawal of natural gas from European underground gas storages due to the shutdown of the Yamal gas pipeline,
  • 10-week maintenance of the Nord Stream gas pipeline by Nord Stream AG company,
  • reduction of the rice of European carbon quotas,
  • low-level rates of filling of underground gas storages in Europe,
  • rejection of Germany’s appeal against the decision on the rules for the use of the OPAL gas pipeline and its use by no more than 50%,
  • stops at the Troll field in Norway, which led to a shortage in the market,
  • record growth rates of demand and prices for liquefied gas in Asia,
  • unstable situation with the wind generation due to the weather conditions.

At the same time, the resumption of natural gas supplies from Norway and the unstable market situation have become the main reasons for increased volatility and price adjustments.

Even though the price for natural gas went ultimately high in recent months, it is impossible to instantly increase gas production. Gas producing companies form a financial plan and calculate the level of capital investment in new projects at least a year ahead, and this is usually done at the end of the calendar year. Moreover, due to peculiarities of oil and gas development, a period of drilling new wells and bureaucratic procedures, the first commercial gas inflows can be obtained not earlier than a year and a half after purchasing and receiving a license for subsoil use.

In addition, various factors affect prices to change rapidly, which makes it impossible to forecast for the months ahead, and the unpredictability of the Covid pandemic and its possible outbreak in the fall poses significant risks to the world’s oil and gas industry. Bearing in mind the cost of the well, a chance of getting it “dry”, the cost of geological exploration and the long-time frame for its construction – spontaneous and ill-considered decisions can have significant negative consequences.

Price correlations in Ukraine during July followed the trend at European hubs and reflected rapid growth, even though they were still lower if it is compared.

According to the results of e-trading on UEEX on the 100% prepayment terms, the weighted average price in July amounted to UAH 9 329 ($343 per 1000 cm) net of VAT, which is 28% higher than in June 2021 and 208% higher than in July 2020.

The price of the resource of July in Naftogaz Trading for industrial consumers on the 100% prepayment terms, increased by 50% to the previous month and amounted to UAH 12 308 ($452 per 1000 cm) net of VAT.

According to the Ministry of Economy, the import of natural gas to the territory of Ukraine in July was carried out at the average price of UAH 9 747 ($358 per 1000 cm) net of VAT, which exceed numbers of the last month by 7%.

DRILLING RIGS. UKRAINE AND EUROPE

According to the Association of Gas Producers of Ukraine, 32 drilling rigs were used in drilling in our country in July, which is 1 pc. (+3%) more than the previous month and by 5 pcs. (+19%) more than the same period last year.

Rising natural gas prices have not affected the increase in drilling in Europe. On the contrary, there was a drop by 6 pcs. (-8%) compared to June 2021 and by 3 pcs. (-4%) compared to the same period last year. The total number in July amounted to 69 active drilling rigs. The decrease in activity was recorded in: Italy by 1 rig (-50%), Norway by 4 pcs. (-20%) and Great Britain’s offshore (-25%). The only country that increased drilling volumes was Turkey, which increased numbers by 1 rog (+5%) compared to the previous month.
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DRILLING RIGS. THE REST OF THE WORLD

According to Baker Hughes Rig Count, the total number of active drilling rigs in the world in July amounted to 1 381 pcs., which is 55 pcs. (+4%) more, compared to the previous month and by 357 pcs. (+35%) compared to the same period last year.

For the tenth month in a row, the United States is increasing drilling volumes, which involved a total of 483 rigs. Thus, in July, companies increased the number of active drilling rigs by 19 pcs. (+4%) compared to June 2021 and by 228 pcs. (+89%) compared to July 2020. The following methods were used for drilling: directional – 31 pcs. (+19%), horizontal – 435 pcs. (+4%), vertical – 17 pcs. (-6%).

Canada is also continuing to increase capital investment in the industry. The country involved an additional 42 drilling rigs (+40%) to 142 pcs. in July. In comparison, at the same time last year, only 33 pcs. were drilling new wells. The following methods were used in drilling: directional – 5 pcs. (+82%), horizontal – 138 pcs. (+40%), vertical – 2 pcs. (+7%).

Africa keeps it tight with global tendency, and demonstrated growth for the sixth month in a row, as the number of active drilling rigs was increased by 3 pcs. (+5%) to the previous month and by 12 pcs. (+21%) compared to the same period last year. The leader of the region – Algeria – has reduced drilling in equivalent to 4 pcs. (-16%), with the Niger, which showed a decrease by 1 rig (-33%). The rest of the showed an increase or remained unchanged. Hence, countries that have shown growth: Cameroon by 1 pc. (+100%), Kenya by 1 pc. (+25%), Libya by 2 pcs. (+17%) and Nigeria by 2 pcs. (+40%).
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In the Asia-Pacific region, the total number of active drilling rigs amounted to 187 pcs., which means an increase by 4 pcs. (+2%) to the previous month, but a reduction by 6 pcs. (-3%) compared to the same period last year. Countries with a decrease: China at offshore by 2 pcs. (-6%), and India by 2 pcs. (-1%) and Vietnam by 1 pc. (-50%). Instead, among the four countries, there was an increase in capital investment in the industry: Australia by 1 pc. (+6%), Indonesia by 4 pcs. (+12%), Malaysia by 1 pc. (+25%), Thailand by 2 pcs. (+67%).

Latin America, despite an increase by 60 pcs. (+81%) compared to the same period last year, in July has shown a decrease in volumes of drilling by 9 pcs. (-6%). Despite drilling growth in Argentina by 318%, Colombia by 217%, and Ecuador by 300% compared to July 2020, most countries showed reductions compared to the previous month. Among them: Bolivia by 1 rig (-33%), Brazil by 3 pcs. (-25%), Ecuador by 3 pcs. (-43%), Mexico by 2 pcs. (-4%), and Peru by 2 pcs. (-50%). Instead, the countries where was recorded an increase: Argentina by 1 rig (+2%), Chile by 1 rig (+100%) and Colombia by 1 rig (+6%).

The Middle East is currently stagnating, where a total of 263 active drilling rigs were used, which is by 1 pc. more than last month, but by 52 pcs. (-17%) less compared to the same period last year. Countries where drilling volumes have increased: Iraq by 3 pcs. (+8%), Kuwait for 2 pcs. (+9%), Pakistan at 1 pc. (+7%), Qatar at 1 pc. (+13%). Countries where the decrease was recorded: Israel by 1 pc. (-50%), Oman at 1 pc. (-2%), Saudi Arabia by 2 pcs. (-3%), Abu Dhabi by 2 pcs. (-4%). The rest of the countries remained unchanged.

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