28.07.2021

Gas production since the beginning of the year – 11 143 371 thcm

Weighted average price of natural gas (resource of July) – 9 328 UAH/thcm excluding VAT (100% prepayment terms)

TTF – 37.63 EUR/MWh ($471) (+2.1%)

NCG – 37.16 EUR/MWh ($465) (+1.6%)

GPL – 37.29 EUR/MWh ($466) (+1.5%)

CEGH – 37.26 EUR/MWh ($440) (+1.6%)

June 2021. Monthly gas market report

13/07/21

PRODUCTION

Ukraine produced 1.61 bcm of natural gas in June, which is 2.6 less than in June 2020.

JSC Ukrgasvydobuvannya (Naftogaz Group) reduced gas production by 4% compared to the same period last year. PJSC Ukrnafta increased gas production by 2% compared to June 2020. Independent gas producers were able to increase outputs of natural gas by 0.8% to the analogous period last year.

Hence, the share of state-owned enterprises in the total amount of gas production in June was 75.2%, independent enterprises – 24.8%.
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PRICING

June 2021 distinguished itself greatly by an increase in prices. Nicely, at the beginning of the month we record quite lower prices than at the rest of the month. Thus, numbers rose by 3% or 0.81 EUR/MWh ($10 per 1000 cm) to 26.1 EUR/MWh ($333 per 1000 cm). Then, during the first week of the month the price was constant. In the period from 8 to 15 June, it increased by 9% or 2.46 EUR/MWh ($31 per 1000 cm) to 29.12 EUR/MWh ($372 per 1000 cm). Volatility was still on screen in the first half of June, but prices continued to rise. Thus, after an increase for the trading day on June 15 by 5% or 1.31 EUR/MWh ($17 per 1000 cm), although there was a decrease the next day by 3% or 0.98 EUR/MWh ($13 per 1000 cm), but by the end of the month no significant fluctuations were observed. On the contrary, the price was steadily rising, with a slight correction.

The highest natural gas price was recorded during the trading day on June 30, when the price was 33.72 EUR/MWh ($431 per 1000 cm). Thus, the difference between the lowest and highest price in June was 8.43 EUR/MWh ($108 per 1000 cm) or 33%.

Summing up, the average cost of natural gas at the TTF hub in June was 28.8 EUR/MWh ($368 per 1000 cm), which means an increase of 15% compared to last month. Compared to June 2020, the growth was 481%, as the average for the same period last year was 4.96 EUR/MWh.
The average price at the TTF hub, including the cost of transportation to the Ukrainian border, in June amounted to UAH 11 148 ($409 per 1000 cm) net of VAT. It increased by 11% compared to May 2021.
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Among the main reasons influencing pricing: seasonal maintenance of the gas pipeline in Norway and a natural decrease in gas supplies, increased demand for natural gas for electricity generation, rising CO2 emissions fees, sharp growth in demand and prices for LNG in Asia, reduced LNG supplies from the US to Europe due to natural conditions that prevent tankers from sailing. At the end of the month, Gazprom refused to reserve additional intermittent capacities for transmission via Ukraine. The planned shutdown of the Nord Stream and Yamal gas pipelines is planned for July, which will additionally affect pricing.

It is important to note that high natural gas prices in the world cannot lead to an immediate increase in gas production. Traditionally, companies at the end of the year form a financial plan for the year ahead and calculate the level of capital investment. In conditions of instability due to COVID-19, spontaneous and rapid actions pose high risks for enterprises. Therefore, taking into account the peculiarities of the development of new oil and gas fields, as well as systemic bureaucratic norms, the first commercial gas inflows will be able to output no earlier than a year and a half after obtaining a license for subsoil use.

Price correlation in Ukraine in June steadily repeated the trend at European hubs and reflected rapid growth.

According to the results of e-trading on UEEX on the 100% prepayment terms, the weighted average price in May amounted to UAH 7 296 ($268 per 1000 cm) net of VAT, which is 4% less than in May 2021 and 160% more than in May 2020.

The price of the resource of June in Naftogaz Trading for industrial consumers on the 100% prepayment terms, increased by 12% compared to the previous month and amounted to UAH 8 205 ($301 per 1000 cm) net of VAT.

According to the Ministry of Economy, the import of natural gas to the territory of Ukraine in June was carried out at the average price of UAH 9 085 ($334 per 1000 cm) net of VAT, which by 13% exceeds numbers of the last month.

The difference between the average customs price, from the amount of which the rent for subsoil use is paid, and the cost of natural gas on the domestic market was almost 25% in June. This means a de facto mismatch between the tax base and current market prices, which in turn correlate with TTF quotes. This situation leads to the accrual of "unfair" amount of taxes.

DRILLING RIGS. UKRAINE AND EUROPE

According to the Association of Gas Producers of Ukraine, 31 drilling rigs were used in drilling in our country in June, which is 2 pcs. (-6%) less than in May. The stagnation can be explained, first of all, by the financial plan of the companies determined at the end of the year and the high risk of failure from making immediate and impulsive investment decisions, which can lead to significant losses.

In Europe, 75 active drilling rigs were recorded, which is 4 pcs. (+6%) more than the previous month, but less by 4 pcs. (-5%) compared to the same period in 2020. Only Turkey showed a slight decrease to May by 1 rig (-5%). On the other hand, an increase in capital investment in drilling was recorded in: Norway by 2 pcs. (+11%) and the offshore part of the United Kingdom by 1 rig (+14%). The rest of the countries remained unchanged.
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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 June amounted 1 327 units, which is almost 62 rigs more (+5%), compared to the previous month, and 253 pcs. (+24%) more compared to the same period last year.

The US continues to increase drilling volumes, having June the ninth month in a row of increase of the capital investment in the industry. Thus, in June, an additional 11 drilling rigs (+2%) were involved, which means an increase of almost by 191 pcs. (+70%) compared to the same period last year. In total, 464 rigs were used in drilling in June. The following methods were used for drilling: for direct drilling - 26 pcs. (-2%), horizontal - 420 pcs. (+2%), vertical - 18 pcs. (+16%).

The seasonal shutdown of new wells in Canada and the regular monthly stagnation in June ended with a record increase by 45 pcs. (+76%) compared to May 2021, and by 85 rigs (+474%), compared to the same period last year. A total of 103 rigs were used in June. For direct drilling - an average of 3 pcs. (+83%), for horizontal - 98 pcs. (+79%), for vertical - 2 pcs. (+13%).

Africa continues to show an increase in the amount of rigs used in drilling of new wells. Thus, in June 2021, 65 pcs. were recorded active in the region, which is by 1 rig (+2%) more than in May. Compared to the same period last year, the number of rigs used in drilling increased by 5 pcs. (+8%). The countries where the decrease was recorded: Algeria by 3 rigs (-11%) and Niger by 1 rig (-17%). Gabon, Côte d'Ivoire and Kenya managed to increase their performance by 1 rig each. The rest of the countries remained unchanged.

In the Asia-Pacific region, the total number of active drilling rigs amounted 183, which is similar to May 2021, but less compared to June 2020 by 14 pcs. (-7%). Countries where growth was recorded: India by 2 pcs. (+3%), Indonesia by 2 pcs. (+6%). On the other flip of a coin, countries with a decrease: Malaysia by 1 rig (-20%). Thailand for 2 rigs (-40%) and Vietnam by 1 rig (-33%). The rest of the countries remained unchanged.
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Latin America continues to grow. 143 drilling rigs were used here, which is 7 rigs more (+5%) to the last month and by 72 rigs (+101%) compared to June 2020. Most countries were able to increase drilling of new wells, among them: Colombia by 2 pcs. (+13%), Ecuador by 2 pcs. (+40%), Mexico by 5 pcs. (+13%). Ecuador and Colombia became the record holders in terms of growth in the region, as they managed to grow by 260% and 600% respectively to June 2020. Trinidad and Tobago and Guyana reduced the number of drilling rigs by 1, ie by -33% and -20%, respectively.

In the Middle East, in June there was a decrease in drilling rigs by 4 pcs. (-2%) to last month and by 1 rig (-3%) to the same period last year. Countries where there was a decrease: Kuwait by 1 rig (-4%), Qatar by 3 pcs. (-27%), Saudi Arabia by 7 pcs. (-11%) and Yemen by 1 rig (-50%). On the contrary, an increase in drilling rates was recorded in: Egypt by 1 rig (4%), Iraq by 3 pcs. (+9%), Oman by 1 rig (+2%), Pakistan by 1 rig (+7%) and Abu Dhabi (UAE) by 2 pcs. (+5%). The rest of the countries remained unchanged. The total number of drilling rigs used for the development of new wells in the region in June amounted 262 pcs.

The sharp growth in prices may become the main reason for the increase in capital investment in the industry in the world. However, it is premature to predict stability in pricing issues, as this trend is primarily driven by market deficits, which may be short-lived. Therefore, companies in the sector fairly do not make economically unreasonable decisions and are very careful, monitoring the situation on the market.

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