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%)

May 2021. Monthly gas market report

14/06/21


PRODUCTION

Ukraine produced 1.67 bcm of natural gas in May, which is 3.3% less than in May 2020.

JSC Ukrgasvydobuvannya (Naftogaz Group) reduced gas production by 5% compared to the same period last year. PJSC Ukrnafta decreased gas production by 2% compared to May 2020. Independent gas producers, instead, were able to increase outputs of natural gas by 1.5% compared to the same period last year.

Hence, the share of state-owned enterprises in the total amount of gas production in May was 74.7%, independent enterprises – 25.3%.
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PRICING

May 2021 distinguished itself greatly by an increase in demand and, consequently, an increase in cost. At the beginning of the month, was recorded an increase of 4% or 0.93 EUR/MWh ($14.28 per 1000 cm), and then the price was quite constant. In the period from 11 to 15 of May, the maximum increase in the price of natural gas for the month by more than 13% or 3.17 EUR/MWh ($40.78 per 1000 cm) to 27.27 EUR/MWh ($351 per 1000 cm) was enshrined. Subsequently, stagnation was observed in the middle of the month, which was replaced by a sharp drop of more than 16% or 4.25 EUR/MWh ($25.34 per 1000 cm). Later on, pricing was stable, except for two-day volatility of 7% or 1 EUR/MWh during 26-28 of May.

The highest price of natural gas was recorded during the trading day on May 17, when the price was 27.29 EUR/MWh ($351 per 1000 cm). Thus, the difference between the lowest and the highest price in May was 4.25 EUR/MWh ($25.34 per 1000 cm) or 16%.
Summing up, the average cost of natural gas at the TTF hub in May was 25.10 EUR/MWh ($323 per 1000 cm) net of VAT, which is an increase by 26% to the previous month and by 448% compared to the average number of the same period of 2020, as the average price of May 2020 was 4.58 EUR/MWh.

The average price at the TTF hub, including the cost of transportation to the Ukrainian border, amounted to UAH 10 052 ($364 per 1000 cm) net of VAT. It increased by 21% compared to April 2021.
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Among the main reasons influencing pricing were: reduced imports, increased demand for electricity generation (however, we’ve seen fluctuations due to increased share of RES generation), refusal of Gazprom to purchase additional intermittent capacity for transit via Ukraine, volatility in increasing CO2 emissions fees and a small amount of reserved gas in UGS in Europe. The most significant reason that led to the fall in prices during the month was the lifting of US sanctions of the Nord stream 2 project.

Price correlation in Ukraine steadily repeated the trend in European hubs and reflected a natural increase. Although, despite hand-to-hand interaction in pricing, there is a difference between the costs of natural gas realization at the Ukrainian market and import parity price since 2019. Hence, for the last two and a half years, natural gas has been steadily sold to industrial consumers at lower prices than a value of import parity, the amount of which is used to pay taxes. Such circumstances led to incomplete compliance of the tax base with current market prices, which, in turn, correlate with quotations on the TTF, which leads to an “unfair” amount of taxes.

According to the results of e-trading on UEEX on the 100% prepayment terms, the weighted average price in May amounted to 7 586 ($277 per 1000 cm) net of VAT, which is 17% more than the previous month and by 200% more compared to the same period last year.

The price of the resource of April in Naftogaz Trading for industrial consumers on the 100% prepayment terms increased by 7% to the previous month and amounted to UAH 7 337 ($268 per 1000 cm).

According to the Ministry of Economy, the import of natural gas to the territory of Ukraine in May was carried out at the average price of UAH 8 034 ($291 per 1000 cm) net of VAT, which is 12% more than in the previous month.

DRILLING RIGS. UKRAINE AND EUROPE

According to the Association of as Producers of Ukraine, 33 active drilling rigs were used in drilling in our country in May, which is by 3 pcs. (+10%) more than in April. An increase of drilling volumes is basically explained with better performance at markets and rising in quotations.

In Europe, there were 71 active drilling rigs, which is 4 pcs. (+6%) more than in the previous month, but still less than by 5 pcs. (-7%) to the same period of 2020. Only two countries showed a decrease to April 2021, namely: France by 1 rig (-100%) and Great Britain on offshore by 2 pcs. (-22%). Nevertheless, the countries that manage to increase capital investment in drilling: Italy by 1 rig (+100%), Norway by 1 rig (+6%), Turkey by 2 pcs. (+10%), Serbia and Montenegro by 5 pcs. (+150%). 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 May amounted 1265 pcs. which is 93 pcs. (+8%) more than the same period of 2020 and by 76 pcs. (+6%), compared to April.

The United States successfully increase drilling volumes 8 months in a row, and due to great conditions at markets, such a streak doesn’t seem to have a downturn in the nearest future. Hence, drilling performance in May had a surplus of 17 rigs (+4%) compared to April, and 105 pcs. (+30%) to the same period of 2020. A total of 453 drilling rigs were used in the US during May, including the following methods: for direct drilling – 27 pcs. (+34%), horizontal – 411 pcs. (+4%), vertical – 16 pcs. (+4%) compared to May 2020.

A cessation of drilling of new wells in Canada resulted in monthly stagnation, but compared to May 2020, there was an increase. Thus, in May, Canada performed with an average of 59 drilling rigs, which is 1 pcs. (+4%) more than in April and by 35 pcs. (+150%) more than in the same period last year. Active drilling rigs in Canada during May were used for: direct drilling – 2 pcs. (-6%) , horizontal 55 pcs. (+1%), vertical – 2 pcs. (+11%), compared to May 2020.

Africa has been showing an increase in capital investment in the industry for several months in a row. Thus, in May 2020, 64 active drilling rigs were recorded in the region, which is 3 pcs. (+5%) more than in April. The number of rigs in May 2020-2021 is surprisingly the same. Algeria is improving its own performance for the 5 months in a row, hence, the total number of active drilling rigs in May was 28 pcs., which means a slight increase by 1 rig (+4%) to the previous month. Last, but not least country which has shown a growth in capital investment into the sector was Nigeria, hence, the number of active rigs was increased by 1 pcs. (+20%). The rest of the countries remained unchanged.

Asia-Pacific region was no exception from general enlargement tendency and raised the number of drilling rigs to 183 pcs., which is 16 pcs. (+10%) more to the previous month, but yet, 13 pcs. (-7%) less compared to the same period last year. The list of countries with a growth performance during May: Australia by 5 pcs. (+38%), Indonesia by 6 pcs. (+24%), Malaysia by 1 rig (+25%) and Thailand by 3 pcs. (+150%). The rest of the countries remained unchanged.
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Several months of fluctuations in Latin America were successfully transformed into growth in May. A total of 136 drilling rigs were used there, which is 18 pcs. (+15%) more than in April, and 74 pcs. (+119%) compared to the same period last year. The countries where recorded an increase in capital investment are: Argentina by 12 pcs. (+36%), Bolivia by 2 pcs. (+200%), Brazil by 2 pcs. (+20%), Peru by 1 rig (+33%), Suriname by 1 rig (+100%) and Guyana for 1 rig (+25%). The only country that reduced its performance was Mexico, where the number of active drilling rigs was reduced by 1 rig (-2%).

Although this month the Middle East maintained an overall upward trend and had a total of 266 drilling rigs, which is 6% more than in April, but, at the same time, this is the largest decline in the world compared to the same period last year. In May 2020, 375 drilling rigs were used in the region, ie a decrease by 109 pcs. (-29%). Thus, the only country with a result of a decrease was Kuwait, as drilling volumes were reduced proportionally by 2 rigs (-8%). Countries where growth was recorded: Egypt by 3 pcs. (+13%), Oman by 2 pcs. (+5%), Pakistan by 1 rig (+8%), Qatar by 3 pcs. (+38%), Saudi Arabia by 6 pcs. (+10%) and Yemen by 1 rig. (+100%). The rest of the countries remained unchanged.

A tendency of a sharp increase in prices reflectively improve forecasts regards drilling activity and key regions of the world are already on the path to resuming capital investment in the industry of previous, pre-crisis times.

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