Shrinking surplus – the outlook for Russia’s spare gas productive capacity
The concept that Russia has a huge amount of spare gas production capacity has been a key theme for the European gas market since 2012, when Gazprom’s long-anticipated launch of the Bovanenkovo field on the Yamal peninsula coincided with a fall in demand for its gas at home and abroad. The result was that Russia had at maximum around 200bcm of spare capacity on an annual basis, providing it with huge supply flexibility and a large source of gas available at low short-run marginal cost. However, since 2016 the situation has started to change on the demand side. The rapidly increasing call on Gazprom’s gas in Europe in 2017-18, along with some recovery in Russia’s domestic gas consumption, have increased demand for Gazprom’s gas. The supply side responded, but the ramp-up of production at Russia’s new gas fields to planned levels and higher output at balancing fields in response to higher demand have reduced the cushion of spare productive capacity. At the same time, the natural decline of production at older gas fields has been taking its toll, so that by the end of 2018 worries about the availability of Russian gas for meeting peak demand on a seasonal basis have returned. This paper outlines the key dynamics that are changing the balance and assesses the future risks.