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Buy gas at 350, sell at 190

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July 06, 2009 – Comments (0)

This article summarizes all that's wrong with Gazprom. Buying Azeri gas for $350 in order to sell it to Europe for the current price of $190 doesn't seem like a viable business model. I wonder what percentage of the price difference has changed hands between the signatories in a dark room.

http://seekingalpha.com/article/146755-gazprom-s-recent-deals-should-be-a-red-flag-to-the-rest-of-europe

n potentially ominous news, Gazprom has entered an agreement with Azeri national energy company SOCAR to purchase Azeri gas at a price of $350/thousand cubic meters. Initial volumes of 500 mcm for 2010 are modest,but Gazprom is allegedly to be a preferential buyer (whatever that means) for gas from the second stage of the immense Shan Deniz field.

The price in the deal is very interesting, given that Gazprom (OGZPY.PK) is balking at paying the same price from Turkmenistan (admittedly the Azeri gas is closer to market, and should receive something of a premium). Indeed, recent reports tend to confirm my initial conclusion that the gas pipeline “explosion” in Turkmenistan was just a consequence of the Russian reneging on its contract to buy gas at $345 from the Turkmen, a price that seemed like a good deal at the time, but which looks very rich given the current market:

Gazprom wants Ashgabat to reduce either the price or the volume of Turkmen gas delivered to Russia; or some combination of the two reductions. In either case, Turkmenistan’s national income (based almost entirely on gas exports) would be severely hit. 

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