Russian pipeline export prices are generally linked to the prices of crude oil and petroleum products with a lag of several months, and with declines in crude oil prices, natural gas prices have also declined. At the same time, spot prices at the key European natural gas pricing benchmark—the National Balancing Point (NBP) in the United Kingdom—averaged $4.86/MMBtu in June.
Russian natural gas pipeline prices at the German border are now less than half of their levels at the start of 2015. Declining natural gas prices were accompanied by increasing Russian and Norwegian exports to countries in the European Union. Natural gas pipeline exports from Russia and Norway, Europe’s two largest natural gas suppliers, have been steadily increasing since the spring of last year. In total, exports from these two countries to Europe were 16% higher in the last three quarters of 2015 as compared to the same period of 2014, and 23% higher in the first quarter of 2016 as compared to the same months last year. Exports from Russia increased by 56% in January-March 2016, while exports from Norway increased by 4% year-on-year, according to EIA calculations based on data from the International Energy Agency. The largest increases in exports from Russia were in flows through Ukraine to the Velke Kapusany transit point in the Slovak Republic and on to Western Europe, which averaged 2.1 billion cubic feet per day (Bcf/d) higher in the first quarter of 2016 as compared to the same period last year, and flows on the Nord Stream pipeline to Germany, which averaged 1.6 Bcf/d higher quarter-on-quarter than in 2015. In recent years, Russia has been modifying contractual pricing structures in long-term contracts with European customers, increasing the share of spot indexation and using hybrid (both oil-linked and hub-linked) prices. In 2015, about one-third of Russian exports to Europe was priced based on hub indexes, as compared to only 16% of the export volumes in 2009-10. Norwegian natural gas export prices are already based primarily on European spot indexes, including NBP and the Title Transfer Facility in the Netherlands. Last year, 80% of Norwegian natural gas exports to Europe were spot-priced.