Page 4 - FSUOGM Week 28 2020
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FSUOGM COMMENTARY FSUOGM
Gazprom swings to first
quarterly loss since 2015
Gazprom suffered from ruble devaluation and hefty foreign exchange losses
RUSSIA
WHAT:
Gazprom booked a net loss of $1.64bn in Q1.
WHY:
The company was hit hard by falling prices, ruble devaluation and a collapse in European gas demand.
WHAT NEXT:
Gazprom will face even tougher quarters in the second half of the year.
RUSSIA’S state gas giant Gazprom has booked its rst quarterly loss since 2015, as the coronavi- rus (COVID-19) pandemic caused its European sales to collapse, and ruble devaluation led to he y foreign exchange losses.
e supplier reported a net loss of RUB116bn ($1.64bn) for the three months ending March 31, versus a net pro t of RUB536bn a year earlier. However, Gazprom’s deputy chairman Famil Sadygov noted in an earnings call that this was only a loss “on paper”, owing to a 30% fall in the value of the ruble during the period and write- downs made to re ect lower oil prices.
“Under these conditions, the nancial results that the company showed in the rst quarter can be considered, to put it mildly, not bad,” he said, estimating that Gazprom would have achieved a RUB288bn net pro t, excluding the forecast e ect. It will use this gure to calculate its future dividends.
Even so, Gazprom’s profits after sales also slumped 36% to RUB293.5bn, on the back of a 24% drop in revenues to RUB1.74 trillion. Gas sales revenues from its highest-value market, Europe, plunged 45% to RUB459.5bn.
European gas demand collapsed in March a er countries began imposing travel restric- tions to combat COVID-19’s spread. Com- pounding the virus’ impact, the continent experienced an unusually warm winter, and storage facilities were well-stocked, following the run-up to Ukraine and Russia signing a new gas transit deal in late December.
Gazprom delivered 51.6bn cubic metres of gas to Europe and other countries outside the former Soviet Union in the rst quarter, which is 17% less than a year earlier. e average price at which it sold this gas also dropped 37% to RUB10,800 per 1,000 cubic metres, or around $152.
In a research note, the director of Moscow-based BCS Global Markets, Ronald Smith, warned that although the results were above expectations, Gaz- prom will face “rough seas ahead.”
“ e situation on the European gas market is abysmal, with prices and volumes both off sharply,” he said in a research note on July 14. “In
short, the second and third quarters of 2020 will probably be the worst quarters for Gazprom’s European gas export revenue in over 15 years.”
Gazprom is Europe’s top supplier, covering nearly 40% of its total demand. But over the past year it has faced sti competition from new LNG suppliers, namely in the US. LNG imports are generally cheaper than Gazprom’s gas at present, as around a third of the Russian rm’s supplies are wholly or partially indexed to oil prices, with a time lag of around six to nine months. is makes them uncompetitive a er a sudden price collapse such as the one in March.
Gazprom’s core earnings (Ebitda) amounted to $7.4bn in the three months, surpassing BCS’ forecast by 11%. Its European export sales reve- nues were also 8% above the investment rm’s guidance.
Besides the fallout from the coronavirus, Gazprom faces another threat from Washington lawmakers. A bill that would impose additional sanctions on the company’s Nord Stream 2 pipe- line is currently making its way through US Con- gress, punishing any international rms assisting with construction.
As NewsBase has reported, it is questionable whether US e orts could prevent Gazprom from nishing the pipeline’s remaining 6%. Gazprom already has two Russian pipelaying vessels in the area.
Furthermore, Germany strongly opposes US interference. e chairman of the economic and energy committee of Germany’s Bundestag, Klaus Ernst, addressed US senators and repre- sentatives in a letter this week, urging them not to support the sanctions bill.
“As elected representatives of the American people, you undoubtedly and rightfully resist all attempts to interfere in the internal a airs of Texas, Wisconsin or Pennsylvania,” he said. “Europe, in turn, expects that you will respect the decisions that were taken democratically within the European Union.”
“ e extraterritorial application of US sanc- tions undermines the transatlantic partnership and damages the reputation of the US and the US economy in the EU,” he continued.
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w w w . N E W S B A S E . c o m Week 28 15•July•2020
