Page 12 - FSUOGM Week 17

FSUOGM POLICY FSUOGM
Gazprom braces for tough year
RUSSIA
The Russian gas supplier’s prices and sales volumes were down last year, and worse is still to come.
PROFITS at Russia’s Gazprom sunk 17% in 2019, the company reported on April 29, on the back of weaker prices and a drop in sales volume in Europe.
The Russian gas giant posted a net income of RUB1.2 trillion ($16.3bn), down from RUB1.46 trillion for the previous year. Its revenues were down 6.8% at RUB7.66 trillion.
Gazprom sold 232.4bn cubic metres of gas in Europe and other countries outside the former Soviet Union last year, down from 243.3 bcm in 2018. The average price of these sales was RUB13,613 ($185) per 1,000 cubic metres, ver- sus RUB15,450 in 2018.
Like other suppliers, Gazprom suffered from rising competition from LNG and high storage levels in Europe last year, which drove down prices. And the company faces an even more difficult year in 2020, owing to the demand destruction caused by COVID-19 lockdowns. These lockdowns started coming into force in March, resulting in the mass closure of factories and other places of work.
Gas demand is not as badly affected as oil consumption by restrictions. But in Italy, the first country in Europe to go into lockdown, demand has fallen by around 20% in just over a month, Norway’s Rystad Energy estimates. Gas-fired power plants across Europe have registered dou- ble-digit drops in generation, despite benefitting from colder weather in some areas.
The May contract at the TTF gas hub in the Netherlands closed on April 27 at €6.075 ($6.59) per MWh, almost half its value at the start of the year. This is equivalent to around $68 per 1,000 cubic metres.
As recently as February, Gazprom was pro- jecting to sell its gas at around $175-185 per 1,000 cubic metres in Europe, down from
$203 in 2019. It had also forecast it would keep export levels to Europe and Turkey more or less level at around 200bn cubic metres per year. It is now clear that neither of these goals will be accomplished.
Many of Gazprom’s customers will have cut purchases considerably this year. Some will reduce supplies to the minimum allowed under take-or-pay contracts, while others could simply declare forces majeure. At the same time, Gaz- prom will offer gas more cheaply on its electronic exchange, in order to shift unused volumes.
The impact of the pandemic on its business is already evident. Gazprom slashed its gas pro- duction by 10% year on year in the first quarter to 123.7 bcm, data published by the Russian energy ministry’s CDU-TEK unit indicates. The com- pany has stopped reporting its monthly exports, although Interfax estimates that its sales to non- CIS countries fell to 13.0-13.5 bcm in March, down from 16.1 bcm a year earlier.
Gazprom bases its budget to a large degree on European gas price forecasts, and so cuts to spending will be inevitable. Depending on how the market fares over the next year, the company may have to put some of its major new invest- ments on hold. These include plans to construct a new gas processing and LNG production hub on the Baltic Sea – a project valued at more than RUB700bn ($9.4bn).
At worst, upstream projects could also face delays, including the Chayandinskoye and Kovyktinskoye fields Gazprom is working on in Eastern Siberia, in order to boost shipments to China. Other developments underway further west could also slip behind schedule, including the latest stage of the Bovanenkovskoye field on Yamal, and work at the neighbouring Kharas- aveyskoye deposit. ™
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w w w . N E W S B A S E . c o m Week 17 29•April•2020