Page 145 - RusRPTJun21

Meanwhile, the European spot gas price reached $295/kcm yesterday, rising more than 30% in April. Asian LNG is trading around $314/kcm ($8.9/mmbtu for JKM).
The current macro environment is supportive for Gazprom’s financials and might provide additional upside risks to our forecast. In our model, we expect a spot gas price in Europe of $232/kcm, which suggests DPS of RUB27.67 for 2021 (a 12.1% DY). Were the current spot gas price to remain unchanged through the year, Gazprom’s DPS might rise to RUB31.33 (13.7% DY), we estimate.
We also note the strong recovery in Gazprom’s production volumes in April, which were up 25% y/y (see our separate news in today’s Morning Comment), which is likely to be a reflection of the strong demand for its gas in Europe (its key export market).
Gazprom’s continues to work under its initial 2021 CapEx budget. A review is only possible after the results of the first half of the year are received (Alexander Fik, Head of Department 644, as reported by Interfax). We fully expect Gazprom’s CapEx budget to be revised upwards. We expect this to be done in the second half of the year, in line with established company practice when revenues are running significantly ahead of the conservative initial annual budget. This is especially true in 2021, as European gas prices have to-date averaged $245/mcm, far outstripping the very conservative $170/mcm put into Gazprom’s initial 2021 budget set in late 2020 (indeed, current spot gas prices are around $350/mcm). The September budget review will almost certainly see a 2021 CapEx boost. An increase vs the initial plan is likely but, we think, it will leave room for dividend payments and some FCF. Indeed, given the new 50% payout regime now in place, management may decide to only increase 2021 CapEx relatively modestly in its 2H budget review, in order
Gazprom conducted its broad-ranging ESG session on April 30, which covered all three areas – environmental, social and governance – on Friday, 30 April. We viewed the below points as the session’s key highlights.
● 20% of management’s KPI programme, which is now being developed and is planned for introduction next year, is to be linked to specific CO2 reduction targets, while 80% will likely be linked to financial indicators
● Current KPIs include an 11.2% reduction in CO2 equivalent emissions in the gas business by 2031 (compared with 2018)
● The company spends some RUB 50bn (USD 0.7bn) for environment-related projects a year (RUB 49bn in 2020)
● In hydrogen, Gazprom is studying several technologies, including methane pyrolysis and hydrogen generation from hydrogen sulphide; the company is also conducting research on hydrogen storage and shipment infrastructure.
● Gazprom reduced its water consumption by 17.5% YoY in 2020, and air pollutant emissions by 14.6% (methane emissions by 17.8%).
● Just 8% of the company’s pipeline are located in Arctic zone and the company closely watches and properly manages all the risks associated with the operations in the Arctic zone.
145 RUSSIA Country Report June 2021 www.intellinews.com