Page 8 - FSUOGM Week 18

FSUOGM COMMENTARY FSUOGM
construction of liquefaction facilities. e gov- ernment has now enabled projects that received licences a er this point to ship gas overseas as well.
YATEC does not currently hold licences that provide for gas liquefaction, but A-Property intends to seek permission from the government to export LNG, RBC said.
Russia is eager to open the sector up to invest- ment, as it sets its sights on becoming a top-tier LNG producer within the next decade. Under a new long-term energy strategy approved in early April, the government has raised its target for LNG production in 2035 to 80-140mn tpy, from 70-82mn tpy previously.
What next?
Other projects have also benefitted from the easing of LNG restrictions, including Novatek’s 5mn tpy Obsk project in the Russian Arctic, due on stream in 2024.
According to RBC, A-Property is looking to attract a new equity partner at YATEC to help
take the project forward. NewsBase believes it is likely that the investment group will seek a partnership with either Gazprom or Novatek. is arrangement would enable the project to access regulatory and potentially nancial sup- port from the state. It would also help the scheme attract international investment.
It is still unclear whether the project will reach this stage, however. Gazprom and Rosne are also attempting to advance new LNG projects in the Far East in Khabarovsk and Vladivostok respectively. But progress has been extremely slow, amid high cost projections and concerns over whether there is su cient gas supply.
Furthermore, with LNG spot prices falling to record lows of $1.80-1.90 per mmBtu in recent weeks, the timing is far from ideal for invest- ing in new supply. Gas prices were falling even before the coronavirus (COVID-19) pandemic took hold, as a result of lacklustre demand in Asia and extra LNG coming out of Australia and the US. These market fundamentals remain, even as COVID-19 lockdowns are eased. ™
PIPELINES & TRANSPORT
Russian gas transit via Ukraine down 40%
UKRAINE
Russia will pay to transit 65 bcm of gas via Ukraine this year regardless of how much it actually sends.
RUSSIAN gas transit through Ukraine dropped 40% year on year to 15.5bn cubic metres in Jan- uary-April 2020, the Gas Transmission System Operator of Ukraine (GTSOU) said in a state- ment on May 4.
Ukraine and Russia signed a new gas transit deal at the very end of 2019, but both sides built up signi cant reserves in the months before in case a deal was not forthcoming. at has led to a glut of gas in Europe, which has been made worse by the exceptionally warm winter followed by the collapse in demand caused by the corona- virus (COVID-19) pandemic.
In April Russia’s gas transit via Ukrainian territory was at 4.4 bcm, down by 1% compared with March 2020, but down by 46% versus April 2019. However, under the terms of the new tran- sit deal Russia’s Gazprom has fully paid to transit up to 65 bcm of gas this year, regardless of how much it actually sends.
e amount of Russian gas Ukraine trans- ports to Russia’s customers in western Europe has been falling steadily in recent years, but will fall to a zero low in 2020.
Gazprom reported a 51.3% year-on-year decline in export revenues in January-Febru- ary a er the price for gas in Europe was driven below $100 per thousand cubic metres in the rst quarter, data published by Russia’s Federal Customs Service (FCS) shows. Revenues in the two-month period came to $5.05bn, down from $10.4bn a year earlier.
Gazprom has started to deliver gas to China
through the recently completed Power of Siberia pipeline, but demand from China has also col- lapsed and the pipeline was closed in March for maintenance. e Power of Siberia pipeline was launched in December 2019, and annual ship- ments are due to reach 38 bcm per year by 2025.
Demand on Gazprom’s home market is also depressed and is expected to decline 9% y/y in Q1 2020 and 5% y/y on average in 2020.
Overall, Gazprom has cut its forecast for exports this year from around 200 bcm to 166.6 bcm in 2020 and expects the average price to fall to $133 per thousand cubic metres – a huge drop y/y of 17% and 37% respectively.
As a result Gazprom announced in March that it will cut capex by 20% y/y in 2020. e company has guided for capex of RUB1.3 trillion in 2020, or about $17.4bn, which will be achieved via shi ing some projects to future years.
However, the company con rmed it will not change its dividend policy and still intends to pay out no less than 50% from adjusted net income in 2022.
Analysts are sceptical that the company can both pay out the full amount of dividends and also keep within its limit of 2.5x net debt to EBITDA, which is written into its debt cove- nants. Gazprom’s net debt/EBITDA amounted to 1.7x as of end-2019.
Gazprom’s management says they are expect- ing a V-shaped recovery in demand in Europe a er the active phase of the spread of the corona- virus dies away in the second half of this year.™
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w w w . N E W S B A S E . c o m Week 18 06•May•2020