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expenses, which could mean an FX loss. The company also reported negative profit from sales of RUB 180.6bn as commercial costs increased YoY, though total costs decreased YoY. Gas sales were down 29% YoY to RUB 1.7trln, and total sales were down 21% YoY to RUB 2.7trln. Along with the financial results, Gazprom reported its gas sales volumes for the quarter. Gas sales to Germany were up 7% YoY to 11.1bcm, while sales to Turkey increased for the first time this year (+12% YoY to 4.1bcm). Sales to the Netherlands and Greece were also up considerably (+78% YoY and +73% YoY, respectively). Domestic sales fell 18% YoY to 35.9bcm, while sales to FSU countries slipped 13% YoY to 7bcm in 3Q20. Gazprom’s RAS results are a partial read-across for its IFRS results, which are likely to show a net loss as well. Our focus was on gas volumes; specifically, we were waiting for dynamics from Turkey, as 1Q20 and 2Q20 sales were down 17% YoY and 73% YoY, respectively. For 9M20, sales to Turkey decreased 25% YoY to 8.9bcm. The pick-up in purchases is likely due to the lag in long-term contract pricing, which is tied to oil. This means that as spot prices increased, Gazprom’s long-term contract prices decreased enough to make buying pipeline gas more competitive.
Gazprom​’s export of Russian gas to Europe improve in 3Q, off only 3% y/y. ​Such exports fell -19% y/y in 1H20. Pricing is also improving. Interfax reported Gazprom on track for an overall fall in exports this year of c15%. The data only covers the export of Russian gas, does not include Central Asian gas reexported to the region and generally reflects the data seen in Gazprom’s daily REMIT data for pipeline flows to Europe. Although exports are still down y/y, the relative improvement over 1H20 puts Gazprom on track for an overall fall in exports this year of c15%, from c192bcm to perhaps 162bcm. Prices are also improving, as earlier this week Interfax reported that the average price of Gazprom’s European exports rose from $93/mcm to $123/mcm, roughly in-line with prevailing European spot prices in that month. Current European spot prices are in the range of c$190/mcm, although we think Gazprom’s oil-linked contracts, which have built-in 6-9 month lags, will likely keep the company from realizing that full amount, at least immediately.
Regional gasification program will require c$25bn over the next decade. This amount (RUB1.9tn) is too much for​ ​Gazprom​ alone to bear ​without “leading to a drop in federal budget revenues”, so other sources of funding need to be found, according to Russia’s Minister of Energy Alexander Novak (Interfax). Effect on dividends likely zero, hit to CapEx accounted for in our model. The main issues for shareholders are: (1) How much of Gazprom’s CapEx will be required to meet the government’s goal to increase the share of Russia’s population with access to gas from the current 70% to 83% by 2030, a project we think is almost certainly set to be NPV-negative?; and (2) Will any of this CapEx require a drop in Gazprom’s dividends? We think the effect on Gazprom’s dividends will be zero, at least to the extent of financing the up-front CapEx. As a reminder, in late September, Gazprom’s CFO Sadygov specifically rejected just such a suggestion by a Deputy Minister of Energy.
119 ​RUSSIA Country Report​ December 2020 www.intellinews.com