Page 143 - RusRPTJan21

tonnes of hydrogen per year, and it is ready to export up to 10,000 tonnes of hydrogen starting from 2021 if the customers have technologies for gas transportation, he said..
After a tough 2020, an early turnaround in European gas. ​The triple whammy of the 2nd LNG Glut, an abnormally warm winter, and COVID-19 hit European gas markets hard. Gas prices fell as low as $1.1/mcf ($40/mcm) in June – the lowest spot price on record. Producers were forced to pare back output – including a c65% reduction in US LNG output – that rebalanced the gas market. Prices began rallying in August, earlier and faster than we had expected, to c$5.0/mcf (c$180/mcm) in the first half of November.
Gazprom’s tough times passing – Significant improvement in 4Q20 Having fought through its worst quarter (2Q20) in over 15 years, Gazprom’s key gas export business should see a significant rebound already in 4Q20. Volumes are still down y/y, but the rebound in European gas prices presages a return to the low end of ‘normal’ EBITDA already in the 4th quarter.
High-margin exports to normalize by 2023, hit new highs by ‘25e Despite a tough 2020, we are optimistic about Gazprom’s export business: With rising Asian demand absorbing the 2nd LNG Glut, falling European gas production, and more normal (cooler) weather, Europe’s call on Russian piped gas should return to c200bcm by 2023. Add in 38bcm of high-margin Chinese flows, and by 2025e Gazprom’s gas export business should be in new territory.
Valuation: GAZP undervalued, significant dividend growth coming – Buy Our DDM-based TP for Gazprom remains unchanged at $8.0/ADR – the changes to our near-term expectations fall within our rounding mechanism. With c58% of excess return and a rapidly-improving core business, we enthusiastically confirm our Buy on the stock. Investors seem skeptical of Gazprom’s commitment to higher payouts, but we fully expect a 40%+ payout on ‘20e earnings and 50% from ‘21e as stipulated by the new dividend policy. With a 50% payout kicking in from FY21, DY should rise to >15% by FY25.
At the end of October, Gazprom signed a new long-term deal with Austria’s OMV to supply gas to Germany ​and started deliveries from 1 December, Kommersant reports. According to the paper’s sources, the new contract envisages annual gas supplies of 6bcm for 15 years, while the gas price under the contract is likely to be linked to spot gas prices. According to Kommersant, the point of delivery, if it is set in Russia, might help to avoid the European requirement to use 50% of Nord Stream 2 for third-party gas.
We think the development is positive for Gazprom in the longer term, as it helps to secure gas deliveries to Europe, although we do not expect any immediate market reaction to the news. We note that Germany is one of
143 ​RUSSIA Country Report​ January 2021 www.intellinews.com