Page 12 - FSUOGM Week 19 2020

FSUOGM COMMENTARY FSUOGM
1Q20. At the same time, LSFO and HSFO cracks rose to negative $13/tonne (from negative $49/ tonne in 4Q19) and to negative $153/tonne (from negative $233/tonne) respectively, VTBC reports.
“That improved the profitability of those companies, which are more exposed to fuel oil production, such as Surgutneftegas and Rosneft, which had suffered more in 4Q19. Conversely, jet, gasoline and diesel cracks contracted q/q to the detriment of producers with higher light product yields (Gazprom Neft, Lukoil),” says VTBC.
Despite the drop in oil prices, the average ruble-dollar rate decreased just 4% to RUB66.37, from RUB63.72 in the fourth quarter of last year and to RUB66.12 in the first quarter of this year.
“This means that the companies will not be able to demonstrate any natural cost savings,” says VTBC. “At the same time, ruble depreci- ation by the end of the quarter (26% from the end of 4Q19) gave rise to massive FX losses for all companies apart from Surgutneftegas, which famously has a $50bn net cash position denom- inatedmainlyindollars.”
Also hitting bottom lines is a tax burden shock cause by the sudden change in prices. The rapid decline in oil prices resulted in a $2.88/bbl export duty lag, since, for example, March export
duties are calculated based on the average oil price between 15 January and 15 February before the prices fell, reports VTBC.
Apart from oil export duties, the shock will also affect the mineral extraction tax (MET), which since 2019 includes the export duty com- ponent as part of its formula.
“This means that the MET rate for the quar- ter stood at $22.08/bbl in 1Q20 vs. $26.72/bbl in 4Q19,” says VTBC. “Such a setup made the netback prices for oil in Western Siberia negative in the second half of March. In the downstream, in 1Q20, the damper turned negative (due to motor fuel prices being almost fixed in RUB, while export netbacks follow oil price dynam- ics), lowering the profitability of domestic motor fuel sales, with Gazprom Neft to be affected the most.”
Taken all together, the analysts estimate that the Russian oil sector EBITDA will fall by a col- lective 38% q/q.
“While the five integrated oil companies’ top lines are set to decline 22% q/q to $66bn in 1Q20F on the back of lower oil prices, the com- binedtaxburdenofthemajors[will]declinejust 12% q/q to $22bn for the period,” VTBC ana- lysts estimate. “This, coupled with the general costs inflation, is to lead to a 38% q/q reduction in Russian oils’ EBITDA in the first quarter.”™
PIPELINES & TRANSPORT
Kyrgyzstan asks for Russian gas discount
KYRGYZSTAN
Gazprom supplies almost all the 0.30-0.35 bcm of gas consumed in Kyrgyzstan.
KYRGYZSTAN is seeking a gas price cut from Russia’s Gazprom, citing the impact of the COVID-19 pandemic.
“The spread of the coronavirus infection, a decrease in business activity and the devaluation of the national currency has led to a decrease in the purchasing power of the population,” Kyrgyz Deputy Prime Minister Erkin Asrandiev said in an online meeting on May 11, according to the government’s website. “Therefore, the Kyrgyz side has asked to reconsider the issue of natu- ral gas prices. Of course, this question cannot be solved overnight, but we hope for a positive response.”
Gazprom supplies almost all of the 0.30- 0.35bn cubic metres (bcm) of gas consumed in Kyrgyzstan. It acquired the Central Asian state’s national gas firm Kyrgyzgaz in 2014 in return for covering its debts, renaming it Gazprom Kyr- gyzstan.GazpromsuppliesitsKyrgyzsubsidiary with gas bought from Kazakhstan.
At stake are the prices charged to Kyrgyz consumers by Gazprom Kyrgyzstan. The Rus- sian-owned company currently charges resi- dential users KGS15,300 ($197) per 1,000 cubic metres and industrial users KGS18,700. Gaz- prom adjusts these tariffs on a monthly basis to account for the Kyrgyz som’s official exchange rate against the US dollar, set by the National Bank of Kyrgyzstan at the start of every month.
Belarus, another former Soviet Union state heavily dependent on Russian gas, has also asked for a lower price in light of the crisis. The country currently pays $127 per 1,000 cubic metres for wholesale supplies from Gazprom. Armenia and Moldova have requested cuts as well.
So far Gazprom has resisted these calls, how- ever. None of these countries have any serious alternatives to Russian gas, and if the company grants a concession to one of them it will likely have to do so for the rest as well.
Kyrgyzstan is eager to see progress at Line D of the Central Asia-China Gas Pipeline (CACP). The long-delayed project would flow up to 30 bcm per year of Turkmen gas to China through Kyrgyzstan and Tajikistan, offering both an alter- native option for supplies.
China has been slow to proceed with the pipeline’s construction, amid weaker-than-ex- pectedgasdemandgrowthinrecentyears.™
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Week 19 13•May•2020