Page 8 - FSUOGM Week 07 2020

FSUOGM INVESTMENT FSUOGM
Gazprom seeks to draw investor in
RUSSIA
KEY FACTS:
• Gazprom expects
only a slight dip in pro ts in 2020, despite very dif cult market conditions.
• The company’s share price rose 87% last year, after it promised higher dividends.
• Gazprom wants to keep capex in check going forward.
RUSSIA’S Gazprom sought to draw in investors at its annual investor day on February 11 in New York, stressing its resilience under tough market conditions and its rm growth prospects.
e company summarised last year as one of “solid nancial performance”, despite the pres- sure of weaker prices and a decrease in sales in its core market of Europe.
Ahead of publishing its full nancial results for 2019, the company estimated its net income at $21.4bn for the year, representing only a mod- est decline from the $23.3bn it earned in 2018. In contrast, it generated only $14bn of pro t in 2016 and only $12.2bn in 2017. Revenues for 2019 are projected to total $126bn, Gazprom told inves- tors, down from $132bn in 2018.
Gazprom had some di culty in Europe last year fending o competition from LNG suppli- ers, causing its sales to slip from 201.9 to 199bn cubic metres.
e US ramped up LNG deliveries to Europe from 6.8 to 20.5 bcm last year, while Qatar expanded shipments from 23.3 to 32.1 bcm, and Russian LNG supplies, mostly produced by Gaz- prom’s rival Novatek, increased from 6.8 to 20.5 bcm.
Intensified competition and warmer tem- perature drove down prices, despite a 2% overall increase in demand thanks to coal-to-gas switch- ing in power generation.
Gazprom was still upbeat.
“ e company successfully defended its mar- ket share despite the bearish fundamentals and European energy policy emphasising the diver- si cation of gas imports,” it said.
Gazprom had a 35% share of the European market in 2019, while LNG suppliers accounted for 21%.
Despite general expectations that LNG sup- plies to Europe will grow further this year, Gaz- prom said LNG export projects could ounder as a result of “unfavourable economic conditions... With global prices at 10-year lows in the winter, LNG prices for deliveries from the Atlantic coast do not cover even the short-run marginal costs.”
“In 2020, the share of unutilised liquefaction capacity is expected to increase,” it said.
Gazprom sold its gas for $203 per 1,000 cubic metres last year. is was down 17% from $246 in 2018, but was higher than the $200 sales price in 2017 and the record low of $176 in 2016. Euro- pean day-ahead prices saw a more drastic decline of 44% last year to $156 per 1,000 cubic metres.
Gazprom warned of a “strong consensus” that low prices would remain for the next few years, but said: “low break-even costs provide Gazprom with a strong competitive advantage over spot LNG deliveries.”
It expects to sell its gas at $175-185 per 1,000 cubic metres in 2020, having slashed its forecast from $200 earlier this month.
What next?
Gazprom also pointed to an 87% growth in its share price last year, largely the result of its pledge to increase dividends. It intends to reward share- holders with 30% or more of net pro ts for last year, rising to 40% for 2020 and 50% in 2021. e previous dividend rate was only 27%.
e company also promised a period of more controlled spending, a er several years of record expenditure needed to pay for its Nord Stream 2, Power of Siberia and TurkStream pipeline pro- jects. Capex will be set at RUB1.1tn ($17bn) in 2020, down from a height of RUB1.8tn in 2018, and will remain at around RUB1.2tn on average annually up until 2030.
Unlike Novatek, which is spearheading Russia’s emergence as a major LNG supplier, Gazprom sees its focus remaining on pipeline exports, with these still accounting for 90% of its sales in 2030, down from 95% at present.
Gazprom is expecting a 34% growth in exports to non-FSU countries to 267 bcm by 2030, supported by a 21% rise in its output to 605 bcm. e majority of Gazprom’s new pro- duction projects will be on the Yamal Peninsula, replacing older fields entering maturity and eventually depletion further south. e next two elds scheduled to start up are Kharasaveyskoye, which will launch its rst 32 bcm per year stage in 2023, and Kamennomysskoye-more, antici- pated to ow 14.5 bcm per year starting before 2025. ™
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w w w . N E W S B A S E . c o m Week 07 19•February•2020