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LNG premium.
Sberbank said in a note: “We believe that the reduction in gas supplies by Gazprom this year was primarily driven by the mild weather in Europe after the harsh winter last year and increased LNG deliveries (up 90% y/y to 29.9bcm in 1Q19) amid the launch of new LNG projects, including Novatek’s Yamal LNG. Although current Asian LNG prices are higher than European gas prices ($5.6/mmbtu against $4.9mmbtu, respectively), we note that the Asian LNG premium of around $0.8/mmbtu is not sufficient to offset higher transportation costs from the US to Asia (which stand at around $2/mmbtu) and redirect LNG supplies from Europe to Asia. We also note that European underground gas storages are currently 49% filled, which is 13pp above the five-year average and 23pp above last year’s volumes, we calculate, based on the Bloomberg data. Together, this might put additional pressure on Gazprom’s gas exports later this year, we believe. In our model, we expect Gazprom to supply 191bcm to Europe (-5% y/y) this year.”
Gazprom to reform its corporate expenditures as Miller seen to have failed at efficiently running the company. Gazprom Vice-Chairman Oleg Aksiutin announced plans to reform Gazprom's department of corporate expenditures, responsible for controlling over RUB1 trillion ($15.4bn) in spending on tenders and procurements for Gazprom and several subsidiaries, in a letter dated April 30. The message is clear -- Miller has failed to effectively run Gazprom and enhance its competitiveness on LNG markets for years. With Novatek rapidly expanding its production base, there was likely both internal and external pressure to sack the previous head, Mikhail Sirotkin, and at least make a gesture towards improving the efficiency of spending. This is also likely linked to the May decrees and repeated attempts to shame SOEs and agencies into better spending. Kudrin and the Audit Chamber are undoubtedly watching this closely, and will make use of Volodin and the Duma to express their dissatisfaction if Gazprom can't get future project costs under control. Aksiutin stated the reform was intended to eliminate redundancies within the company, reduce wasteful spending and losses, and improve the delineation and delegation of responsibilities within the company. Aksiutin was named to his post to manage the firm's investment program on April 1 of this year. The proposal calls for the consolidation of spending offices into a unified 200- person team. CEO Aleksei Miller has reportedly accepted the changes, but will not announce anything until the end of the May holidays. Aksiutin replaced Mikhail Sirotkin, who had run the department for years and is widely seen as an associate of Miller's.
There has been yet another shake up at Russia’s state-owned gas behemoth Gazprom, as the company attempts to improve efficiency and cut down on wasteful spending. Gazprom vice-chairman Oleg Aksiutin announced plans to reform the company's department of corporate expenditures, responsible for controlling over RUB1 trillion ($15.4bn) in spending on tenders and procurements for Gazprom and several subsidiaries, in a letter dated April 30. “The message is clear — [Gazprom CEO Aleksei] Miller has failed to effectively run Gazprom and enhance its competitiveness on LNG markets for years. With Novatek rapidly expanding its production base, there was likely both internal and external pressure to sack the previous head, Mikhail Sirotkin, and at least make a gesture towards improving the efficiency of spending,” BMB reports. “This is also likely linked to the May decrees and repeated attempts to shame SOEs [state-owned enterprises] and agencies into better spending. [Alexei] Kudrin and the Audit Chamber are undoubtedly watching this closely, and will make use of [State Duma chairman Vyacheslav] Volodin
114 RUSSIA Country Report June 2019 www.intellinews.com