Page 4 - FSUOGM Week 35 2020

FSUOGM COMMENTARY FSUOGM

Gazprom suffers worst quarter

in at least a dozen years

Gazprom is through the worst of it, with demand and prices now rebounding.
But the recovery will be slow

EUROPE CORE earnings at Russia’s national gas giant He also said market conditions were improving.
Gazprom slumped to their lowest level in at Gazprom expects to ship 170 bcm of gas to
WHAT: least a dozen years in the second quarter, results Europe in 2020, down from almost 200 bcm in
Gazprom has reported published on August 31 show. The weak per- 2019. Pre-pandemic, it had forecast 200 bcm in
its weakest EBITDA in at formance was on the back of a collapse in the sales this year as well.
least a dozen years. company's European sales, triggered by the coro- The company predicts an average sales price
navirus (COVID-19) pandemic. for Europe of $100-160 per 1,000 cubic metres,
WHY: Gazprom's net income came in at down from a $175-185 forecast made in Febru-
The decline was the RUB149.2bn ($2bn), down from RUB319bn ary and $203 last year.
result of steep falls in a year earlier but 9% above the forecast of BCS Gazprom also faces a political threat in the
prices and sales volumes Global Markets (BCS GM), the investment firm form of looming US sanctions.
in Europe. said in a research note. Revenues slumped 35% The company is near to finishing its 55 bcm
to RUB1.16 trillion, while operating income per year Nord Stream 2 pipeline to Germany. But
WHAT NEXT: swung to a RUB103bn loss, from a profit a year US lawmakers have proposed further sanctions
Gazprom says the rest before. against the project, which they think will under-
of the year will be better, Gazprom’s EBITDA was $1.3bn, marking its mine European energy security and increase
and its dividend plan lowest level in at least a dozen years and missing Russian political influence on the continent.
remains unchanged. BCS GM's forecast by 16%. German Chancellor Angela Merkel again
Gazprom’s sales to Europe and other coun- voiced her support for Nord Stream 2 last week,
tries outside the former Soviet Union were despite the sanctions threat.
down 47% year on year in the first half at “Our opinion is that Nord Stream 2 should be
RUB756.3bn. Besides the impact of corona- completed,” the leader told reporters in Berlin on
virus lockdowns on gas demand, Gazprom’s August 28. “It is a project driven by commercial
business has also been hurt this year by mild actors in Russia and Europe.”
winter weather, high levels of gas in storage and Nord Stream 2 was originally due on stream
stiff competition from LNG. before the end of last year, but a first round of US
In volume terms, sales were down 17% at sanctions imposed in December brought con-
98.2bn cubic metres. This gas sold on average at struction to a halt, leaving just 6% of the pipe-
$111 per 1,000 cubic metres, down 32% quar- line’s offshore section left to complete.
ter on quarter and 45% y/y. The price was only US lawmakers have proposed introducing
slightly above Gazprom’s accounting breakeven another wave of tougher sanctions, but politi-
point for European exports, BCS GM noted. cians in Berlin and Brussels have denounced the
Gazprom’s sales in Russia provided some sta- move as interference from Washington in Euro-
bility, with volumes down only 7% at 117.6 bcm, pean energy policy.
and revenues down only 6% at RUB488.7bn. “We are also against the extraterritorial sanc-
The company suffered $1.8bn in negative free tions that the US has imposed,” Merkel said at
cash flow (FCF) and its net debt increased 9% a conference. While the pipeline has “political
to $53bn, causing its net debt to EBITDA ratio implications,” Germany helped Ukraine get a
to rise from 1.8 to 2.7. Under its new dividend contract to continue transiting Russian gas in
policy, the company can waive minimum payout 2020.
requirements when the ratio is above 2.5. That deal ensures Ukraine billions of dollars
“With much weaker quarters upcoming, we in annual revenues for transiting Russian gas
expect deterioration on this front, but also think for at least another five years. Russia had ini-
management is unlikely to waive the minimum tially hoped to have Nord Stream 2 up and ready
payout requirements if at all possible,” BCS GM before agreeing favourable transit terms with
said. Ukraine. Besides sanctions, the pipeline project
Discussing the results, Gazprom’s CFO Famil also fell behind schedule because of Denmark’s
Sadygov said the company’s dividend plan would delay in issuing the necessary permits for its con-
remain unchanged despite the earnings slump. struction in Danish territorial waters. ™

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