Page 129 - RusRPTDec22

material increase, both year-on-year and relative to BCS GM own assumptions.
The last time that Gazprom’s investments were higher was in the 2010-2014 period, when outlays averaged $51bn/yr as the company completed a number of large pipeline projects and launched infrastructure and new fields on the Yamal Peninsula.
Investment pressures apparently remain high: BCS GM assumption of a drop in investments in 2023e was based on a number of factors, including a substantially increase tax burden of RUB600bn/yr for 2023e-2025e – which would reduce available capital – and also on the fact that the pipe-laying part of the construction of the Power of Siberia-1 pipeline was finished in recent weeks. However, the need to ramp production at the Kovykta field in the next 3 years, and perhaps a requirement to install additional compressors on the pipeline as that happens, may be serving to keep investment in that project temporarily elevated. Additionally, we think that investments at the Ust Luga gas processing project (also called the Baltic LNG project) may be accelerating faster than we had anticipated, and that the regional gasification program, which has become a high-priority activity in the last couple of years, may be absorbing more money, as well.
A big investment budget may – or may not – imply an optimistic outlook on 2023e earnings: Gazprom’s traditional approach to investment forecasting in most years has been to set the initial budget no higher than a projection of available cash flows based on deliberately conservative forecasts of volumes and pricing. Therefore, one interpretation of this budget is that management is substantially more optimistic than we are regarding the state of the company’s European gas export franchise. Indeed, our numbers are very conservative on volumes – we assume that Gazprom will export only 65bcm next year to Europe + Turkey, down from an estimated 85bcm this and 175bcm in 2021 – while on prices we assume an average realized price of $1,035/mcm, splitting the difference between oil-linked prices of $300-$350/mcm and spot/futures prices, which currently average $1,500/mcm for 2023e. We could be conservative on either or both, resulting in significantly higher revenues and available cash for investments. If that is the case, and if management is right in this optimism, then the implication is that our dividend forecasts on 2023e results are also excessively low.
● Novatek
Novatek was always a growth story, until sanctions hit its LNG plans in 2022 via the loss of foreign liquefaction equipment and turbines. Novatek’s own Arctic Cascade technology may provide a solution, and increased output guidance at Yamal LNG to 21mt indicate teething problems with T4 may have been solved. Management has also indicated that it has on hand almost all
129 RUSSIA Country Report December 2022 www.intellinews.com