Gazprom pipelines and export capacity

Газопроводы Газпрома и экспортные мощности

Gas pipelines of West Siberia

Газопроводы Западной Сибири

Export flows of Gazprom

Экспортные потоки

Spot, Gazprom, Brent

Цены на нефть и газ

End-use price of gas

Russia and USA

Daily gas production

Суточная добыча

Brief Comments on the 2008 Financial Statement of Gazprom

Excellent bluff of Vladimir Putin

Gazprom has released its consolidated financial statements for 2008 presented in accordance with the International Financial Reporting Standards.

Major Surprise. The average price of European exports of Gazprom in Q4-2008 was $471.9/mcm (mcm = 1000 cubic meters). Gazprom has successfully convinced the media that the price was above $500/mcm. During the "gas war" in January, Prime minister Vladimir Putin put the price of gas for Ukraine's neighbors in Q1-2009 at $470/mcm, just 0.4% below the historic record price of the previous quarter.  This was an excellent bluff. Ukraine did not call it and agreed to pay Gazprom the highest price of gas in Europe. I expect the average export price of Gazprom in Q1-2009 to be about $380/mcm or $70 lower than the base price of the Ukrainian contract.

Negative sign. The average transmission expense per 1000 m3 of marketed gas went up 25% from RUR 644 in 2007 to RUR 803 in 2008 (from $25.2 to $32.2). It is worth noting that this is not a very accurate indicator. The expense per 1000 m3 of gas transported per 100 km will be shown in our reports. I expect the unit transmission cost to go up radically in the coming years. Gazprom plans to build new pipelines that will be not required for several years because of the drop in demand. As the 2030 Program of Gazprom says, an excessive capacity can significantly reduce the efficiency of the gas sector of the Russian Federation. Apparently, Gazprom understands the risk but takes it.

Production cost. From Q3 to Q4-2008, the average production cost of gas went up 36% from RUR 438 to RUR 598/mcm (from $17.96 to $21.48/mcm). Note that in Q4-2008, Rosneft was selling gas from its Kharampur fields in West Siberia at $19.14/mcm. This is much lower than the production cost of gas at the deep reservoirs of Gazprom.

The growth of production cost in Q4 looks more like a result of reallocation of operating costs between business segments of Gazprom. The average annual production cost went up 13% from RUR 421 in 2007 to RUR 474/mcm in 2008 (from $16.4 to $19.0/mcm).

Mikhail Korchemkin

April 30, 2009

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