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


Important Changes in Russian Gas Business Environment


Discrepancies of 2004 Financial Report of Gazprom

  • Consolidated financial report of Gazprom for 2004 shows extremely unusual results for Q4-2004:

    • From Q3 to Q4, gas production increased by 13.5%, while the reported gas production expense dropped 3.6% (Figure 1).

    • From Q3 to Q4, gas delivery by Gazprom pipeline showed a growth of 50.4%, while the reported transmission expense declined by 19.0% (Figure 2) and fuel gas expense went up 1.5% (Figure 3).

    • Note that the growth of fuel gas expense in Q4-2004 (as well as the decline in Q3-2004) does not make sense if the production and transmission expense numbers are correct.

      • Fuel gas is accounted at cost, so its expense curve should follow the pattern of production and transmission expenses.

Figure 1

Figure 2

Source: Financial reports of Gazprom

 

Figure 3

 

 

  • In Q4-2003 and previous years, all named expenses showed normal seasonal growth.

  • Gazprom costs are affected by seasonal character of gas production and sales.

    • Production expense, transmission expense and cost of fuel gas (gas burned at compressor stations) are lower in summer and higher in winter.

  • The costs are also strongly affected by internal transfer prices (prices used for transactions within the company) set by Gazprom management.

  • According to quarterly financial reports, the change in expenses by segment is primarily due to changes in internal transfer prices.

    • It is unlikely that the monopoly cut down its internal tariffs in Q4-2004.

    • There is no other explanation in the 2004 report.

  • The phenomenon of declining total costs under growing volumes of production and sales is reported for the first time in Gazprom history.

    • Gazprom may have reported altered annual expenses attempting to lower its record rate of cost growth.

      • The altered numbers came into contradiction with the expense numbers published in earlier quarterly reports.

  • Note that from Q3 to Q4-2004, all reported expense items (labor, materials, electricity, depreciation and other) increased.

    • In this context, the reported decline of production and transmission expense looks like data falsification.

  • Apparently, the reported labor expense is also wrong (Figure 4).

    • From 2003 to 2004, the reported number of full-time employees increased from from 354 to 392 thousand.

    • According to Gazprom, the average monthly wage of the company increased 27%.

    • However, the reported labor expense of Q4-2004 is about the same as in Q4-2003.

    • Note that RF State Department of Statistics reported the average wage of Russian gas industry in 2004 at RUR 33,747.2 ($1,216) a month.

    • Gazprom reported its 2004 average wage at RUR 25,700 ($926) a month.

    • Gazprom employs more than 99% of workforce of Russian gas industry.

    • In 2005, RF State Department of Statistics discontinued monthly reports of average wage in gas industry.

Figure 4

Figure 5

Source: Financial reports of Gazprom

 

  • The reported electricity expense looks incorrect as well (Figure 5).

    • The consumption of bought electricity in 2004 is about the same as in 2003.

    • The electricity tariffs of 2004 were higher than in 2003.

    • Reported electricity expense in Q4-2004 is lower than in Q4-2003, which is very unlikely.

  • Apparently, reported expenses of Gazprom are incorrect.

    • Do shareholders care about it?

  • We will give more details in the first issue of Russian Gas Quarterly to be released in August.

 


Last modified: 12/07/14                    East European Gas Analysis 2006-2014                                           Email: info@eegas.com
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