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 (Corrected on October 20, 2005)

  • Consolidated financial report of Gazprom for 2004 shows 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 increased just by 4.1% (Figure 2) and fuel gas expense went up 1.5% (Figure 3).

      • In our earlier comments, there were misprints in transmission expense values for Q2- and Q3-2004. We apologize for the mistake. The reported transmission expense performance is not that bad, but it still looks unusual.

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

      • Gazprom reported increase of both production and transmission expenses in Q3-2004.

      • 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 explanation in the 2004 report.

 

 
  • From Q3 to Q4-2004, combined production and transmission costs increased just by 1%. The phenomenon of flat 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 expense and marginally increased 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

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 soon.

 


Last modified: 12/07/14                    East European Gas Analysis 2006-2014                                           Email: info@eegas.com
Reproduction or use of materials is allowed only with reference to East European Gas Analysis or www.eegas.com