East European Gas Analysis has developed a set of computer tools capable to calculate production and transmission volumes at any part of the pipeline system of Gazprom, as well as production and delivery cost of gas under different market scenarios. Our models calculate net cash flow from gas operations of Gazprom through 2025. We have created and are permanently updating an extensive database on daily flows of gas, actual pipeline capacity by section, production volumes by major field, production and transmission costs, taxation in the gas sector, prices and other relevant data. 

CASH FLOW MODEL OF GAS OPERATIONS OF GAZPROM 

Our cash-flow model covers the core activities of the company: gas production, transmission, storage, procurement and sales of natural gas. The model consists of the following blocks. 

1. Russian and FSU Gas Market Model

• The model calculates future gas consumption by region and consumer sector.

• The service area of Gazprom in Russia is broken into six regions, each having the following consumer sectors:

  • heat & power,

  • petrochemicals,

  • metallurgy,

  • oil industry and Gazprom,

  • municipal & residential,

  • other.

• The model uses historic data for 1990-2005 and projections of the annual change of gas usage by consumer sector through 2025.

2. Gas Flow and Pipeline Capacity Requirements Model 

• The model calculates the future gas flows (annual and maximum daily) in the pipeline system of the FSU under different market scenarios.

• Every region has the following characteristics of its gas sector:

  • net gas production (pipeline system input),

  • imports from other regions,

  • storage injection and withdrawal,

  • gas sales to consumers,

  • fuel gas and transportation loss,

  • exports to other regions.

• The model identifies the size, location and timing of future bottlenecks and calculates the cost of their solving.

• The model calculates pipeline investment requirements by project and by year.

• The model uses actual pipeline capacities of 2000.

• We use the historic storage withdrawal and injection data by region.

• All major new pipeline projects (domestic and export) are considered.

• Export flows to Europe are addresses by terminal (see scheme):

  • Uzhgorod (Velke Kapusany, Beregovo, Drozdowichi, Tekovo),

  • Izmail,

  • Brest/Kondratki,

  • Vyborg,

  • Blue Stream,

  • North European Pipeline (Baltic Sea).

3. Pipeline Construction Cost Model 

• The model calculates current and future construction costs of 56", 48" and 40" pipelines and related compressor stations for different locations of the FSU.

• The construction cost estimations are based on actual cost performance of Russian and Soviet construction teams.

• We regularly monitor the cost of domestic construction materials and labor by region.

4. Russian Gas Production Model 

• The model calculates production investment requirements and production costs under different market scenarios.

• All production activities of Gazprom are addressed by producing company (UrengoyGP, YamburgGD, NadymGP, NoyabrskGD, etc) and are broken down by existing and new production.

  • The new fields are Zapolyarnoe, Nadym-Pur-Taz satellites, Deep Urengoy & Yamburg, Bovanenkovo & Kharasavey (Yamal), Gydan Peninsula & Obskaya Bay, Shtokman.

• Historic and current costs at the producing fields are based on the documentation of Gazprom and the Taxation Ministry.

• The future investment and operating costs are calculated on the basis of reservoir characteristics (depth, well flow, location, porosity, pressure, etc).

• O & M costs are broken down into labor, materials & supplies, depreciation, taxes (with details), interest and other.

• The model assumes that the future production is taxed in accordance with the current rules.

• The existing depreciation rules are assumed to continue through the projection period.

• The production investment is broken down by own and borrowed capital.

• Time lags are used between the investment date and the start of production. The time lags differ by field location.

• The production model also addresses other gas producers (oil companies, independent gas producers).

• All "social" costs are applied to the transmission in accordance with the current practice of Gazprom.

5. Transmission and Sales Model 

• The model addresses revenues and costs of the transmission and sales activities of Gazprom.

• We use our assumptions on the future domestic and FSU gas price, as well as our client's expectations on the European price development (usually, we develop a "Base Case" and run a sensitivity analysis).

• Transit revenue from the third parties is included in the model as well.

• The O&M costs are based on both actual historic costs of Gazprom and calculated future needs in compressor and pipeline replacement (these issues are addressed in detail).

• Pipeline investment costs under different market scenarios are provided by Model 2.

• Social costs are included into transmission and the future reduction of this component is assumed in accordance with the policy of Gazprom.

• Taxes are applied in accordance with the latest version of the Tax Code.

• Depreciation of existing and new facilities continues in the future at the current rates.

• The existing debt is considered separately from the new debts for future pipeline projects.

• Transit costs in the FSU and Eastern Europe are calculated according to the current rules.

• The model gives the gas operations cash flow, investment, debt service and net cash flow for every year through 2020 under different market scenarios. 

The set of models calculates pipeline and production capacity requirements under different market scenarios and cost of gas delivered to any market (Russia by region, average Russian, Russian border, export terminal and gas metering station in Europe). Total Russian gas export volume is an input parameter of the model.