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Gazprom's financial results for H1-2012 show significant growth
of nearly all cost components and decrease of gas volumes sold to
all markets. Compared to H1-2011, volumes of natural gas sold in
Russia dropped 6%, former Soviet Union 29% and exports to other
countries (mostly Europe) 10%. Totally, Gazprom sold 11% less gas
than in the same period of 2011. Despite the growth of price in all
market segments, gas sales revenue decreased 3%.
Observing dropping sales, Gazprom is
steadily increasing its capital investment. The value of gas
transportation assets is 22% higher than in the end of June 2011 and
the total gas transmission expense is up 24%. A vast majority of new
pipeline projects of Gazprom do not generate additional profits for
the company's shareholders. On the contrary, these pipelines reduce
the profits.
It worth noting that the state budget
reimburses Gazprom's operational losses at the recently commissioned
Sakhalin-Khabarovsk-Vladivostok pipeline (Rub 11.2 Billion in
2012). The size of gas market at the end of this 467-billion-rouble
pipeline is still uncertain. Nevertheless, Vladimir Putin ordered
Gazprom to build
another 3200-km pipeline to Vladivostok. Total cost of the
proposed
Yakutia-Khabarovsk-Vladivostok pipeline is estimated at Rub 770
Bn. The full-scale construction of new gas pipelines has just
started. In the mid-term, the annual pipeline investment is unlikely
to go down until Gazprom runs out of cash.
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Source:
Gazprom |
Source:
Gazprom |
Things are no better at the production
side. Gas production cost in Q2-2012 was 81% higher than in the same
period of 2011. Excluding the effect of severance tax raise, the
production cost went up 63%.
By huge overinvestment during the
period of uncertainty, Gazprom executives expose the company to
tremendous risk. After the commissioning of South Stream and its
feeding pipelines, the delivered cost of Russian gas at the EU
border is very likely to exceed $14/MMBtu. The price in Europe may
not be that high and the federal budget of Russia may not be able to
reimburse all losses caused by excessive pipeline construction.
Gazprom is getting closer to the point of no return.
Mikhail Korchemkin
East European Gas
Analysis
Malvern, PA, USA
November 6, 2012
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Analysis or www.eegas.com
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