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