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Tuesday, February 17, 2009

The Gazprom downturn

2009-02-17 - Barents Observer - Russian energy giant Gazprom might this year have to cut production with up to ten percent. Exports drop and the company’s revenues might shrink with as much as 26 percent. Experts now say that Gazprom might have to make dramatic cuts in its investment program. Figures for January 2009 show that Gazprom produced 13,9 percent less than in January 2008. The company now itself admits that production figures for 2009 might be 7-10 percent lower than in 2008. That means that the company’s production might drop below 500 billion cubic meters. As newspaper Vedomosti reports, the Gazprom estimates show a 2009 production of 511-495 billion cubic meters. Similarly, gas exports are now shrinking. In the last quarter of 2008, the Gazprom export dropped 21 percent. Then came January 2009 and the gas conflict with the Ukraine. In January, exports plummeted with a record-beating 42 percent, Vedomosti writes. Experts now say that Gazprom faces a dramatic decrease in revenues. Analyst Mikhail Zanozin says to Nezavisimaya Gazeta that 2009 revenues might drop to 74 billion USD, which is down 26 percent from 2008. That will inevitably have consequences also for the company’s investment program, which could be cut with as much as 30 percent this year, reports. The drop in production and exports come amid the company’s intention to strongly boost results. Last year, company CEO Aleksey Miller maintained that production will amount to 563 billion cubic meters in 2008 and then 570 billion cubic meters in 2010, 610-615 in 2015 and 650-670 in 2020. Those goals now seem unrealistic. As noted by analysts, Gazprom’s 2008 production was up only 0,2 percent from 2007 and 11 billion cubic meters below the objective. It was also less than in 2006. The downturn in the Russian and international markets will have consequences for the development of new projects. It might however not affect the company’s main unfolding project plans. As BarentsObserver reported recently, the company underlines that projects like the Shtokman field in the Barents Sea will be developed according to plans, that is production start in 2013. Meanwhile, Russia’s second biggest gas producer Novatek in the first month of the year increased production. The same happened with one of Russia’s main gas competitors in the European market, Norway. As BarentsObserver reported, the market value of the Norwegian gas exports in January this year increased with 29,3 percent year-on-year.

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