Tuesday, June 16, 2009
Gazprom warns on delays to key field
June 16 2009 - Financial Times by Catherine Belton - Russia’s Gazprom, the world’s largest gas producer, warned on Tuesday it could delay the development of a flagship project crucial for future European supplies by one year in order to help cut spending by 15 per cent. Gazprom’s deputy chief executive, Alexander Ananenkov, said that the company could postpone the launch of the giant Bovanenkovo field until the third quarter of 2012 because of expectations that global gas demand would remain depressed for the next three years. He said: “We see that there won’t be demand for that gas. So why invest money in what is not in demand?” If approved by the board, the postponement of the Bovanenkovo field, part of the Yamal peninsula, would be the first big Gazprom project to be hit by the crisis. The Russian state-controlled monopoly, which supplies 25 percent of Europe’s gas needs, has been hit hard by sharply falling demand in Europe, Ukraine and at home, while the heavily-indebted energy giant’s finances are being squeezed by falling prices for gas, which follow the oil price with a lag of about six months. Gazprom’s output fell 34 per cent year on year to its lowest level in more than a decade in May due to the drop in worldwide demand. Mr Ananenkov said the company had revised its output forecasts down to 507bn cubic meters in 2010, 510bcm in 2011 and 523bcm in 2012 – sharply down on the 550bcm Gazprom produced in 2008. But in a sign of the uncertainty still surrounding demand, Mr Ananenkov said Gazprom’s output this year could be anywhere between 450bcm and 510bcm. Valery Nesterov, energy analyst at Troika Dialog, the Moscow investment bank, said he expected other Gazprom projects to face cuts as a result of the crisis. “It would not be surprising if there were delays to other big projects,” he said, including to the vast Arctic Shtokman field, which Gazprom is to develop together with France’s Total and Norway’s StatoilHydro. An investment decision is due on the field next year. Mr Nesterov said a decision to delay Bovanenkovo would show Gazprom was being sensible in cutting spending as it faces a sharp drop in cash flow. “This will help stabilize the financial situation of the company,” he said. Analysts at Troika had predicted Gazprom would need to cut its overall investment programme of Rbs920bn ($29bn) by 25 per cent this year. Mr Ananenkov did not say whether other projects would face cuts. The gas giant is yet to announce cuts to its investment programme. But Mr Ananenkov said the delay to Bovanenkovo would help Gazprom cuts its capital expenditure programme for this year to Rbs500bn from the planned Rbs637bn. Gazprom has been hit especially hard in the first quarter of the year European consumers sharply reduced gas purchases because of prices still being at an all-time high. Gas prices run at a six-month lag to oil prices. Mr Ananenkov said demand had recovered in April, May and June: after falling as low as 260-280m cubic metres per day, daily demand in Europe was now back as high as 430m cubic metres per day.