Gazprom to Boost 2012 Europe Exports, Cuts Target on Demand

OAO Gazprom, the world’s biggest natural-gas producer, lowered a target for supplies to Europe this year after missing forecasts for 2011 on a slower than expected recovery.

Gazprom plans to export 154 billion cubic meters to Europe this year, according to a copy of presentation to analysts obtained by Bloomberg News. That is about 2.7 percent more than last year’s 150 billion cubic meters. In November, the company cut that year’s estimate from a possible 159 billion cubic meters, while targeting shipments of 164 billion in 2012.

“Gazprom showed itself as a big elephant that walks ahead despite attacks of mosquitoes,” said Valery Nesterov, an analyst at Troika Dialog, who attended the meeting today at the company’s Moscow headquarters. “Despite known difficulties in the gas markets, Gazprom is acting very confidently.”

Demand in Europe, Gazprom’s biggest market by revenue, is recovering after a two-year slump when buyers turned to the spot market for cheaper supplies than under Russian contracts. Facing competition and a persistent gap between its long-term oil-linked gas prices and spot rates, the company agreed to lower prices to five customers in recent months.

The state-controlled gas exporter hasn’t fully recovered from the global economic downturn that cut demand for the fuel in 2009. The rebound is probably delayed to 2013, Renaissance Capital said late last month.

Contract Renegotiations

Gazprom forecasts its average gas price for Europe will jump about 8 percent to $415 per 1,000 cubic meters this year, from $384 last year, according to the presentation. Higher prices may help Gazprom boost 2011 profit to a record. The company hasn’t reported full-year results.

Contract renegotiations with customers didn’t cause losses for Gazprom as rising prices helped boost revenue, Nesterov said, citing Gazprom Deputy Chief Executive Officer Alexander Medvedev’s comments at the presentation. Total sales probably rose to $155 billion in 2011 from $118.4 billion the previous year, according to the presentation today.

Total supplies this year may still reach 164 billion cubic meters, including volumes delivered outside Gazprom’s export unit, according to the presentation.

Gazprom held 27 percent of Europe’s gas market last year, on the way to rise to 30 percent by 2020, according to the presentation. The producer had a 23 percent share in 2010, CEO Alexey Miller said in June.

Asian LNG

Cargoes of liquefied natural gas, which kept Europe oversupplied in 2010, were diverted to Asia to counter a shortfall created by idled nuclear capacity in Japan last year. The Asian nation, the world’s biggest buyer of LNG, boosted imports of LNG to a record in 2011 after the disaster at the Fukushima Dai-Ichi reactor in March led to the shutdown of most of its atomic plants.

The Russian gas exporter has downplayed threats to its business from surging shale gas output in the U.S., competition with LNG from Australia and a potential shift toward pricing gas at spot rates.

“We would have liked to hear about problems, and how Gazprom addresses them,” Nesterov said.

Colder than usual weather in most of Europe earlier this month boosted demand for Russian gas. While rejecting calls for extra gas exports amid freezing weather at home in the run-up to a presidential election in March, Gazprom has said it is supplying gas to Europe at “maximum possible” capacity.

Pressure on Spending

Gazprom, faced by pressure to cap its spending after an overshooting 2011 investments, said in the presentation that capital expenditure will decline to $35 billion this year, close to the 2010 level, from $50 billion last year. That includes spending by its oil unit OAO Gazprom Neft and its power division.

Investments will remain high in coming years as Gazprom reconfirmed plans to develop its major pipeline and gas production projects, Nesterov said.

The producer may pay 180 billion rubles in dividends for this year and 210 billion rubles in dividends for 2013, according to the presentation. Gazprom reconfirmed plans to double the dividend to about 198 billion rubles for 2011, subject to a shareholder approval in June.

Gazprom’s press service declined to comment on the presentation. The gas producer started its annual meetings with investors and analysts in Moscow, to be followed by events in London and New York next week.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE