Gazprom Sees Record EU Exports as It Shrugs Off U.S. LNG

  • Russian exporter sees European gas sales rising in 2016-18
  • Company meets investors in New York, London this week

Gazprom PJSC, the world’s biggest natural gas producer meeting investors in New York and London this week, seeks to increase supplies to Europe to record levels as it dismissed the prospects of U.S. exports to the region.

The Moscow-based company, which provided 31 percent of Europe’s gas last year, plans to boost flows to the region by more than 2 percent this year, with further growth through 2018, according to its non-public budget obtained by Bloomberg. That is more ambitious than public statements by the company to maintain supply.

Russia has “the most competitive" gas price in the European Union now and Gazprom isn’t concerned about rivals in the region, including liquefied natural gas from the U.S., the company’s deputy head Alexander Medvedev told investors in New York Wednesday.

Russia, which relies on pipeline gas sales outside the former Soviet Union for more than 10 percent of its total exports, has increased its dominance in Europe as crude’s 30 percent decline over the past year made Gazprom’s oil-linked prices more attractive. The company held an annual investor day in New York for the first time since 2014 after last year seeking to woo bond and shareholders in Asia. The meeting in London is scheduled for Feb. 4.

Gas exports to Turkey and the EU bar the Baltic States are seen at 162.6 billion cubic meters (5.7 trillion cubic feet) this year, up from about 159 billion in 2015 and above a record 161.5 billion in 2013, the budget shows. Supplies are seen at 166.1 billion cubic meters in 2017, with 166.3 billion in 2018. Most of the increase is seen in flows through the Nord Stream gas pipeline under the Baltic Sea to Germany.

While Gazprom didn’t disclose the outlook at the meeting, it reiterated the company’s aim to keep its market share in Europe at least stable at about 30 percent through 2035.

U.S. Supplies

The exporter’s outlook makes sense at least for the next two years as the EU needs “a replacement of falling domestic production,” Deutsche Bank AG energy analyst Pavel Kushnir said by e-mail Monday. Still, Gazprom will likely face increased competition in 2018 that may force it to cut its supplies, he said.

Russia needs a new marketing model in the European gas market to compete with LNG, especially amid a possible hike in supplies from the U.S. seen after 2018, the Oxford Institute of Energy Studies said last month.

U.S. LNG is still too expensive for Europe and most of the fuel will go to Asia, according to Gazprom.

“In a five-year perspective, the cost of U.S. LNG is seen higher than forward prices at the British hub NBP,” Medvedev said in New York, referring to the National Balancing Point. “Imports of North American gas to Europe will be limited.”

Gazprom also sees no threats from Iranian gas and can’t rule out a few export-related gas projects in Iran for itself, Medvedev said. The Middle East nation needs time to build LNG-plants and infrastructure to boost deliveries to the EU, he said.

Slumping Oil

The crude plunge has dragged Gazprom’s first-quarter price in Europe down 37 percent year on year, Chairman Viktor Zubkov said Jan. 20. The company’s gas revenue in Europe may shrink to less than $28 billion this year, the lowest level since 2004, if the average oil price remains at $40 or lower, according to Bloomberg calculations based on forecasts from Gazprom and the Russian Economy Ministry.

GAZPROM NATURAL GAS SALES OUTSIDE EX-USSR*

Price
$/1,000 m3
Volume
billion m3
Revenue
$b
Revenue
t rubles
2004138140.519.30.6
2005192147.028.20.8
...............
2013385161.562.22.0
2014349146.651.21.9
2015243158.638.62.3

* Pipeline supplies from Russia, excluding gas traded by EU units
SOURCES: GAZPROM, BANK OF RUSSIA, CALCULATIONS

The company has reserves to cope with the current situation, Igor Shatalov, first deputy head of its financial department, said in New York. Gazprom has tested its plans for this year using a “conservative” scenario with oil averaging $35 a barrel and is testing with crude at as low as $20, he said, without elaborating.

Gazprom budgeted its gas output at 456.7 billion cubic meters this year, up from about 420 billion in 2015, a record-low level for the company. Its dividend payments set in the budget match last year’s level of 7.2 rubles a share and are in line with public statements made by Gazprom executives over the past months.

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