Gazprom said to face biggest decline in EU revenue in 5 years
Gazprom said to face biggest decline in EU revenue in 5 years
ELENA MAZNEVA
MOSCOW (Bloomberg) -- Gazprom, the world’s largest natural gas exporter, may face the biggest decline in European gas revenue in five years as demand weakens and buyers negotiate discounts, according to two company officials.
Sales to the European Union, the source of 40% of revenue by Russian accounting standards, are forecast to fall more than 10% to about $55 billion this year, said the officials, asking not to be identified as the forecast isn’t public yet.
Gazprom’s press service declined to comment.
The forecast doesn’t take into account the rift between the EU and Russia over its involvement in the crisis in Ukraine, the main transit route for gas to Europe. While flows so far remain unaffected, the EU is seeking to ease reliance on Russian gas. Demand is falling after the region pumped a record volume of the fuel into underground storage to guard against shortages.
“Anti-Russian rhetoric in Europe has no effect on Gazprom’s sales in the region so far,” said Alexander Donskoy, an energy analyst at VTB Capital in Moscow. “The forecast is absolutely feasible, if only the price dispute with Ukraine won’t disrupt European supplies in winter.”
Russia cut flows to Ukraine in June citing unpaid bills. Gazprom says it’s owed $5.3 billion, including $1.45 billion for supplies in 2013. Ukraine rejects the sum, and the price used to calculate it. The EU wants three-way negotiations this month and proposes a temporary price to ensure stable supplies, at least for the coming heating season.
Profit Outlook
On Sept. 11, Gazprom will report first-quarter profit, which will probably decline 39% to 231 billion rubles ($6.1 billion) because of a currency loss and a provision for Ukraine debt, according to Pavel Sorokin, a Morgan Stanley analyst in Moscow.
By Russian accounting standards, the measure used to calculate dividends, first-half profit sank 38% to 155 billion rubles because of the debt.
The depreciating ruble may mean 2014 revenue in the local currency would remain almost unchanged at about 2 trillion rubles before tax, according to Bloomberg calculations based on the Russian Economy Ministry’s exchange-rate forecast.
A decline in the dividend may hurt efforts to court investors. Gazprom resumed meetings this week after a five-month self-imposed embargo on marketing to U.S. and EU investors in the wake of the crisis over Russia’s annexation of Crimea.
Executives met major equity funds in London Sept. 8-9, one of the officials said. Gazprom also plans a Eurobond sale as soon as this month, a person with knowledge of the matter said this week.
Declining Demand
Gazprom’s deliveries to Europe have decreased each month since June as the region has a record volume of the fuel in underground inventories after the mild winter and accelerated pumping earlier this year.
In June, the company said gas exports to Europe may decline 2% to 158.4 Bcm. That’s “a conservative forecast which may be exceeded depending on the weather,” Deputy CEO Alexander Medvedev said June 3.
Year-to-date supplies to countries outside the Commonwealth of Independent States declined 2.7% as of Sept. 8, according to emailed data from Russian Energy Ministry’s CDU-TEK unit.
Gazprom’s average price in Europe is seen dropping 10% to about $350 per 1,000 m3 this year compared with a January forecast of $372 because of renegotiated supply contracts, the two Gazprom officials said.
Buyers including Gazprom’s two biggest, Germany’s EON and Italy’s Eni, have been able to negotiate better deals with suppliers after losing money selling fuel on domestic markets because their contract prices were higher than European Union spot prices.
Clients that renegotiated with Gazprom in the past 14 months got discounts of 10 to 20%, the International Center for Natural Gas Information said in June.
Gazprom’s price for European gas may decline further. Buyers from France’s GDF Suez to Poland’s Polskie Gornictwo Naftowe i Gazownictwo have already said they plan to renegotiate.
The average price outside the former Soviet Union is seen dropping to $316 per 1,000 m3 in 2015, decreasing to $302 in 2017, the Kommersant newspaper reported Aug. 27, citing Economy Ministry estimates.
