The income of “Gazprom” in Europe declined sharply because of low oil prices

Due to the fall in oil prices and other energy yield of deliveries “Gazprom” for export almost equal to the sales in the Russian market, said on Wednesday Deputy Chairman of the Board Valery Golubev, the monopoly on the “round table” in the Analytical centre under the government.

According to him, that “Gazprom “experiences difficulties with realization of the investment program. For 2016 it is 842 billion rubles, of which nearly 217 billion rubles will be spent on the development of deposits on Yamal, 193 billion roubles – on the Eastern gas program (for the most part it is the construction of a gas pipeline to China “Power of Siberia”). Another 194 billion rubles monopoly plans to invest in the construction of gas pipelines from Yamal to Torzhok. Does the “Gazprom” to revise the investment program, Golubev said. The press service of the monopoly did not respond to a request RBC.

A significant portion of export contracts “Gazprom” is tied to oil prices with a delay of six to nine months. Due to low oil prices and export netback (export price minus transport) for the Russian gas in Europe is almost equal to the prices in Russia, was confirmed in the April report by Sberbank CIB. In January the price of Brent crude oil fell to $28 per barrel. Given the time lag, the yield from NOVATEK’s gas sales in Russia by June 2016 will exceed the profitability of foreign supplies of “Gazprom”, the Bank’s analysts predicted. According to their calculations, if the export price of $135 per 1 thousand cubic meters of gas EBITDA “Gazprom” in the field will be only $16 (the price is deducted from the export duty, transportation and production costs, as well as met). Since NOVATEK at a price of realization in Russia of $48 for 1 thousand cubic income will be $18, mentioned in the study.

In addition to low raw material prices, the profitability of export “Gazprom” to significantly impact the level of gas severance tax: for the monopoly it is twice higher than for independent producers (about $12 vs $6 per 1 thousand cubic meters of gas).

Despite the low prices, “Rosneft” and NOVATEK, at least since the end of last year trying to obtain the right to export gas to Europe. They, in particular, offered “to Gazprom” to enter into Agency agreements that would allow independent producers to sell to the group their gas at the export netback price. The management of “Gazprom” opposes, arguing that such schemes will lead to unnecessary competition on the European market. On this basis, Gazprom recently decided not to sign an Agency agreement with Rosneft, told RBC sources.

The profitability of exports will recover with the growth of oil prices. Peak to low prices has already passed, says analyst “URALSIB Capital” Alexei Kokin: Brent crude oil prices rose from January’s low of $28 to over $45 per barrel. According to estimates of experts, the premium when foreign supplies of “Gazprom” in comparison with the price of the domestic market should recover to about 20%. But the growth of prices for Russian gas in Europe is likely to be limited to the break-even point for us LNG supplies to the European market – $4.5 per 1 million British thermal units (1 MMBtu) or $160 per 1 thousand cubic meters, analysts of Sberbank CIB (the first batch of LNG from the US came to Europe in April). But at this price the export netback to Gazprom will be almost $20 higher (in terms of 1 thousand cubic meters) than in the Russian market. For such a prize worth fighting for, concludes the senior analyst Sberbank CIB Valery Nesterov.

The representative of NOVATEK did not answer the questions on the merits, the press-service “Rosneft” has not yet responded to a request to RBC.