Vehicles are seen at a gas filling station, owned by Gazprom in Stavropol, southern Russia. The world’s biggest natural gas exporter is facing declining prices abroad as most of its contracts are linked to oil with a time lag of six to nine months.
Bloomberg
Verona
Gazprom, the world’s biggest natural gas exporter, is planning for the lowest price for its fuel in its main European market for more than a decade.
The state-run exporter is drafting its budget for 2016 with preliminary estimates for gas prices outside the former Soviet Union of about $200 per 1,000 cubic metres ($5.45 a million British thermal units), said two people with direct knowledge of the matter who asked not to be identified because the information is private.
That compares with the company’s estimate of an average price for the region, which covers Turkey and Europe outside the Baltic States, in 2015 of about $238 per 1,000 cubic metres and $349 last year.
The company’s press office declined to comment on estimates.
Gazprom, which supplies about a third of Europe’s gas and relies on exports of the fuel for 40% of its annual revenue of more than $100bn, is facing declining prices abroad as most of its contracts are linked to oil with a time lag of six to nine months. Brent crude has lost 16% this year after a 48% drop in 2014.
The company is also facing increased competition as the US prepares to export its first liquefied natural gas from the Gulf Coast.
“Gazprom’s forecasts look reasonable,” Alexei Kokin, an energy analyst at UralSib Financial Corp in Moscow, said by phone Friday.
Russia has the capacity to maintain its market share in Europe given lower prices next year even amid the predicted glut in LNG, he said.
The Moscow-based company is set to this year note its lowest revenue outside the former USSR in a decade in dollar terms. Sales in roubles may rise to a record, reflecting a 2.2% weakening of the Russian currency against the dollar this year, following a 46% drop last year.
Exports to the region are expected to stay stable at about 160bn cubic metres (5.6tn cubic feet) in 2016 with revenue in roubles declining but still near the average of the past few years, according to one of the people.
Gazprom has most of its costs in roubles and sees no risks for its investment projects, one of the people said. It also isn’t ready to agree on advance payments from China, in discussion since at least last year, if the Asian nation demands a serious price discount in exchange, the person said.
The company plans to spend more than $50bn on three major export routes during the next four to five years - a new gas link to Germany through the Baltic Sea, a Black Sea pipeline to Turkey and an export route to China, including development of the fields to feed it.
