Gazprom executive chairman Alexei Miller is determined the company will become a major gas exporter to China and grow its domestic customer reach in a decade, despite a murky outlook and worsening financial performance.
Addressing employees last week, Miller said the Chinese market remains “very competitive” for Russian natural gas, with Gazprom covering over half the China’s pipeline imports between January and August this year.
“Gazprom is slated to increase gas deliveries to the Chinese market,” he said, referring to two gas pipeline projects — Sila Sibiri 2, from West Siberia via Mongolia to China, and Sila Sibiri 3, set to bring gas from the Sakhalin Island in the far east to the China’s northeastern region.
Back home, Miller has promised Gazprom will start regaining the market share it has gradually lost in the past three decades to independent gas players, such as Novatek, and oil producers that had tapped into gas-bearing deposits in their portfolios.
Because of state regulation of the domestic gas price, Gazprom had preferred grow its European exports because they fetched significantly higher prices than domestic supplies and generated the largest input to its revenues.
Miller said the state-controlled giant will focus on building local grids to supply households in “thousands of towns and villages”, to fulfil earlier promises by President Vladimir Putin to improve nationwide access to natural gas.
Gazprom is planning to bring online another onshore field, Kharasaveyskoye, on the Yamal Peninsula, and start production at deep layers at its flagship development in the Yamal area, the Bovanenkovo field.
In East Siberia, Gazprom is scheduled to bring the Chayanda field to its plateau production level before the end of 2024, and continue with the development of the Kovykta field, Miller said.
Chayanda and Kovykta are the two assets that deliver natural gas to China via Gazprom’s first pipeline to the country, Sila Sibiri, with maximum annual export supplies capped at 38 billion cubic metres.
However, Miller has not provided any estimate of investments Gazprom will have to make in the next decade into projects in the gas upstream segment, export gas pipelines and local grids.
Mikhail Krutikhin, a partner in Moscow-based energy consultancy RusEnergy, estimates that just the Sila Sibiri 2 pipeline, due to carry 50 Bcm of gas annually to China by 2030, may need investment of up to $100 billion.
According to the Gazprom’s shortened consolidated financial disclosures, it posted net losses in the second half of 2022 and in the second quarter of this year.
The company has been burning through its huge cash pile since gas exports to Europe stopped in the middle of the last year, its reports suggested.
Cash in hand dropped to 683 billion roubles ($7 billion) by 30 June from over 2 trillion roubles it held on its bank accounts before the Russian invasion in Ukraine in February last year.
Analysts at Moscow-based bank CentroKredit noted that cash generated by Gazprom’s current business activities and sales remains too low to bankroll its investment targets, and that it will need to take on additional debt to meet its investment ambitions.
Gazprom reported a net debt increase of 36%, to 5.3 trillion roubles, in the first half of this year.
CentroKredit suggested Gazprom may have to apply for some form of direct state financial support in 2025 or 2026 to maintain its operations and investments.
Krutikhin agrees that Gazprom may have to obtain Russian government-backed financing to go ahead with Sila Sibiri 2 and is likely to get it no matter how precarious Russian state finances are at the time.
“President Putin will not abandon his favourite brainchild [Gazprom] which is also a source of income for his buddies who run large building contractors, earning a fortune on Gazprom-related jobs,” he said.
Miller, who was Putin’s assistant in St Petersburg City Council in the 1990s, was appointed to manage Gazprom about a year after Putin was elected president in March 2000.
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