Record export of gas will help Gazprom to increase revenues greatly

Demand for Russian gas in 2016 was supported by low prices and cold weather in Europe.
In 2016, Gazprom exported 179.3 billion cubic meters of gas (12.5% more than in 2015), the company said. This is a new historical record. This production is almost unchanged: 419 070 000 000 cubic meters (0.14% growth to the previous year). Thus, 42% of the company's production is related to foreign markets.

According to the head of Gazprom, Alexey Miller, who presented the report, the monopolist works "according to the market" and produces "as much gas as is necessary to consumers." He said that Gazprom can produce 150 billion cubic meters per year more than the actual production. "This allows us to quickly increase the supply of gas within the country and abroad during the winter peak consumption,"- concludes Miller.

The share of Gazprom in Europe is steadily growing and reached approximately one third of the European gas consumption, according to the December issue of the Gazprom Export's Blue Fuel. From 1 January to 15 December 2016, Gazprom supplies to non-CIS countries increased by 11.9% to 170 billion cubic meters of gas, the company said. In the first nine months of 2016, Gazprom supplied 126.3 billion cubic meters to Central and Western Europe. Germany bought the biggest amount of gas, as stated in the Gazprom report: 34.265 billion cubic meters (27.1% of total exports); followed by Italy: 18.3 billion cubic meters (14.5%), and Turkey: 17.1 billion cubic meters (13.6%). The representative of "Gazprom" didn't specify the changes in consumption by country in 2016. 

Record export of gas, Miller emphasizes, "clearly demonstrates the significant increase in demand for Russian gas in Europe and <...> our ability to provide a reliable export to the required extent." Since the beginning of the year, Gazprom has beaten the record of daily supplies of gas to Europe three times. The latter was achieved on January 8: 621.8 million cubic meters. "The maximum result was achieved on Sunday, when the gas consumption of foreign buyers is usually reduced to the minimum rate in a week," underlines Gazprom in its report. The previous peak of 615.5 million cubic meters of gas per day was registered on January 6, and before that on January 5. The load of Nord Stream is 111%: 61 billion cubic meters of gas per year .


The world's largest gas producer

Major shareholders: Federal Property Management Agency (38.37%), Rosneftegas (10,97%), Gazprom Gerosgaz Holdings B.V. (2.93%).
Capitalization: 3.6 trillion rubles.
Revenues (IFRS, 1st half of 2016): 3.1 trillion rubles.
Net profit: 625 billion rubles.

Growth in exports of Gazprom has been made possible due to the reduction of its own production in the EU, in particular due to production constraints from the field Groningen in the Netherlands and increased consumption in France, said senior researcher of The Oxford Institute for Energy Studies, Thierry Bros. It was also caused by the closure of coal power plants in the UK. Export of Gazprom is supported by the cold weather, stimulating additional demand for gas companies, especially as an alternatives, including LNG,are  more expensive: in the Asia-Pacific region, spot prices have returned to a level of approximately $10 / mbte, which is much higher than the current European spot prices, as mentioned by the analysts of Aton in a review. But, they add, the weather factor is temporary and therefore can not serve as a stable catalyst for Gazprom sales.

Gazprom wins the competition as part of its contract price is still tied to the oil, says Alexey Kokin, the analyst of Uralsib. Therefore, when gas spot prices are rising due to the cold weather, the contract prices of Gazprom are more stable. This year, they, just as the oil prices, can grow a little bit, so we can expect a slight reduction of gas supplies in physical terms, and revenue growth, Kokin said. Gazprom's gas prices are tied to oil with a lag of 6-9 months; due to the recovery in oil prices, export prices of the gas monopoly will continue to rise in the 1Q of 2017, said a senior analyst of Aton, Alexander Kornilov.

New records for the supply of gas to Europe and Turkey is good, but because of the fallen oil prices in 2015-2016, the price of gas also declined, said Kornilov. And because of this, the revenue of Gazprom in Russian rubles for 2016 may remain approximately at the level of 2015, the expert said.

Kornilov expects that Gazprom will have 1.1 trillion rubles of net profit in 2016 (including a foreign exchange gain of more than 400 billion rubles in 2016 against a loss in 2015), which implies a 16% dividend yield (if the company will pay 50% from the revenue).

According to Bloomberg consensus forecast, the revenue of Gazprom in 2017 could be 12% higher than in 2016: 6.4 trillion rubles, and EBITDA by 10%: 1.5 trillion rubles. Deputy Director of the National Energy Security Fund, Alexey Grivach, expects gas prices in the first half of 2017 to risy by 20-30% to the average values of the last year: up to $200-220 per 1,000 cubic meters. But if in the second half year the oil prices will stabilize at $55-60 per 1 barrel, the gas could continue to rise in price, he said.