Russia's OAO Gazprom says it will slash capital spending and might delay the launch of a key field in Siberia as the global recession decimates demand for its natural gas in Russia and Europe.
The announcement about its flagship Yamal development in the far north of Russia, key to its plan to increase its market share in Europe, could have major implications for the Kremlin-controlled gas giant's future.
Gazprom's deputy chief executive, Alexander Ananenkov, said in a conference call that the company was cutting its capital spending program for this year by 22% to 500 billion rubles ($16 billion).
He said the start-up of Bovanenkovo, the largest gas field in the remote Yamal Peninsula, might be delayed by a year, until 2012. Gas output won't reach precrisis levels for several years, he said.
The global economic slowdown has damped demand for natural gas across Europe, leading to a sharp falloff in Gazprom's exports to the Continent. Big European customers this year have been purchasing the minimum volumes allowed under long-term contracts with Gazprom in the hope that gas prices, which are pegged to oil prices but with a six- to nine-month lag, will soon start to fall.
A Russian businessman close to Gazprom said senior management is "close to panic," worrying that gas demand in Europe "may never come back."
"For the first time in its history, Gazprom's management has started to . . . realize Europe will no longer buy everything we produce," he said.
Gazprom spokesman Sergei Kupriyanov said the company "never panics." "Certainly, we didn't expect such a sharp falloff in demand in the first quarter of this year, but we are confident the situation will be rectified in the summer, when gas prices start to come down," he said.
News of a delay on Bovanenkovo would have caused consternation in Europe as little as a year ago. Energy experts had long been concerned that Gazprom, which supplies a quarter of Europe's gas, wasn't developing new fields like those in Yamal fast enough to satisfy surging demand for the fuel, both in Russia and Europe, and to compensate for falling production at its mature fields in Siberia.
Some analysts predicted a gas-supply shortage unless Gazprom stepped up its investments. As recently as February, company officials insisted that Bovanenkovo was on track and the field's development wouldn't be affected by the economic downturn.
Situated in the remote, freezing wastes of northwestern Siberia, Bovanenkovo is the largest gas field in Yamal, an area thought to contain more than 12 trillion cubic meters of gas. Russia says the field will ultimately produce 140 billion cubic meters of gas a year, or more than 80% of Gazprom's current contracted export volume to Europe.
The company is building a 682-mile pipeline to connect Bovanenkovo to a huge gas hub, Ukhta, in northern Russia that will allow Yamal gas to be exported directly to Europe through Gazprom's existing pipeline network.
Mr. Ananenkov, Gazprom's deputy chief, said the company planned to produce between 450 billion and 510 billion cubic meters of gas this year, sharply down from last year's 550 billion cubic meters.