Hit by falling energy prices, a weaker ruble and a pricing dispute with Ukraine, Russian gas monopoly Gazprom said on January 29 that third-quarter net income dropped to 106 billion rubles ($1.5 billion) from 276 billion rubles or 62% a year earlier.
Gazprom said the weak results confirmed that it needed to sell more gas to Turkey and the Asia-Pacific region.Citing problems with EU regulation, Gazprom recently scrapped the planned South Stream pipeline and opted to build theTurkish Stream pipeline instead. But despite plans to seal agreements tomake China, Gazprom said its revenue will remain dependent on Europe.
As energy prices fall, Gazprom is reassessing its projects. The Russian company has put an expansion of its Nord Stream gas pipeline on hold, rowing back for the second time in two months on plans to extend its European network as relations betweenRussiaand the West deteriorate overUkraine. Existing capacity through Nord Stream, which runs under the Baltic Sea and servesGermany, was enough for now and there was no immediate need for an expansion, Gazprom said on January 28.
Gazprom Chairman Viktor Zubkov said a weak gas market was forcing the firm to defer projects. “When the price is decreasing... is difficult to realise these projects and sometimes it’s even not possible,” he told a gas conference in Vienna.
Slava Smolyaninov, chief strategist at UralSib Financial Corp in Moscow, toldNew Europe on January 30 that Gazprom probably does not need to expand Nord Stream right now and needs to focus on keeping the cash flows given the dramatic fall in energy prices and gas exports. “It’s a huge slump. What’s the natural reaction? Probably to cut spending and reassess the plans,” he said. “Hopefully it’s not politically motivated but clearly the second half of the year Gazprom had to face much lower prices for sure for extracted natural gas,” he added.
“There have been lots of talks on Gazprom about almost all the existing gas pipelines - except the Belarusian one – with the Ukrainian Gas Transportation System (GTS), with the potential South Stream, with Turkish Stream, now with Nord Stream,” Smolyaninov said.
Moreover, a debt and pricing dispute withUkraineled to Gazprom having its lowest annual gas output of 444 billion cubic metres in 2014. Ukraine was once Gazprom’s biggest export market, but it has cut imports from Russia from 59 billion cubic metres in 2006 to just 14.5 billion cubic metres in 2014. In 2015, Ukraine plans to buy around 8 billion cubic metres fromRussia. Moscow and Kiev reached an EU-brokered gas deal in October and Ukraine’s Naftogaz paid off part of its debts to Gazprom, which the Russian gas giant now puts at $2.44 billion. Kiev disagrees with this estimate and the agreement expires at the end of March.
The US and EU have also imposed sanctions on Russia for its role in eastern Ukraine, which have forced Russia’s already weak economy into recession. “The entire economy is falling into recession,” Smolyaninov said. “The sanctions, falling ruble and higher rates are all consequences of the Kremlin policy with regards to Ukraine and Crimea,” he said.
http://www.neurope.eu/article/oil-slump-weak-ruble-ukraine-make-gazprom-reassess-plans