NOVATEK says goodbye to Itera

The contract for the supply of 7.6 billion cubic meters of gas to the trader will not be extended

NOVATEK Chief Financial Officer Mark Jetway said during a conference with investors that the company does not intend to renew the five-year contract for the sale of gas to Itera, which expires at the end of the year. “This does not mean that we will not cooperate with this company at all,” he emphasized. “We plan to work with her as with an ordinary trader, since our strategy is to sell gas to end consumers as much as possible.” Itera can now count on purchasing fuel under short-term contracts if NOVATEK itself is unable to find customers without intermediaries.

Until 2009, Itera was a monopoly supplier to the Sverdlovsk region market under a strategic cooperation agreement until 2015, which the chairman of the company’s board of directors signed with the governor of the Sverdlovsk region, Eduard Rossel. Last week it was officially confirmed that Mr Rossel was leaving this post, and the country's President Dmitry Medvedev proposed Alexander Misharin to replace him. Most likely, the change of the head of the region will be the decisive factor in Itera’s loss of this market with a capacity of about 18 billion cubic meters per year.

Itera has not had its own gas for a long time to fulfill its obligations to the Sverdlovsk region. She still has 49% stakes in the gas producing companies Purgaz (controlled by Gazprom) and Sibneftegaz (51% owned by Gazprombank structures). The first produces about 15 billion cubic meters of gas per year at the Gubkinskoye field, selling half to Itera at the well. The second can produce up to 11 billion cubic meters at the Beregovoye field, but, having gained access to the gas transportation system in 2007, it has not been able to significantly increase production. According to the gas balance, the company this year can supply only 3.2 billion cubic meters to the GTS, which will be fully sold through the main shareholder, a subsidiary of Gazprombank - Status LLC.

The contract with NOVATEK allowed Itera to fulfill its obligations to the Sverdlovsk region. It was signed in 2004 as part of the procedure for consolidating large gas production assets - Tarkosaleneftegaz and Khancheyneftegaz - on the basis of NOVATEK. Instead of a merger with Novafininvest (the predecessor of NOVATEK), which had already been officially announced, some of the beneficiaries of Itera, which did not have the best reputation, decided to sell their shares in these companies, retaining Itera's gas supply business to the Sverdlovsk region for five years.

According to NOVATEK's consolidated statements, in the second and third quarters of 2009, the company sold 1.9 billion cubic meters of gas per well to a large trader (meaning Itera). Prices were lower than those established by the Federal Tariff Service for Gazprom enterprises in the Yamalo-Nenets Autonomous Okrug by 80-100 rubles. (1027 and 1083 rubles per thousand cubic meters, respectively). At the same time, FTS prices for industrial consumers in the Sverdlovsk region were already 700-800 rubles. higher.

Alarm calls to Itera in the region began to be received at the beginning of the year, when Gazprom, without noise and dust, began supplying gas to the Serovskaya State District Power Plant owned by OGK-2 (part of the Gazprom energy holding). Then IES-Holding, which through TGK-9 controls almost all of the former Sverdlovenergo, announced its claims to independent gas supply since 2010. The transition has not yet taken place, but the trader Gazex, affiliated with IES, plans to supply 1.5-2 billion cubic meters of gas to the region starting next year. Finally, NOVATEK signed a five-year contract with Inter RAO for gas supply to its energy assets, including the Verkhnetagilskaya State District Power Plant located in the Sverdlovsk Region (consumes about 1.7 billion cubic meters per year). In addition, the largest producer needs to look for other industrial consumers in order to maximally utilize its own production assets (30-40% of their capacity is currently unused). And the support region of Itera, which has lost political support, is a tasty morsel. Therefore, it is possible that already next year Uralsevergaz will be abandoned by problematic consumers such as the utility sector and the most insolvent clients. In anticipation of changes in the market, many buyers have already begun to accumulate debt to the trader.

Alexey GRIVACHS