August 16, 2016, 00:03 / Business

Gazprom may set a new anti-record for production

The concern admits for the first time that its production will continue to fall this year Galina Starinskaya Alexandra Terentyeva

Gazprom cannot yet raise production from historical lows / M. Stulov / Vedomosti

In 2016, Gazprom’s production may drop to a new anti-record – 417.2 billion cubic meters. m. The concern gave this forecast in its RAS report for the second quarter. In 2015, Gazprom produced 418.5 billion cubic meters. m - and this was the lowest figure in history.

But Gazprom’s potential annual production is more than 150 billion cubic meters. m exceeds actual production, the company’s chairman of the board, Alexey Miller, said in June: “If necessary, we can increase production in a short time, and this is one of Gazprom’s main competitive advantages in the domestic and foreign markets” (quote from Interfax).

In general, gas production in Russia, according to Gazprom’s forecast, will amount to 632 billion cubic meters in 2016. m. Gazprom's share is 66%. Gazprom's forecast is calculated as the result of the first quarter, the preliminary result of the second quarter and the production plan for the third and fourth quarters, Gazprom explains the calculation. At the beginning of the year, the concern announced that it plans to increase production to 452.45 billion cubic meters. m. Based on the results of seven months, production decreased by 9.77 billion cubic meters. m. And if the average monthly rate of decline in production (1.4 billion cubic meters) continues until the end of the year, then Gazprom’s annual production may reach a level slightly above 400 billion cubic meters. m, calculated by Interfax.

Gazprom's production has been steadily declining since 2011 – when it last increased to the level of the previous year, reaching 513.2 billion cubic meters. m. If Gazprom’s forecast for 2016 comes true, then the decline since 2011 will reach 18.7%. Gazprom set the production record in 1993 – then 577.7 billion cubic meters were produced. m.

Gazprom's production is declining, despite rising exports. Over seven and a half months of 2016, the company increased gas supplies to Europe by 10.4%, or 9.9 billion cubic meters. m of gas, compared to the same period in 2015, Miller said (his words were reported by Interfax). According to Miller, demand for Russian gas increased in Austria (by 16.8%), Greece (by 66.2%), and Poland (by 21.5%). “Gazprom’s exports to France are growing steadily – by 29.3%, to the UK – by 62.1%, to Holland – by 95.6%, to Denmark – by 137.3%, i.e. to the countries- consumers along the route of the Nord Stream 2 gas pipeline, work on which continues without changing the schedule,” he noted.

In 2015, Gazprom supplied 130.1 billion cubic meters to Western Europe. m (+9.3% compared to 2014). This year the concern plans to export from 166 billion to 170 billion cubic meters. m.

The growth in demand in Europe does not compensate for the fall in sales in Russia, says Raiffeisenbank analyst Andrey Polishchuk. In the first half of the year in Russia, Gazprom sold 123.4 billion cubic meters. m (-4.6%). It is being squeezed out by independent gas producers. Independent gas production is growing, which they sell in Russia, since they do not have the right to export, which, against the backdrop of stagnating domestic demand, negatively affects Gazprom’s production, said Aton senior analyst Alexander Kornilov. Thus, Novatek increased gas production in the first half of the year by 2.2% to 33.04 billion cubic meters. m. And Rosneft - by 6.9% to 33.23 billion cubic meters. m.

This trend will continue, experts say. In 2017, Gazprom's production will remain at this year's level, Polishchuk predicts. Rosneft plans to increase gas production to 100 billion cubic meters by 2020. m. In addition, Gazprom has obligations to purchase gas from independent producers, Kornilov recalls. Another factor not in favor of Gazprom is the inability to give customers discounts from the tariffs established by the FAS. The possibility of granting the concern such a right was discussed back in 2014. The Ministry of Energy believes that an economically justified discount is 7.5%. As an experiment, the FAS proposed to abolish the lower threshold of wholesale gas prices for industry and the population in the Yamalo-Nenets and Khanty-Mansi Autonomous Okrugs and the Tyumen Region.