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Fitch: China Deal Can Aid Gazprom Without Hurting Europe Export

The deal between Russia and China for Gazprom to supply 38 billion cubic metres (cm) of gas a year to CNPC represents a significant growth opportunity for the company, Fitch Ratings says.

This deal certainly begins to give Gazprom options in where to export, the company's challenge historically has been to find ways to monetise its 23 trillion cm reserves at acceptable prices - and the best scenario for the company is an increase in production.

The deal is therefore positive for Gazprom's medium- to long-term prospects, especially if it opens the door for a further deal to sell gas from its developed western fields to China in due course.

"While pricing has yet to be announced, it appears from headline numbers that the price will be at or above USD350 per thousand cm. This is comparable to that of Gazprom's contracts with western European customers (USD378 per thousand cm in 2013), and far above the prices at which gas can be sold in Russia," the rating agency points out.

But a key difference is that gas to be sent to China will come from largely undeveloped fields, implying a significant up-front investment, which President Putin announced as USD55bn. The 38 billion cm announced is equal to about a quarter of Gazprom's annual deliveries to Europe.

JSC Gazprom (tax number: 7736050003) is the world's biggest gas company. Its authorized capital is RUB 118.367 billion represented by 23,673,512,900 common shares at par value of 5 rubles. The Russian Federation is Gazproms controlling shareholder. In 2013, Gazprom increased gas production by 400 million cubic meters to 487.4 bcm.

IFRS net profit of Gazprom for 2013 attributable to the company's shareholders decreased by 7% to RUB 1.139 trillion from RUB 1.224 trillion the year before. Sales revenue grew by 10.1% to RUB 5.249 trillion from RUB 4.767 trillion the year before.

According to the DataCapital information retrieval system, RAS net profit of Gazprom for 2013 went up 12% to RUB 628.311 billion. Revenue increased by 7.5% to RUB 3.933 trillion from RUB 3.659 billion, revenue from gas sales to RUB 2.917 billion from RUB 2.799 billion, sales profit to RUB 962 billion from RUB 993 billion.

"AK&M", 22.05.2014 17:23


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