MOSCOW (MRC) -- Gazprom's sales are likely to fall further in 2013 as weak economic conditions lead to continued low demand in Europe, the company's key market for natural gas, reported hydrocarbonprocessing with refrence to Fitch Ratings' new report released on Monday.
Russian gas production data for 2012 indicate that Gazprom's European and FSU gas sales fell slightly more than expected.
Europe and the FSU remain key markets for Gazprom, which has a monopoly on the export of Russian natural gas. For example, in the second half of 2012, it generated over 76% of its revenue from sales of gas outside of the Russian Federation, which accounted for only 44% of its gas sales by volume.
The drop in European gas volumes and prices was partly caused by litigation by some of its European gas buyers, and price renegotiations and compensation payments that followed. This shows that Gazprom's position in Europe remains somewhat challenging, the credit-watch company said.
Fitch added that it believes prices and volumes of European gas consumed under take-or-pay arrangements will not dramatically change in the foreseeable future.
Take-or-pay provisions usually cover 80% of contractual gas volumes; therefore there is some headroom for gas volumes to fall before triggering the take-or-pay clauses.
Gazprom's concessions to European buyers represented no more than 10%-15% of the total oil-based price, leaving the prices under these contracts well above market gas prices, which are now almost delinked from the oil price.
Fitch said it believes that Gazprom will have to continue negotiating further concessions with those European buyers that may have alternative sources of gas supply.
Fitch forecasts that eurozone GDP will contract by 0.1% in 2013, following an expected 0.5% contraction in 2012. The trend should reverse in 2014, when 1.2% GDP growth is forecast. The company expects that gas demand in Europe will continue to be weak in 2013 but may start increasing in 2014.
Last week the Russian Ministry of Energy said that total natural gas production in the country fell by 2.2% in 2012 to 655 billion cubic meters (bcm), while Gazprom's gas production declined by 5.1% to 482bcm.
Russian gas sales abroad in 2012, mainly to Europe and the FSU, fell by 8.7% to 186bcm. Gazprom previously reported a 10% volume drop in first-half 2012 sales to Europe and a 29% volume drop in sales to the FSU countries.
As MRC wrote previously, Gazprom also continues to closely examine the situation with shale gas. At present, Gazprom believes that shale gas production in Russia is not feasible due to the high availability of conventional gas reserves, the cost of production is significantly lower than the estimated costs of shale gas development, and also carries significant environmental risks, but Gazprom will continue to monitor the shale gas development in various regions of the world, the results of which it will report to the Board of Directors in the IV quarter of 2013.
MRC