Gazprom to Export Gas Only by its Own Pipelines

Press secretary of the CEO of Gazprom Sergey Kupriyanov has kindly allowed me to write about our brief communication on the export pipeline policy of Gazprom. According to Mr. Kupriyanov, Gazprom plans to export gas to Europe only by pipelines that it owns by at least 50%.  Sergey Kupriyanov gave the following list of what he called "our" pipelines (pipelines nostrum).

Acceptable Export Pipelines of Gazprom

Remarkably, the whole transit system of Ukraine with its total export capacity of 142 bcm/year is out of the picture. The combined capacity of pipelines nostrum is slightly above the minimum volume of 158 bcm/year guaranteed by long-term contracts of Gazprom for 2020-2025.

In my view, the ownership test of Gazprom gives Ukraine a theoretical chance to add its pipelines to the Kupriyanov's list raising the total Russian export capacity to 320 bcm/year. However, a 50% Gazprom's control over the Ukrainian transit system would be a serious blow to the South Stream project (and a great news for the minority shareholders of Gazprom).

Actually, the minority shareholders should be concerned about the export pipeline construction plans. The new export routes will increase the cost of Russian gas delivered to Europe and therefore will reduce the shareholders' profits. For instance, now it is about twice more expensive to supply Czech Republic via Nord Stream and OPAL, than through Ukraine and Slovakia. It would be a way more expensive to ship gas to Austria by South Stream (there is a ship-or-pay contract of Gazprom with Slovakia through 2029 on top of all other costs).

Gazprom is controlled by the state, so the minority shareholders can expect certain compensations from the state budget. The company may get additional tax benefits and/or direct budget subsidies like those reimbursing the operating losses of Gazprom at the Sakhalin-Khabarovsk-Vladivostok pipeline. Basically, the future subsidies depend on the Russian taxpayers' ability to subsidize their "national treasure" - Gazprom.

This post by Mikhail Korchemkin was republished with the kind permission of  East European Gas Analysis.

East European Gas Analysis (EEGA) is a Pennsylvania-based consulting firm founded in January 1995 and one of the leading experts in cost-benefit and financial analysis of production and pipeline projects in natural gas sector of Russia and the former Soviet Union (FSU).  Mikhail Korchemkin is the founder and executive director of EEGA.