Gazprom Repays Debt, Eyes Growth

Russian gas giant Gazprom said in a meeting with shareholders June 29 that it plans to repay $15.2bn of debt in 2018. Its total debts until the end of first quarter stood at rubles 3,361bn ($53.4bn at current rates).

Gazprom’s net debt excluding cash and cash equivalents reached rubles 2,409.701bn. The growth was mainly due to an increase in the amount of long-term borrowings, partly offset by higher cash and cash equivalents balances.

Gazprom’s debts (bn rubles)

(Source: Gazprom)

The group mainly borrowed foreign currency: 34% of its debt is denominated in dollars, 37% in euros, and only 21% in rubles and 7% in the other currencies. This is due to a number of factors including low interest rates on foreign markets and a sizeable currency borrowings market as compared to ruble-denominated instruments. It could also be a hedge, as adverse foreign exchange movements are one of its risks when it imports goods and materials.

Next year it plays to repay $8.4bn, and for 2020 and 2021 this will be $6.5bn and 4.5bn respectively. The remaining repayment will come after 2021, the statement said.

It seems to be part of a trend whereby, for years, state-run companies could borrow without the Kremlin worrying – but now things have changed with sanctions and borrowing abroad is trickier.

Gazprom told NGW that the sources of debt payment include new cash from core operations, funds and bank deposits as well as funds attracted during implementation of the loan program.

Gazprom capital market borrowings

(Source: Gazprom 2018 shareholders' presentation)

Increasing investments

Last summer, Credit ratings agency Fitch noted that Gazprom will have to borrow rubles 600bn/yr and by early 2020 the debt will have increased by rubles 1.8 trillion.

Gazprom reported in its 1Q 2018 financial report that the group’s total investments could grow by 22% in 2018 to rubles 2,012bn.

Gazprom itself, has planned rubles 1,278.83bn investments in 2018 for all projects and it is eyeing external financial borrowing to cover its liabilities in full. 

Gazprom's 2018 investment program covers all its strategically important projects including: the Chayanda field development and related construction of the Amur gas processing plant and the Power of Siberia pipeline; TurkStream and Nord Stream-2 pipelines; developing the gas transport system in northwest Russia; and domestic supply projects.

There are also other ambitious export projects: “Building up our own LNG production capacities, together with Shell, we are doing preparatory work on the construction of the third line of the Sakhalin-2 plant with a capacity of 5.4mn metric tons/yr. In addition, a joint feasibility study is conducted to determine the main technical solutions for the Baltic LNG project with a capacity of 10mn metric tons/yr”.

Russian oil giant Rosneft also announced May 1 that it would take to heart a message on capital discipline from Russia’s president Vladimir Putin and cut its debt mountain by $8bn this year but did not disclose end-1Q net debt versus Gazprom.

Gazprom eyes record exports to EU

In 2017, gas production by Gazprom Group enterprises increased by 12.4% on year to 471bn Russian m³, which is smaller than standard m³.

Its domestic gas sale rose 7% to 229.9bn Russian m³, while exports to EU reached 194.4bn m³.

In the 1H 2018, the export volume reached 101.2bn Russian m³, 5.7% more than the same period in the last year. The company is expecting at least 205bn m³ exports for the whole of year. Gazprom sold 3.34mn metric tons LNG (4.46bn m³) last year.

Chinese market

Gazprom says the most dynamic gas market in the world is China. “Its annual gas demand grew by 5%, 7% and during 2015 and 2016, while the growth for 2017 was 15%. The share of gas in its energy demand is expected to rise from 7% to 10% by 2020, then to 15% by 2030. This means that in the next couple of years, China will need up to 360bn m³/yr”.

The Power of Siberia pipeline will be put into operation in December 2019 to supply 1 trillion m³ Russian gas to china in a 30-year contractual period: the contract is for 38bn m³ but it will take a few years to reach plateau.

The company says that last year, it and CNPC laid the foundation for another gas pipeline to China, whereby additional volumes of gas will come from the Russian Far East, it said without elaborating the details. This would contradict earlier statements freom Gazprom regarding a western route to China, which would allow Russia to send gas to China from western Siberian fields using the short section of Russia-China border – between Kazakhstan and Mongolia – to deliver the gas.