Gazprom’s production to hit an all time low in 2014

24 Dec 2014


Russian gas behemoth OAO Gazprom is expected to post a 9-per cent fall in production this year compared to 2013, the lowest in the history of the company, primarily due to lower supplies to crisis-hit Ukraine and relatively warm European winter, business newspaper Vedomosti reported yesterday.

Russia's gas information agency Interfax has estimated Gazprom's production at 443-445 billion cubic metres (bcm) in 2014, based on data provided by CDU TEK, a unit of energy ministry.

The lowest production recorded previously was in 2009, during the global financial crisis, when output hit 461.5 bcm. During the period from 2002 to 2008, and in 2011 and 2012 Gazprom's annual production was more than 500 bcm.

In 2012 and 2013, the production was lower at around 487 bcm.

Gazprom's production for the first 11 months of 2014 was 401 bcm. In December 2013, the output was 48 bcm. However, this year, it is expected fall short by around 5.7 bcm to 42 bcm as export supplies are estimated to be 4.8 bcm lower and supplies to Ukraine are also expected to fall by 900 million cubic metres compared to last year.

According to analysts, warmer than usual winter this year in Russia and Europe is also affecting gas consumption. Besides, it is apprehended that consumers are waiting for gas prices to fall because of the huge slump in oil prices.

Some analysts believe the situation will improve next year if Russia's relations with Ukraine and the European Union improve.

Russia supplies over a quarter of the EU's gas needs and about 80 per cent of it passes through Ukrainian gas pipelines. Six nations solely depend on Russian gas to meet their requirements.

Gazprom expects this year's gas sales to Europe to be 9 per cent lower at 147 bcm compared to last year, as European nations are trying to reduce their energy dependence on Russia due to its involvement in the conflicts in Ukraine.

In 2013, Ukraine was the third largest purchaser of Russian gas with 25.8 bcm while Germany bought 41 bcm and Turkey 26.7 bcm.

Last week, Russian president Vladimir Putin said in a press conference in Moscow: ''there is no cheaper and more reliable supplier than Russia, and there won't be any in the near future.''

Russian ruble has fallen over 60 per cent against the US dollar in the last six months, closing at 55.45 yesterday after hitting a high of 68 last week due to slumping oil prices, and biting western sanctions.  In a desperate move to control rising inflation, Russia's central bank has hiked key interest rate to 17 per cent from 10.5 per cent a few days ago.

It has been reported that the government has put pressure on state-owned exporters to sell part of their hard currency to arrest the fall, and the central bank has begun sending supervisors to monitor currency trading in major banks.

According to some unnamed sources, the companies asked by the government to sell hard currency included Gazprom, the oil firms Rosneft and Zarubezhneft, and the diamond producers Alrosa and Kristall.

''If exporters are told not to increase their hard currency positions, it can be viewed as an unofficial reintroduction of capital controls,'' Vladimir Osakovsky from Bank of America Merrill Lynch, told Reuters.

''Full capital controls would be a huge immediate blow to the economy. It would intensify capital outflows and cause a complete loss of confidence in the country among both domestic and foreign investors," chairman of VTB-24 bank, Zadornov told Vedomosti in an interview.

Earlier this week, former Russian finance minister Alexei Kudrin warned that Russia was moving closer toward a full-fledged economic crisis.

Putin said last week that it would take at most two years for the Russian economy to rebound.

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