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, Fitch Ratings says in a new report released
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.
The market abuse investigation, launched into Gazprom last
autumn by the European Commission, also continues. Fitch does
not forecast any rating implications for the company as a
result of this investigation, but it may eventually weaken
Gazprom's negotiating position with some of its key European
buyers, and have a long-term financial impact.
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.