Gazprom output lowest in post-Soviet era

MOSCOW, July 29, 2015 – Russia’s Gazprom is on track to turn in gas output figures for 2015 that would be the lowest since the company was formed following the dissolution of the Soviet Union. In the first half of 2015, gas production by the majority-government-owned company fell 13-percent year-on-year, and is projected to arrive at 414 bcm (14.6 tcf) by the end of December, according to data published by Russia’s ministry of economic development on Tuesday. This would mark a full-year 6.7-percent year-on-year decline from 444 bcm (15.7 tcf) in 2014.

Combined with low gas prices, the drop in production is expected to lower Gazprom’s 2015 revenue to $106 billion, a 27-percent fall from 2014. The output figures do not reflect a decline in production capacity, but the cocktail of problems Gazprom is suffering from on the demand side.

Demand in Europe, Gazprom’s main export market, fell 6.2-percent year-on-year in the first half of 2015, driven by milder winter temperatures and a poor purchasing climate as customers waited for contract prices to follow the price of oil downward.

On the domestic front, demand fell as Russia’s recession deepened. The economy shrank 4.4 percent in the second quarter of 2015 compared to 2014. Gazprom is also steadily losing ground to smaller competitors, with its market share expected to drop to 66 percent in 2015.

Finally, as political tensions with Ukraine become further entrenched, Gazprom is letting go of one of its main historic importers of gas. Russia’s share of the Ukrainian market dropped from 74 percent in 2014 to 37 percent in the first half of 2015, and on July 1 Ukraine halted the purchase of Russian gas altogether.

Mitigating factors include low gas prices, which could spur an uptick in demand in Europe, as well as the devaluing of the rouble, which is decreasing Gazprom’s operation costs.

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