Gazprom’s Investment Program to Decrease by 30 Percent

by Roman Kupchinsky

Faced with lowered demand for gas in Europe and Ukraine along with collapsing profits, Russian energy giant Gazprom will decrease its 2009 investment program by 30 percent according to the newspaper Vedomosti.

In dollar terms this means that investments will decline from the 920.44 billion rubles,($29.35 billion) approved by the company’s board of directors in December 2008, to approximately 640-740 billion ($20.4 billion). The largest cut of 137 billion rubles ($4.37 billion) will come from the postponement of bringing on line the giant Bovanenkovo field in the Yamal Peninsula . Which projects will be postponed or cut to make up the rest of the decrease Gazprom officials refused to say.

This is not the first time Gazprom has adjusted its controversial investment program over the years. In 2004 the investment budget for 2006 was 286.5 billion rubles ($11 billion). As the gas monopoly went on an acquisition spree in 2007 by buying the Moscow power generating company Mosenergo, 19 percent of the independent gas company Novatek and the Sakhalin-II LNG project, the investment budget jumped to 779.4 billion rubles ($30 billion).

But the greatest criticism hurled at Gazprom has been its lack of developing new gas fields while traditional fields are being depleted and for placing too much emphasis on buying once cheap Central Asian gas to cover production cuts.

The state-owned monopoly tried to rebut criticism when Deputy CEO Alexander Medvedev told a press conference in Moscow on June 24, 2009 that the reason Gazprom’s market share in Europe and Turkey plunged to 16 percent in the first quarter of this year, compared with 30 percent last summer was because European customers were temporarily buying less gas because they built up large reserves last summer in anticipation of higher prices at the start of this year. However, Medvedev failed to mention that European customers preferred buying cheaper LNG in spot trading from Gazprom’s competitors.

According to the Moscow Times Medvedev stated that Gazprom is planning to export 142.1 billion cubic meters of gas to Europe and Turkey this year, a 10.5 percent decrease from last year’s 158.8 bcm. The gas will come from its own production, independent producers and Central Asian imports.