the RUSSIA oil & gas competitive intelligence report - Report Buyer

Russia Oil and Gas Competitive Intelligence Report 2010
Market Position
Gazprom accounts for 80% of Russia’s gas production (2009) and holds at least two-thirds of the nation’s
gas reserves (or 15% of world reserves). The company also has a virtual monopoly control over the
domestic gas pipeline network, which supplies fuel to almost every Russian region, the CIS states and
over 25 European nations. The firm remains heavily reliant on overseas gas sales, as it is forced to supply
gas to the domestic market at subsidised rates. Domestic prices, however, are gradually being liberalised
and are set to reach around US$70/mcm in 2010 and US$90/mcm in 2011, up from around US$20/mcm
in early 2000s. Notable foreign assets include minority stakes in China’s West-East gas pipeline, and in
phases 2 and 3 of Iran’s giant South Pars project.
Strategy
In 2009, Gazprom’s production fell to 460bcm, according to preliminary government figures. This was
the worst performance in Gazprom's history, with the current low of 512bcm registered in 2001. In Q110,
however, domestic demand began to recover, pushing up Gazprom's production figures. This led CEO
Alexei Miller to announce a more ambitious target of 529bcm for 2010. In April 2010 he told Russian
media that by 2013 the company expected to produce 565.5bcm, which would be a 13-year production
high. Speaking at a news conference on June 9, however, Gazprom's gas and condensate departmental
head, Vsevolod Cherepanov, said that from mid-May 2010 the company had begun to see a much sharper
seasonal drop in demand than it had expected. Cherepanov said that the company has now revised its gas
production forecasts. The company now expects to produce 519.3bcm in 2010, down roughly 10bcm on
Miller's forecasts. He said that the company expects this to increase to 528.6bcm in 2011 and to 542.4bcm
in 2012.
By 2030, Gazprom wants to become a global energy player, reaching new markets with LNG and
underwater pipelines. It wants to add 90mn tonnes of LNG capacity by 2030. At present Sakhalin-II is the
only operational liquefaction terminal. With output at its mature Western Siberia fields in decline,
Gazprom expects new generation projects in the Arctic (Yamal, Shtokman), East Siberia (Kovykta,
Chayandinskoye) and the Far East (Sakhalin) to fuel future growth, accounting for half of its production
by 2020. Gazprom also planned to supply about 25% of the world’s LNG needs by 2030, but that target
was scrapped following the decline of the US import demand. By early 2010 Gazprom’s executives had
acknowledged the need for a strategic overhaul owing to the negative impact of rising domestic US gas
production. In December 2005, then deputy chairman Medvedev announced Gazprom's aim 'to gain more
than 10% of the US market by 2010, increasing to 20% [at a later date]'. With US demand for gas imports
on the wane, these targets are now looking decidedly unrealistic.
Having scuppered Gazprom's North American ambitions, the spreading 'shale revolution', is beginning to
pose a threat to its core business closer to home. The first negative consequences are already being felt by
the company, as LNG cargoes head for European ports having been turned away from the US. There is,
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