Financial Times: Gazprom approves 11% capex cut

By Catherine Beltonin Moscow
Published: June 1 2007 03:00 | Last updated: June 1 2007 03:00

Gazprom said yesterday that it had approved an 11 per cent cut in 2007 capital expenditure even as it comes under fire from the International Energy Agency for under investing in production amid warnings of a supply crunch.

Gazprom said it was making the cut in order to nearly triple financial investments as it expands its grip over Russia’s energy sector via its $7.4bn purchase of control of Royal Dutch Shell’s Sakhalin-2 oil and gas venture and increases its sway over other sectors such as electricity.

The IEA has slammed Gazprom, which supplies a quarter of Europe’s gas, for failing to channel more investment into bringing new gas fields on line while spending too much on other ventures.

Claude Mandil, the IEA head, has warned of shortfalls in supply as soon as 2010.

Gazprom has said it can easily bring more gas on line but Vladimir Milov, former deputy energy minister, has also warned of shortfalls if Gazprom does not invest more in developing new fields amid a surge in domestic demand and slowing growth at existing fields.

Earlier this year, Russia already faced a deficit of 4bn cubic metres.

Gazprom said yesterday that it had approved the cut in capital investments to Rbs320bn ($12.3bn) while increasing long-term financial investment to Rbs443bn from Rbs169bn.

Gazprom must also finance its $625m purchase of a 50 per cent stake in Belarus’ pipeline network Beltransgaz as it tightens its hold on export networks to Europe and completes its acquisition of a controlling stake in Moscow power generation firm Mosenergo.

It is also seeking to merge its remaining electricity holdings with privately owned coal producer SUEK amid government plans to increase coal’s share in electricity production because of fears of gas shortages. Mr Milov has said Gazprom must invest at least $100bn in developing gas fields on the Yamal Peninsula, the next major source of gas for the company.

Even before yesterday’s cuts, Gazprom had earmarked just under $1bn for Yamal this year, enough only to start building roads and basic support bases, Mr Milov said.

He said Gazprom’s monopoly in the gas sector in Russia meant it felt no competitive pressure to invest more in production because it did not have to fight formarket share.

Gazprom also said yesterday that it would borrow a record $16.26bn this year.

Analysts have said its move on foreign ventures further endangers the security of future supplies because it is likely to develop the ventures more slowly than if they were privately owned.

Copyright The Financial Times Limited 2007

This website and sisters royaldutchshellgroup.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, and shellnews.net, are owned by John Donovan. There is also a Wikipedia segment.