Gazprom prioritizes projects in economic downturn

Uchenna Izundu
OGJ International Editor

LONDON, Feb. 10 -- OAO Gazprom is prioritizing gas projects, determining which projects it will proceed with, because of decreasing gas demand and challenging financing issues amid the economic downturn.

Speaking through an interpreter, Chief Financial Officer Andrey Kruglov told reporters in London that the company had not yet confirmed its list. "We have also been prioritizing projects in our investment program…and this will allow us to see which projects will be financed and which projects are going ahead," he said. Its key Yamal Peninsula project is expected to go ahead.

Gazprom management came to London Feb. 10 to give a strategy and budget update to investors.

Kruglov said the company would wait until it determines this year's first quarter results before assessing how the global and Russian financial situation would impact its budget. "But we have started developing different scenarios which depend on oil price levels," he said.

Last December, the company approved a draft investment program of 920.44 billion rubles, another 699.88 billion rubles in capital investments, and 220.56 billion rubles for long-term financial investments. He said these investment figures remain unchanged.

The company will focus on improving efficiency and better handling of its liquidity. It intends to keep a tight reign on costs by cutting back on sponsorships, social activities, and personnel by 10%. It also has launched an advanced payment system to ensure that its customers don't fall behind on their bills. This applies to 1-year contracts and primarily Russian customers.

Priorities
Gazprom sait its major Shtokman gas condensate project in the Barents Sea is on track, however, and the shareholders, including Total SA and StatoilHydro, are to make a final investment decision in first-quarter 2010, said Alexander Medvedev, deputy chief executive of Gazprom.

The partners expect to run up high costs before they make the decision whether to execute it, which is unusual, Medvedev added, pointing out that this demonstrated how confident they were about it.

Shtokman is scheduled to export gas by pipeline in 2013 and the 7.5 million tonnes/year liquefaction plant would start in 2014.

Other major Gazprom projects include predevelopment work in Bovanenkovo and Prirazlomnoye fields; the Apt-Albian deposits in the Nyda area of Medvezhye gas and condensate field; the Zapadno-Pestsovaya area of Urengoy oil and gas condensate field; the Kharvutinskaya area of Yamburg gas and condensate field; and other fields.

Gas transportation priorities include construction of the Bovanenkovo-to-Ukhta and Ukhta-to-Torzhok trunkline systems; the Gryazovets-to-Vyborg, Pochinki-to-Gryazovets, and Murmansk-to-Volkhov gas pipelines; and the SRTO-to-Torzhok gas trunkline.

Gazprom's presence in London reignited rumors that it was interested in buying Centrica PLC. "We are not in talks with either the shareholders or the management of Centrica," Medvedev said.

Contact Uchenna Izundu at uchennai@pennwell.com.

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