Gazprom plans a record investment program for 2023

Gazprom’s board approved the draft investment program and the company’s budget for 2023, the state monopoly announced on November 24. The total volume of the investment program will amount to 2.3 trillion rubles.

Projects must now be approved by the company’s board of directors (traditionally this happens in December). If approved, Gazprom’s investments for 2023 will increase by 16% compared to 2022 and reach a new historical maximum.

The investment program for 2023 includes funding for priority projects, the release notes. We are talking about new gas production centers (Yamal, Yakutsk and Irkutsk), the Power of Siberia gas pipeline, Gazprom’s gas processing complex and projects that “ensure peak gas balance.”

Gazprom’s investment program for 2022 was originally planned at the level of about 1.76 trillion rubles, but after the revision in the first half of the year it grew to 1.98 trillion rubles, but now it has reached 2.3 trillion rubles. In 2021, the volume of investments also increased from 1.08 trillion to 1.185 trillion rubles.

Famil Sadygov, Deputy Chairman of the Board of the Company, said on September 27 that in the first half of 2022, Gazprom’s EBITDA more than doubled in annual terms to 3.05 trillion rubles. Net profit for this period increased 2.6 times to 2.51 trillion rubles.

“Gazprom» increases investments against the backdrop of a general underinvestment in the oil and gas industry. On October 13, Deputy Prime Minister Alexander Novak, who oversees the fuel and energy complex, said that global investment in the industry was “artificially reduced” by more than half to $300 billion a year. This was due to the beginning of the transition to green energy, he explained. Russian President Vladimir Putin in October drew attention to the fact that the volume of investments in oil and gas production in 2020-2021. fell to its lowest level in 15 years.

Rosneft CEO Igor Sechin later noted that the artificial underinvestment in conventional energy, exacerbated by sanctions on Russia, was the cause of the current energy crisis in the European Union (EU). According to him, European energy companies continue to reduce investments in the oil and gas sector under the pressure of the climate agenda, but investments in renewable energy have not brought results: over the past seven years, the share of renewable sources in the global energy balance has grown by only 3 percentage points.

According to the International Energy Agency (IEA), the level of investment in oil and gas production in 2021 increased by 10% compared to 2020 to $380 billion, but this figure is 20% below the pre-pandemic level. This year, according to the IEA forecast, investments in the industry will grow by 10% compared to 2021 due to inflation.

Finam analyst Sergey Kaufman explains that the growth of Gazprom’s investment program is connected not only with inflation, but also with the need to reorient exports and develop gasification in Russia. The social gasification program has been in place since 2021 and assumes that by 2030 the level of gasification of Russian regions will increase to 82.9% from 71% in 2020. The total costs will amount to more than 567 billion rubles.

Kaufman notes that the company’s export revenues to the EU are now declining due to a drop in pumping volumes, and deliveries to China have not yet grown enough to compensate for this decline.

The company also needs to support the Yamal fields, which will potentially become a resource base for the projected Power of Siberia 2 (a project for a new gas pipeline to China), and the Irkutsk gas production center, from which gas is now supplied through Power of Siberia 1. According to Kaufman, one should not expect a decrease in the volume of the investment program in the coming years.

The Power of Siberia gas pipeline, which supplies gas from the Far East to China, was launched in 2019. The design capacity of the pipeline is 38 billion cubic meters. m per year. The resource base for it is the Chayandinskoye field in the Yakutsk gas production center. At the end of 2022, it is planned to start deliveries from the Kovykta field, on the basis of which the Irkutsk gas production center is being formed. In September of this year, Novak announced that the final agreements on the Power of Siberia-2 gas pipeline would be reached in the near future. The projected capacity of the pipeline is 50 billion cubic meters. m of gas per year.

Sergey Grishunin, head of the NRA rating agency, adds that the growth in investment costs was also affected by the rise in the cost of imported aggregates. Given the loss of European markets, Gazprom urgently needs to establish alternative sales routes, and the construction of a pipeline to China will help the company significantly reduce dependence on Western export markets and secure long-term contracts in the East, Grishunin notes.