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Gazprom on the background of external and internal challenges

Gazprom on the background of external and internal challenges

The year 2019 was rather nervous for Gazprom.

There was significant reshuffle in the company for the first time since 2011 that affected main directions of business and that continued the internal restructuring of divisions responsible for key construction projects and the procurement system.

The show titled “The Future of Gas Transit through Ukraine” continued throughout the whole year and ended with the signing of contracts just on December 31. It was accompanied by fierce battles around the TurkStream and the Nord Stream 2. As a result, the former will be launched on 8 January 2020, and the latter was subjected to American sanctions at the end of 2019 – as a result, it has 160km of the two lines not laid yet. In the meantime, a serious breakthrough took place in the eastern direction – the Power of Siberia was put into operation marking the first serious step towards diversification of Russian piped gas exports.

Positions of Aleksey Miller, whose dismissal was predicted throughout the whole year, strengthened – he actually managed to prevent appointment of outsiders to top posts at Gazprom and even got rid of some disloyal colleagues in the management board. He is unlikely to leave his post before the Nord Stream 2 story is over – on the contrary, he has a chance to demonstrate his managerial skills in countering the sanctions.

Gazprom reinforced its positions on the Russian market on the background of problems of independents that kept struggling to maintain production of natural gas for domestic consumers. Attempts to start deep restructuring of the sector in favor of independents were suspended.

However, the struggle for Gazprom restructuring will revitalize in 2020. It will also include the question of liberalization of piped gas exports.

The report will elaborate on the following issues:

  • Gazprom’s new administrative structure

    • Main changes in the top management, their administrative and substantive components
    • Restoration of unity of the exports division
    • The new investment and procurement division and consolidation of construction assets
    • Reforms in the sphere of sales and in the financial division
    • HR successes and failures of Aleksey Miller
  • Gazprom on the domestic market

    • The situation around production of hydrocarbons
    • Growth in gas demand and problems of independent producers
    • Decline of the exchange trade
    • Pricing and domestic revenues of Gazprom
  • Gazprom on the European market

    • Competition with LNG and decrease in prices s
    • Struggle for new potential niche
  • Ukraine gas transit and bypassing gas pipelines. Analysis of the latest contracts with Ukraine

    • Successes and difficulties in creation of the new transmission infrastructure
    • The future of gas supplies to Europe and Turkey
  • The Power of Siberia and the Chinese market

    • Prospects of expansion of exports to China
  • Gazprom’s financing standing and new investment priorities

    • The situation around revenues of the company
    • Gazprom’s debt burden and new dividend policy
    • The stake on gas chemistry
    • The path from pipes to LNG
  • Medium-term forecast of developments: HR, structure, exports and finances

Contents of the report:

Introduction 3
Chapter 1. HR revolution at Gazprom 4
1.1. Consolidation of foreign economic division 4
1.2. Sales division. Relocation of Kirill Seleznev 6
1.3. Redistribution of powers. New investment and procurement division 7
1.4. From production to Gazprom Nedra 9
1.5. Changes in financial division, consolidation of construction assets 10
1.6. New administration structure at Gazprom 12
Chapter 2. Gazprom on the domestic market: fragile status quo 15
2.1 Expectation of record high output amid slower production growth 15
2.2 Supplies to the domestic market, the exchange depression 19
2.3 Pricing and revenues of Gazprom on the domestic market. 22
Chapter 3. European market: overproduction and transit risks 26
3.1. Gazprom on markets of European states. Competition with LNG 26
3.2 Turkish market, TurkStream 30
3.3 Ukraine gas transit prolongation 33
3.4 Nord Stream 2, TurkStream: USA declares sanctions to Europe 37
Chapter 4. Power of Siberia, access to the Chinese market 40
4.1 Power of Siberia: the launch of new “project of the century” 40
4.2 Amur gas processing plant, Amur gas chemical complex 42
4.3 Situation on the Chinese market: looking for domestic reserves 45
Chapter 5. Financial standing of Gazprom after completion of big construction projects 50
5.1. Exports to Europe let profits down 50
5.2. Capital investments of Gazprom Group, investment program: from transportation to processing 53
5.3. Debt burden, new dividend policy of Gazprom 58
Chapter 6. Medium-term forecast of developments 62
Date of release: February 4, 2020

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Analytical series “The Fuel and Energy Complex of Russia”:

New OPEC+ Deal and Future of Oil Business in Russia
Gazprom on the background of external and internal challenges
Regulation of Oil and Gas Sector in 2019 and Prospects for 2020
Fiscal Policy on Oil and Gas Sector: Revised as Often as Wikipedia
The tax system in the oil and gas sector continues to undergo radical changes. The beginning of 2019 saw the introduction of a new tax regime: additional income tax. That experiment was supposed to start migration of the oil industry to an innovative principle of taxation: on profit, not revenue. It seemed that a new main road was found. In the same year, however, the Finance Ministry launched an overt offensive against AIT. The fear of loss of government revenue now is more powerful than the threat of causing oil production to collapse in the medium term because of a tax system that does not stimulate investment. The Finance Ministry would strongly prefer to speed up the tax manoeuvre completion that earns the state budget additional money. Oil and gas companies respond to this with individual lobbying, attempting to wangle special treatment for their projects.
Ukrainian Gas Hub: Climax at Hand
The “zero hour” comes in less than a month: the contracts for gas transit through Ukraine and for supplying Russian gas to the country terminate at 10 am on 1 January. Meanwhile, Gazprom and Naftogaz are very far from looking for a mutually acceptable solution. The entire European gas business is watching intently the negotiations between Russia and Ukraine. Everyone is waiting for a new “gas war”: the January 2009 events proved to be a serious test both to European consumers and to Gazprom as a supplier. Is there still a chance of agreement? If there is not, will Gazprom cope with its obligations to deliver gas to Europe? Is Russia bluffing as it assures that the new infrastructure and gas in underground storage facilities will enable it to get by without Ukrainian transit even as soon as this winter? What will happen to Ukraine itself at the beginning of 2020?

All reports for: 2015 , 14 , 13 , 12 , 11 , 10 , 09 , 08 , 07

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