Gazprom goes for a record

The Gazprom Management Committee recently approved the draft investment program and budget for 2023. Expenses will amount to a record 2.3 trillion rubles, having increased by 31% or 543 billion rubles compared to the current year.

Most of the funding will be used to develop new fields in Western and Eastern Siberia, build and expand existing gas processing facilities, and lay China-oriented pipelines. Thus, Gazprom is rapidly reorienting its capacities from the West to the East, as well as to the domestic market. And it is planned to do this despite the increase in the tax burden.

We go to the East

According to Gazprom, its investment program for 2023 provides funds primarily to finance priority projects. Among them are the further development of the Power of Siberia gas pipeline, Gazprom's gas processing complex, new gas production centers - Yamal (Bovanenkovo), Yakutsk and Irkutsk, as well as projects that ensure peak gas balance.

At first glance, it is not entirely clear for what purpose the development of, for example, the Bovanenkovskoye field continues, which, in addition to meeting domestic needs, is oriented towards export to Europe. However, according to official data from Gazprom, by November 15, 2022, natural gas production amounted to only 359.7 billion cubic meters. This is a drop of 19.2% at once (85.3 billion cubic meters) compared to the same period last year. In May, the Ministry of Economic Development predicted that the decline in production by the end of the year would not exceed 5.5%. At the same time, the rate of decline is not decreasing. Most likely, by January 1, 2023, the decline in the gas industry may exceed 20%.

There are two reasons for the collapse. Firstly, the demand for gas in the domestic market for 10.5 months decreased by 5.9% (12.3 billion cubic meters). Secondly, and more importantly, exports to non-CIS countries amounted to a modest 93.2 billion cubic meters compared to previous years. This is as much as 43.4% (71.6 billion cubic meters) less than in the same period in 2021.

The problem is that, unlike oil and oil products, which are exported by sea for two-thirds of Russia, and not exported through pipes, gas pipelines cannot be redirected overnight towards new consumers. Moreover, as recent events have shown, they can generally be destroyed in a sabotage way.

At the same time, it takes years to create new gas transportation systems. According to the International Energy Agency, Russia, at best, will restore the previous volumes of gas exports no earlier than 2030, but will still forever lose the most premium market in the world - the European Union.

This assessment is close to reality. For the whole of last year, pipeline gas exports to the EU countries alone amounted to 145 billion cubic meters. Another 15 billion - LNG. This year, Russian supplies to the EU have already collapsed by more than half. And the negative process continues. A relatively decent figure, exceeding 90 billion cubic meters, is provided by the previous volumes of deliveries to Turkey, Serbia and the growth of exports to China.

However, with the latter country, not everything is so simple. Beijing is in no hurry to radically increase the export of gas, primarily pipe, from Russia. So far, only one gas pipeline is operating - the Power of Siberia. Its final capacity - 38 billion cubic meters per year - will be reached in 2027. But so far, even taking into account the growth in applications from the Chinese side, according to Deputy Prime Minister Alexander Novak, in 2023 only 22 billion cubic meters will be pumped through the Power of Siberia.

However, in 2023 an intercollector can be built between the Sakhalin-Khabarovsk-Vladivostok gas pipeline and the northeastern Chinese pipeline system. The projected capacity is 10 billion cubic meters per year.

But with the "Power of Siberia-2" (50 billion cubic meters per year, that is, a third of last year's supplies to the EU), not everything is clear yet. Design and survey work is already underway on part of the route in Mongolia. But there is still no contract for the construction of the pipe. However, the investment programs of this year (1.757 trillion rubles) and, moreover, next year are largely aimed at developing new West Siberian deposits on the Yamal Peninsula. In this state of affairs there is no contradiction with the above. East Siberian deposits alone are not enough to increase exports to China.

In December, the gas pipeline from the Kovykta field (Irkutsk region) to Chayandinskoye (Yakutia) will be fully launched. This will provide 38 billion cubic meters for the Power of Siberia. But there won't be enough for the Power of Siberia-2. We need a bridge between the West Siberian and East Siberian gas arteries. The head of Gazprom, Alexei Miller, has repeatedly promised to start this construction in the very near future. Judging by the investment program-2023, no later than next year.

Self-reliance

The breakthrough idea of ​​Gazprom's new investment program was an increase in the cost of building facilities that meet the needs of the domestic market, which will be able to compete with external supplies much earlier than 2030.

Thus, it is planned to increase LNG production capacity in the area of ​​the Portovaya compressor station. In September of this year, they reached 1.5 million tons per year. This is about 2.1 billion cubic meters. Recall that the Portovaya CS is the starting point of Nord Stream 1, through which the gas supply to Germany was completely stopped. So far, this is a small replacement for the geography of deliveries. The capacity of SP-1 is 55 billion cubic meters per year. But next year, under favorable technological conditions (now Russia is experiencing a shortage of pumps for liquefied natural gas of large and medium capacity), LNG production at Portovaya can be doubled.

Gas from Portovaya is in demand on the domestic market. Most of it is shipped by sea to Kaliningrad. So far, the only marine terminal and a mobile regasification unit in Russia are operating there. The remaining volumes of LNG are used in the Leningrad Region as motor fuel.

Meanwhile, Gazprom has long had plans for the mass transfer of freight and passenger transport to gas motor fuel in the form of either LNG or compressed gas. But the main lever for the reorientation of the mined to the domestic market is a sharp deepening of its processing. The 2023 investment program provides for the completion of the Amur gas processing plant connected to the Power of Siberia. It is already 87% ready for operation. It remains to bring to mind the equipment for the production of helium. The annual production of this inert gas is planned to be 5 million tons, which will make it possible to reach the leading roles in the world in terms of this indicator.

In the Leningrad Region, in Ust-Luga, Gazprom has been building one of the world's largest gas processing complexes for several years now. After reaching the design capacity, up to 11-12 million tons of LNG and about the same amount of so-called dry gas, as well as propane, butane and ethane, will be produced per year.

The possibilities of expanding the production of nitrogen fertilizers, which are in short supply on the world markets, are being considered. In any case, part of the gas previously pumped through SP-1 is already being used in the northwestern production of mineral fertilizers. According to various estimates, in the next five years, the Russian domestic market can stroke an additional 50 billion cubic meters of gas - a third of last year's supplies to the EU.

But the implementation of these plans will require not only financial resources, but also time, and missing technologies and equipment. Therefore, it is possible that Gazprom, despite the extraordinary investment program, will have to minimize gas production in 2023. However, the decline in production may also go back for two reasons: an increase in LNG exports (in the next 2-3 years, according to Novak's forecast, it can be doubled to 64 million tons per year) and an increase in supplies to the EU through the emerging Turkish hub. After all, Ankara will formally sell not Russian gas, but its own.

It should also be noted that the investment program-2023, as well as a similar document of this year, is likely to do without any (except within the Gazprom Group) borrowings. So far, the document has been drafted without a deficit.

And all these large-scale capital injections into virtually the entire Russian economy are being made by Gazprom against the backdrop of a significant increase in the tax burden on it in 2023-2025.

According to the federal budget for 2023-2025 approved by the State Duma on November 24 and amendments to the Tax Code, a total of 1.8 trillion rubles is withdrawn from Gazprom. In a monthly mode - 50 billion rubles. The fiscal pressure is increasing due to the introduction of changes in the calculation of the severance tax rate. Now it is determined according to the following scheme: the base rate is 35 rubles per 1,000 cubic meters. Then it is multiplied by the value of the unit of standard fuel (Eut) and the coefficient of the degree of extraction complexity (Kc). Then the cost of transportation (Tg) is added. In 2023, the well productivity factor will be added.

In addition, the profit tax for LNG exporters (this category includes companies that exported at least one batch of LNG by the end of 2022) is increased by 34% in 2023-2025. True, this short story is more about Novatek. Gazprom currently exports only 9 million tons of LNG annually from the Sakhalin-2 project to Japan.

At the same time, we must also take into account that this year Gazprom has contributed an additional 416 billion rubles to the budget for the mineral extraction tax. And also about the same amount from dividends for the first half of the year (in total, more than 1.2 trillion rubles were paid out in dividends).

Thus, in order to implement the largest annual investment program in its history, Gazprom will not only have to urgently look for new consumers, but also accumulate financial resources in the most careful way.

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