Gazprom posted a third straight weekly decline as concern mounted that earnings will be crimped as the Russian natural gas producer spends to expand in Asia while gains in Europe, its biggest market, continue to slump.
The state-controlled company’s shares tumbled 7.9 percent to $US4.94 in London in the five days through Friday, extending its decline from this year’s high to 21 percent. A gauge of U.S.-traded Russian stocks slid 3.6 percent last week.
Gazprom has turned toward Asia as relations with European Union nations are strained amid sanctions linked to the Ukraine conflict and last May signed a long-term supply contract with China. The stock, which had rebounded as much as 34 percent this year after a 46 percent plunge in 2014, has been tumbling amid signs European profits will slump at the same time it plans to spend about $US70 billion to develop and deliver gas to its eastern neighbour.
“Gazprom is seeing increasing spending in Asia amid shrinking sales from Europe, and the lose-lose situation puts the company in a rather shaky position,” Sergei Pigarev, an analyst at Rye, Man Gor in Moscow, said by phone. “The investments in Asia will pay off in the end, but it will take a while before they start bringing the company profit.”
Gas exports to Europe declined more than 10 percent in the first five months of this year, Gazprom spokesman Sergei Kupriyanov said last week. The report came after the Economy Ministry said the company might see smaller gains in Europe for at least four years amid lower prices and increasing competition.
President Vladimir Putin in May 2014 reached the first deal for Russia to supply natural gas to China through a new East Siberia link for 30 years, marking a milestone in relations between the world’s largest energy producer and the biggest importer. The two countries signed a framework agreement in November on another three-decade contract for deliveries from deposits in West Siberia. Gazprom said it expects to complete a binding contract for the second deal this year.
The two supply agreements would make China Gazprom’s largest customer. The company said it expects to start deliveries of as many as 38 billion cubic meters a year to state-controlled China National Petroleum Corp. from the East Siberia fields no later than 2020.
“The question is, what is Gazprom going to do before all the investment in China starts to pay off?” Pigarev said. “For the coming decade, Gazprom will have to deal with Europe.”
Source: Financial Review