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Russia's Gazprom to seek increased external financing in 2017: budget

Highlights

Russia's Gazprom is budgeting for a significant increase in financialborrowing in 2017 compared with this year as it looks to move forward with anumber of high-profile pipeline projects.

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In the company's budget for next year, some Rb288 billion ($4.65 billionat current exchange rates) has been approved for external financial borrowing,up from a revised Rb188 billion this year.

Earlier this month, Gazprom agreed a four-year Eur800 million ($835million) financing deal with the US' J.P. Morgan and Japan's Mizuho Bank andSumitomo Mitsui Banking Corporation.

Gazprom is committed to three major new gas pipeline constructionprojects -- Nord Stream 2 to Germany, TurkStream to Turkey and the Power ofSiberia to China -- that are due to be built in the coming few years.

In a statement Monday, Gazprom said its board of directors had approvedan increased overall investment budget for 2017 compared with that for thisyear.

"According to Gazprom's approved budget, the 2017 investment programfinancing volume will amount to Rb910.67 billion," it said -- the equivalentof around $14.7 billion.

This compares with a budget for 2016 -- last revised in October -- ofRb853 billion.

Gazprom also expects less benefit from its ongoing optimization programin 2017, targeting savings of just Rb12 billion.

That compares with a plan to save Rb16 billion in 2016.

The new increased overall spending plan comes despite a fall in Gazprom'srealized gas prices in Europe in 2016.

The company said last month it expected its average gas price realizationat the end of 2016 to be around $165-$170/1,000 cu m, well down on prices fromthe past three years.

Gazprom's realized European gas price was $182.50/1,000 cu m in the firsthalf of 2016, but has since fallen further.

It is less than half the 2013 level when prices averaged $385/1,000 cu m.

Prices fell in subsequent years to $349/1,000 cu m (2014) and $243/1,000cu m (2015).

Despite the lower prices, Gazprom's exports to Europe and Turkey thisyear have broken all previous highs and are set to total some 175 Bcm.

And the price of oil-indexed Russian gas is expected to rise through thecourse of 2017 following the recent oil price rally triggered by the decisionby OPEC and non-OPEC countries to cut production from the start of next year.

Although oil-indexed gas contracts typically operate with a 6-9 monthtime lag, the impact of the oil price rally on Russian gas -- and how itcompetes against European gas hubs -- is sharply felt along the forward curve.

--Stuart Elliott, stuart.elliott@spglobal.com

--Edited by Jeremy Lovell, jeremy.lovell@spglobal.com