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Gazprom expects to earn a profit from gas sales on the Russian market this year for the first time in its history, member of the gas monopoly’s board of directors Yelena Karpel announced at the Russian Gas 2009 forum. Earnings are anticipated at RUB 70bn (approx. USD 2.44bn), meaning that Russian gas consumers could generate as much as 8 percent of the gas giant’s net profit. The figure is likely to climb even further next year – to 10 percent – in the wake of rising gas tariffs, experts say.

According to Karpel, Gazprom was selling gas to the domestic market at knock-down prices for the past nine years, which simply rendered the deliveries loss-making and, hence, inefficient. The transition to equally profitable domestic and export gas prices will not be complete until 2014, the gas monopoly believes. Until then, it will be earning the bulk of its profit on exports. Next year, the gas holding hopes to export 160.8bn cubic meters of gas, up 13 percent from this year’s target, deputy chairman of its management committee Alexander Medvedev said.

Export revenue next year is planned at USD 51bn, showing an increase from the USD 42.5bn expected this year. Meanwhile, the Federal State Statistics Service put Gazprom’s 2008 exports at 174bn cubic meters of gas. This year, the European demand for gas is likely to demonstrate a drop of 5-7 percent, heading towards a record low in the history of the European gas industry, Medvedev pointed out. The concern expects the temporary gas excess to drain out as early as 2011, however. As a result, the top manager predicts that prices on the spot market and in long-term contracts will level out. He stressed that the holding would continue using the take-and-pay contracts, and stick to pricing pegged to oil prices.

The domestic sales profit is not unexpected, as Russian gas tariffs have been consistently going up well above the inflation rate in the past few years, Alexander Shtok, due diligence department director of 2K Audit – Business Consulting, noted. In this light, Gazprom had actually expected a profit in 2008, but said in its annual report that domestic sales proved unprofitable again. This year, gas tariff rates continued to rise, with the annual growth estimated at 16.3 percent. Senior analyst of Otrkitie Financial Corporation Natalya Milchakova observed that RUB 70bn (approx. USD 2.44bn) was an impressive figure for the domestic market. In her estimation, Gazprom is tipped to receive some USD 30bn of operating revenue this year, which puts the profit generated by Russian consumers at 8 percent of the net profit. Roughly 58 percent of Gazprom’s operating revenue will come from exports to Europe (down from 62 percent a year earlier), which is attributed to lower demand in Europe and higher sales in Russia.

Analytical department of RIA RosBusinessConsulting