30 May 2014, 11:42

Gazprom enters world's fastest-growing gas market

Gazprom enters world's fastest-growing gas market
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The much-awaited signing of the biggest contract in the history of the former USSR's gas sector, as Russia's President named it, better known as the gas deal between Russia and China, has been welcomed by most analysts and market watchers.

It allows Gazprom to enter the world's fastest-growing gas market, providing a major growth opportunity for the company. Not only could it not have come at a better time for Gazprom, as its relations with European partners are going through a bad stretch, but also the company's challenge historically has been to find ways to monetize its 23 trillion cubic meters gas reserves. Alex Griffiths, Managing Director and Head of Natural Resources and Commodities at Fitch Ratings in London, says the best scenario for Gazprom is to increase its production.

“Gazprom's problem as we see it has always been – it has got massive resources, it needs to find places to sell them to. It sells a lot to Western Europe at the moment, China is an obvious area of growth, but for Gazprom it means essentially a new stream of cash flow and other ways to monetize its gas reserves,” Alex Griffiths said.

Griffiths' colleague at another rating agency, Julia Pribytkova, Moody's Vice President and Senior Analyst in the Corporate Finance Group, points out to the recently inked deal being a launch pad for Gazprom’s full-scale diversification into the Asia-Pacific region.

“Definitely, for the next 5-6 years there'll be increased investment into the construction of the pipelines, exploration and production, construction of the processing plants. However, starting from according to different estimates 2018 or 2020, Gazprom will have a new diversified sales channel for 38 bcm per annum, and potentially this could be increased to 68 bcm per annum over the next decade,” Julia Pribytkova said.

No doubt, quite a few pivotal details weren't made public last week when the headline-making deal was inked by heads of Russian Gazprom and China National Petroleum Corporation, among them are financing and construction of the brand new gas trunkline. But the fact alone that after those ten years the deal is finally here, and there's a commitment from China to buy this much for this long is viewed by many as a major success.

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