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bne
November 9, 2012
The increasingly embattled state-owned gas giant Gazprom has fresh woes: it could lose up to 40% of its domestic clients after their long-term contracts come up for renewal next year.
The company is already feeling the heat from domestic independent producers - especially Novatek - which already account for a quarter of domestic gas supplies. Gazprom's domestic sales have fallen from an estimated 307bn cubic meters (cm) in 2007 to a forecast 270bn cm this year.
The company is also feeling the pressure abroad, where a raft of European customers have successfully renegotiated their contracts, thanks to the increasing competition from shale gas and other gas suppliers. This will only get worse after increased supplies of liquid natural gas become more widely available in the coming years.
Gazprom director Gennady Sukhov told Vedomosti all the domestic contracts in question are for commercial supplies of gas and amongst the most attractive. Gazprom sold a total of 281bn cm on the domestic market in 2011 - a bit more than half its total production - and 88.8bn cm are up for renewal next year.
The commercial sales mainly go to electric power companies - accounting for 28% of the total - and utilities, which account for another 15%. Residential sales total around 21%, and the rest goes for export.
Novatek has aggressively been stealing clients from Gazprom since 2009. Russian power producer Fortum and German energy holding E.ON both switched to Novatek earlier this year. Meanwhile, Gazprom's share of gas sold to state-owned utilities giant Inter RAO has fallen from 57% in 2011 to a forecast 29.7% for this year, and could drop below 20% 2013, Vedomosti reports.
Gazprom's share maybe further eroded by a new player in the game after state owned oil company Rosneft set up a gas business this month, which will start supplies from 2016, including to Inter RAO.
The state is clearly becoming increasingly worried about Gazprom's future. President Vladimir Putin publicly lambasted the company earlier this year, telling it to "meet the new challenges" and work out a new export strategy. The lack of support the company seems to be receiving in the face of this growing competition suggests the government is toying with the idea of breaking the company up into its export and domestic parts.
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