Gazprom net profit doubles in 2018
The net profit attributable to shareholders of Russian gas giant Gazprom doubled to 1.456 trillion rubles in 2018, as calculated under International Financial Reporting Standards (IFRS), the company said in a statement posted on its website.
Sales revenue increased 25.6% to 8.22 trillion rubles. The increase in sales was mainly due to an increase in sales of gas, refined products, crude oil and gas condensate.
Net sales of gas increased by 963,084 million rubles, or 29%, to 4,303,671 million rubles for the year ended December 31, 2018 compared to the year ended December 31, 2017, that was mainly due to an increase in average prices in the segment Europe and other countries.
Net sales of gas to Europe and other countries increased by 729,998 million rubles, or 33%, to 2,951,215 million rubles for the year ended December 31, 2018 compared to the year ended December 31, 2017. The change was mainly due to the increase in average prices (including excise tax and customs duties) denominated in the Russian ruble by 33%. At the same time average prices denominated in U.S. dollar increased by 23%.
Operating expenses increased by 484,135 million rubles to 6,181,191 million rubles for the year ended December 31, 2018 compared to the year ended December 31, 2017.
The change in operating expenses is primarily caused by an increase in the item “Taxes other than on profit” by 252,219 million rubles for the year ended December 31, 2018 compared to the year ended December 31, 2017. The increase is due to an increase in mineral extraction tax (MET) by 248,654 million rubles, mainly as a result of a rise in crude oil prices, an increase in the adjusting coefficient in the MET formula for crude oil and an increase in coefficient values in the MET formula for gas.
Operating profit increased by 2.2 timed to 1,93 trillion rubles for the year ended December 31, 2018 compared to the year ended December 31, 2017.
The executive vice-president of NewTech Services, professor of the Gubkin Russian State University of Oil and Gas, Valery Bessel, speaking to Vestnik Kavkaza, noted that Gazprom managed to increase profits in 2018 significantly by increasing the supply of export gas. "That is why I always talk about the need to maintain a balance between the development of the domestic market and the export market, since we get the main profit on the export gas market. I mean the Turkish Stream project, gas supplies to the Yamal LNG project and gas supplies through Ukraine to Europe, where gas needs have increased due to weather conditions," the expert said.
Gazprom mainly produced gas in the regions with traditional gas production and well equipped infrastructure. The company has begun developing gas production on the Yamal Peninsula, which doesn't require additional investments, therefore it gave profits" the executive vice-president of NewTech Services explained.
Gazprom has always supplied gas to Russian consumers regardless of whether they paid him or did not pay. But Gazprom's business function was performed mainly through the supply of export gas. Well done, Gazprom," the professor of the Gubkin Russian State University of Oil and Gas said.
He also noted that Gazprom could indeed increase its profits in the future. "If hydrocarbon prices rise sharply due to some kind of crisis, then Gazprom will increase production. As gas exports to Europe are growing. In addition, a powerful flow of gas exports will start when the Eastern Gas Program route to China is built. Therefore, gas exports will only increase. Gazprom has the potential to extract this gas: enormous resources in Yamal and vast resources in the east, including in the north-east of Sakhalin, as well as shelf projects," Valery Besseln concluded.
A senior analyst of 'Uralsib', Alexei Kokin, cited the prices and volumes of gas, oil and oil products supplies as sources of such a significant increase in Gazprom’s profit. "The higher amount of gas was exported at a higher price and quite strong results of Gazprom Neft. I mean exports via conventional routes - the first phase of Nord Stream, which has been operating for many years, and pipelines that existed before. The only question what is the demand in Europe and what prices prevail in the market. If you look at sales outside the post-Soviet space, it has not changed - 243 billion cubic meters per year, while the average selling price increased by 23% - this is the most important profit driver," he explained.
Alexey Kokin also agreed that the new pipelines will increase Gazprom’s profit. "When Nord Stream 2 and the Power of Siberia are put into operation, they will start affecting profits. Probably it will happen by 2020. China will be a new market, and new fields will be used for this," the senior analyst of 'Uralsib' concluded.