The government will stop subsidizing domestic gas prices by 2014 as Gazprom seeks to profit from sales at home to help fund new fields and pipelines, Gazprom said Thursday.
Export and domestic prices will start to converge next year and reach parity, excluding transportation costs, by 2014, Gazprom said in an e-mailed statement.
Gazprom exports about a third of its output to Europe, which generated 59 percent of its revenue last year, according to a presentation to investors in February. The state-run gas export and pipeline monopoly aims to increase the share of sales in Russia, where power plants are the biggest consumer, in total revenue to 38 percent in 2014 from 23 percent last year.
“Gas prices must increase if we want to improve production profitability and maintain output volumes,” Alexander Krasnenkov, board chairman at Northgas, a Gazprom-controlled gas producer, said in an interview. “Production costs at mature fields aren’t high, but output is falling. These volumes need to be replaced, while new output will be more expensive because drilling and construction costs are rising, and we often have to create new infrastructure.”
Wholesale domestic price averaged 1,970 rubles ($66.70) per 1,000 cubic meters last year, according to the February presentation’s preliminary estimates. That compares with an average of $296 that Gazprom charges European customers.
Russia had initially planned to bring domestic gas prices in line with export prices by 2011, before deciding on a three-year transition period.
Gazprom made its first profit from gas sales at home last year, which was estimated at about 70 billion rubles ($2.4 billion) in the February presentation. The company, which supplies about a quarter of Europe’s gas needs, expects 2009 revenue from exports to exceed $40 billion. Full-year 2009 earnings under international accounting standards haven’t been published yet.
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