Gazprom Sees Output Falling as EU Gas Demand Declines This Year

(Bloomberg) -- Gazprom PJSC is sticking with a conservative natural gas production outlook for 2019 as warm weather and growing competition from super-chilled fuel reduce European demand for supplies piped from Russia.

“We plan to produce 495 billion cubic meters of gas this year,” Deputy Chief Executive Officer Vitaly Markelov said in an interview to the in-house publication, reiterating a conservative forecast the company’s executives made in February.

That volume would mark Gazprom’s first drop in output in five years, from 497.6 billion cubic meters in 2018. The energy company revises its output plans several times a year based on demand in Europe, its largest market. The region currently has plenty of gas in storage after a warm winter reduced consumption.

Gazprom Sees Output Falling as EU Gas Demand Declines This Year

Gazprom last week estimated that European gas storage facilities are 42 percent full and said that purchases to replenish the stocks “will be significantly lower than in previous years.” While the company’s gas production from Jan. 1 through April 15 rose by 2 percent year on year, its exports to Europe and Turkey dropped 9 percent.

An influx of liquefied natural gas supplies to Europe is adding to the pressure, VTB Capital oil and gas analyst Ekaterina Rodina said.

While Gazprom has traditionally dismissed the potential impact of LNG cargoes from the U.S. on its position in Europe, Elena Burmistrova, head of Gazprom’s export arm, said this February that North American supplies are “worrisome.”

In addition, Gazprom has unexpectedly faced competition in Europe from a domestic rival, Novatek PJSC. The independent gas producer, which started output at its LNG facility in the Arctic in 2017, became a major supplier of the super-chilled fuel to northwestern Europe during the past winter after prices in Asia dropped.

©2019 Bloomberg L.P.