Gazprom investment strategy to focus on matching supply with demand

While oil and gas firms spent 10% more on new assets worldwide in the first half of 2009 year on year, Gazprom in Russia sharply reduced its investment plan for the year.

The state owned gas giant has told the government it will have to slash its investment programme by 6% from last year. Its approved $23 billion spending plan includes upstream projects, liquefied natural gas and pipeline infrastructure.

Nevertheless, Prime Minister Vladimir Putin is upbeat about the future saying the Government should prepare for a significant growth in demand which will definitely come in the near future.

“The demand for goods from large producers like Gapzrom is falling, along with the price. Gas extraction in the first quarter of the year slumped 20%. However, we are sure that together with the economic revival demand will grow and in the long term will exceed the pre crisis level. We should be ready for that.”

Some key fields will be delayed, including the Bovanenkovo field, which, with a capacity of more than 115 billion cubic meters of gas a year, is equal to Russia's annual exports to the EU.

But analysts say the company is right to postpone new fields, with current demand down.

Pavel Sorokin, analyst at Unicredit Securities, says matching existing production levels with demand is the company’s current priority.

“The current priority for Gazprom is to preserve the production it has now and create a base for the potential recovery of demand in the future. So, what we are actually trying to do now is to invest into upstream projects, preserve Shtockman's launch to at least fit into some of preplanned margins.”