Gazprom Looks at Increased Spending

Buoyed by soaring energy prices, Gazprom said Tuesday that it was mulling a substantial $4.7 billion increase in spending this year to bring new fields into operation sooner.

The greater investment would come as demand for gas in Europe and at home shows no signs of subsiding, despite the higher bills.

Gazprom executives are asking the board to raise the investment plan to 821.7 billion rubles, or $35 billion, the company said in a statement.

That would be 111.5 billion rubles ($4.7 billion), or 15.7 percent, more than the figure approved in December, the statement said. Just under half of that amount is meant for capital expenditures, with the rest intended for "long-term financial investment," Gazprom said, without elaborating.

The midyear budget revision, traditional in the past few years, is possible because Gazprom's revenues have swollen faster than the company predictions, deputy chief executive Andrei Kruglov said last month.

Over the past three years, Gazprom's investment program more than doubled, as energy prices sharply increased, and its focus was changed to developing new fields rather than acquisitions. The investment program totaled 373.1 billion rubles at the start of 2006.

Part of the added investment, if approved by the board, will pay to speed up work at the large Bovanenkovskoye gas field, the first to be launched in the northern Yamal peninsula -- Russia's newest oil and gas province.

Deputy chief executive Alexander Ananenkov said last month that Gazprom could start operating the field three months earlier, in the second quarter of 2011, as a result of increased financing.

Gazprom may be preparing to saturate the market, which has continued to expand regardless of rising gas prices, said Ronald Smith, chief strategist at Alfa Bank. "The company may be seeking to bring the project on line sooner because it foresees higher demand for gas in Europe and at home," he said by e-mail. "With domestic rates rising sharply each year ... sales to Russia will soon be quite profitable instead of a loss-making effort.

Inflation could be another driving force behind expenditures, he said.

High gas prices could also make Gazprom less interested in taking on foreign partners. Smith said he expected the company to be able to develop the new fields largely on its own.

Pavel Sorokin, an analyst at UniCredit Aton, said Gazprom was investing enough in Yamal to meet its supply obligations. "Gas prices are at record highs," he said. "If necessary, the [investment] program will grow."

A Gazprom spokeswoman on Tuesday declined to say how much investment was needed to bring the Bovanenkovskoye field on line.

Investment in Shtokman, a giant offshore field in the Arctic, will also rise under the proposal. But the changes will be insufficient to move forward the start date for the field, which Gazprom will develop with Norway's StatoilHydro and France's Total, the spokeswoman said. Estimated to cost $15 billion to develop, the first stage of the Shtokman currently has a deadline of 2013.