Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Gazprom to Delay Field Due to Low Demand

Gazprom is looking to delay work on the huge Bovanenkovo field, the largest part of what's been called Russia's biggest post-Soviet energy project, in the company's first investment change since demand dipped late last year, deputy chief Alexander Ananenkov said Tuesday.

The announcement came despite a pickup in European sales that began in April following a decline in Gazprom's prices.

Ananenkov told reporters that Gazprom was planning to move back for a year -- to the third quarter of 2012 -- the commissioning of Bovanenkovo, located in the remote new gas province Yamal. In 2011, the market will still be weaker than last year, making any supplies redundant, he said.

"Why would we invest money into something that won't have demand?" Ananenkov said. "It wouldn't make sense."

In connection with the possible postponement of Bovanenkovo, Gazprom is planning to cut its capital investment this year by 20 percent to 500 billion rubles ($16 billion), Ananenkov said. The current figure is 637 billion rubles, he said.

Sitting north of the Arctic Circle, the frozen Yamal Peninsula fields will be Gazprom's most valuable gas reserves for the next few decades, and Bovanenkovo is the largest of them. It is still scheduled to be the first in the area to come on line.

First Deputy Prime Minister Viktor Zubkov, who is a Gazprom board chairman, and company chief Alexei Miller attended a ceremony in December to begin developing Bovanenkovo, including the drilling of the first production well and the laying of a pipeline to take the fuel to customers. Zubkov described the ceremony as the start of a "megaproject to develop the gigantic hydrocarbon treasure troves of the Yamal Peninsula" and called the effort "the largest energy project" in Russia's post-Soviet history.

But the global economic downturn has deeply dented demand for Russian gas. Gazprom expects to produce as little as 450 billion cubic meters this year, or 18 percent less than last year's 550 bcm, Ananenkov said. The best-case scenario is 510 bcm, he said.

In addition to the economic woes, output has fallen because of better sales by such competitors as Qatargas and Norway's StatoilHydro, said Mikhail Korchemkin, director of East European Gas Analysis, a U.S.-based consultancy.

Gazprom's market share in Europe and Turkey plunged from 30 percent last summer to 16 percent in the first quarter of 2009, he said, basing his calculations on an International Energy Agency report on gas consumption and trade released late Monday.

"The current management of Gazprom has never worked under falling energy prices," Korchemkin said.

Miller took helm at Gazprom in 2001.

Ananenkov also struck an optimistic note Tuesday, saying demand in Europe had been recovering since April on lower prices and the need to stock gas for the next winter. Sales have at times surged to 430 million cubic meters per day from a peak of 280 million cubic meters per day in the first quarter, he said.