Gazprom takes $22bn gamble on growth

Gazprom is planning to invest $24bn in the construction of critical infrastructure next year, an increase of 13% on 2017. Confirmed by its CEO Alexei Miller earlier this week, much of the  investment has been earmarked for the Power of Siberia pipeline running to China and the Nord Stream 2 and Turkish Stream lines to northern and southern Europe and represents a big but necessary gamble for the state-owned gas company in the context of falling gas prices and US sanctions.
Usually, Gazprom would have  looked to split the costs of these pipelines with the intended consumers of the gas, but the sanctions that were levied against the company in 2014 after Russia’s invasion of Crimea and bolstered this summer with the specific targeting of “energy export pipelines”, have raised doubts as to whether western banks or corporates will be able to help financially, and could leave Gazprom picking up the bill.
Earlier month, the company admitted that  sanctions had  put all its export pipelines at risk, even though it had previously insisted that it had the means to fund them regardless even at the risk of hitting its cash flow. Others are less sure.  “We think that involvement in capital-intensive infrastructure projects such as Power of Siberia, Turkish Stream and Nord Stream-2 could well put pressure on Gazprom’s future free cash flow,” Russian bank VTB Capital said in a note to clients this week.
In order to fund part of this spending spree, the company is planning to borrow $13.5bn in 2018,  45% more than planned  for this year. Gazprom still boasts the world’s largest gas reserves, and it is still easily Europe’s biggest supplier.