Grid Expansion to Boost Gazprom Sales

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The nationwide project to increase the natural gas grid penetration rate will add 18.6 Bcm/yr to Russia’s consumption by 2025 and help Gazprom maintain its domestic market share at current levels, the state-run gas giant said last week. The project’s goal, driven by the Kremlin, is to reach a 100% “technically possible” grid penetration rate in the country by 2030. That means remote villages will not be connected to the grid if building a pipeline is not economically feasible or is complicated by natural barriers. The project may increase Gazprom’s domestic sales by around 7.5% by 2025 from last year’s 243.7 Bcm, Sergei Gustov, CEO of subsidiary Gazprom Mezhregiongas, told a briefing on Jun. 17, citing preliminary estimates. The project's key goal is to spur regional development and improve the quality of life by providing access to gas supplies, Gustov said. Gazprom has signed grid expansion programs for 2021-25 with 67 out or Russia’s 85 regions, he added (NC Oct.1'20). Gazprom plans to increase the grid penetration rate to 74.7% by the beginning of 2026 from 71.4% as of early 2021. It will spend 526.1 billion rubles ($7.3 billion) on the project in 2021-25, including 128 billion rubles in 2021, Gustov said (related). Under the project, Gazprom’s regional distribution subsidiaries are expected to be responsible for "the last mile," or building distribution pipelines within cities and villages to the borders of residential land plots, something that has previously been the responsibility of regional governments. Gazprom’s domestic market share was 72% last year, and the company believes it can maintain it at around 70%-72% over the next five years, partly thanks to the grid expansion project, Gustov said. According to data from the energy ministry, however, Gazprom’s domestic market share was some 52.5% last year, as total domestic gas sales amounted to 464.4 Bcm, down 3.3% on the year. Gazprom’s share appears to have stabilized at around 50% over the past several years after dropping from around 70% due to the aggressive expansion of rivals, primarily Novatek and Rosneft.

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