Gazprom Seeks $1 Trillion Value, Twice Exxon's, as Soon as 2014

Gazprom Seeks $1 Trillion Value, Twice Exxon's, as Soon as 2014 (Source: Bloomberg)

By Lucian Kim and Nina de Roy

April 9, 2007 (Bloomberg) -- OAO Gazprom, Russia's natural gas export monopoly, aims to quadruple its market value to $1 trillion within a decade and become the world's biggest company.

``We will reach a $1 trillion market capitalization in a period of seven to 10 years,'' Deputy Chief Executive Officer Alexander Medvedev, 51, said in a Moscow interview on April 6. ``We'd like to be the most valued and most capitalized company in the world.''

The goal would be more than twice today's $439.6 billion market value of Exxon Mobil Corp., the world's largest publicly traded company, and would exceed Russia's 2006 economic output of $975 billion. It would also surpass the gross domestic product of countries including the Netherlands, Australia and South Korea.

Gazprom, the world's biggest gas producer, has more than eight times Exxon Mobil's total reserves and is seeking more. The state-run company took control last year of Royal Dutch Shell Plc's Sakhalin-2 venture, which plans to start shipping liquefied natural gas in 2008. It's also developing the Shtokman project in the Arctic, Russia's largest untapped deposit of the fuel.

``I believe it's a reasonable target that we'll double our market cap'' from its current $244 billion in five years, Medvedev said. The company's shares in London climbed 60 percent last year, outpacing a 36 percent increase for Exxon Mobil.

President Vladimir Putin has used Gazprom to bolster the state's control of the economy and expand Russia's influence abroad. Gazprom Chief Executive Officer Alexei Miller is in Doha, Qatar, today for a meeting with gas-producing nations including Iran, which has the world's second-biggest gas reserves after Russia, under the Gas Exporting Countries Forum.

Moscow-based Gazprom, which controls about 17 percent of the world's gas, had 184.5 billion barrels of oil equivalent in reserves as of 2004, according to filings. A $1 trillion figure would value those reserves at about $5.50 a barrel. Exxon Mobil had reserves of about 21 billion barrels of oil equivalent as of 2004 and 22.1 billion last year. The 2006 figure values the Irving, Texas-based company's reserves at almost $20 a barrel.

Saudi Arabia

Gazprom's reserves compare with the recoverable oil in Saudi Arabia, the world's biggest oil exporter, estimated last year at 259 billion barrels, according to the Canadian Association of Petroleum Producers.

``Gazprom does have the potential if the management were willing to implement reforms and cost-cutting,'' said Steven Dashevsky, head of research at Aton Capital in Moscow. ``You can see very little of what the Gazprom management has done to make the business more valuable.''

Gazprom, which supplies a quarter of Europe's gas, has benefited from rising exports and higher prices for former Soviet republics. Gazprom plans to begin selling gas to East Asian customers next year from Sakhalin.

LNG Production

Gazprom plans to produce as much as 20 million metric tons of LNG within seven years, from nothing today, equal to about 13 percent of global consumption last year.

``I believe 15 to 20 million tons is the minimum to be a serious player,'' Medvedev said.

Qatar is the world's largest LNG exporter and plans to expand capacity to 77 million metric tons by the end of the decade, accounting for a third of world LNG supply in 2010, Qatar's Ras Laffan Liquefied Natural Gas Co. said last month. LNG demand was about 158 million tons last year, according to Andy Flower, an independent LNG consultant in the U.K.

Global demand for LNG is rising because of environmental concerns about coal and oil. Production of LNG, gas cooled to a liquid for transport by ship, will almost double between 2005 and 2010, lifting its share of the global gas market to as much as 31 percent from 22 percent in 2005, PricewaterhouseCoopers LLP predicted in a report last month.

Pipeline Exports

Gazprom today relies solely on pipelines for exports. LNG will allow Gazprom to ship gas to Japan, South Korea and the U.S.

The company is renewing talks with possible partners for the Shtokman field, and plans to start LNG output by 2014, Medvedev said. In October, Gazprom said it would develop the project alone.

``I don't exclude that the list of potential participants could be extended,'' said Medvedev, who oversees oil and gas exports. Gazprom's original shortlist comprised Total SA, Chevron Corp., ConocoPhillips, Norsk Hydro ASA and Statoil ASA.

Future partners probably would be allowed to book some of Shtokman's reserves, estimated at 3.7 trillion cubic meters of gas, in exchange for sharing technology and investment risks, Medvedev said.

The delays at Shtokman make it unlikely the field will be producing LNG by 2014, said Mikhail Korchemkin, director of Malvern, Pennsylvania-based East European Gas Analysis, which analyzes production and pipeline projects in the former Soviet Union. A more likely start date would be 2016 or 2017, he said.

``Gazprom has no experience in drilling offshore,'' he said. ``They haven't started anything at Shtokman yet.''

Another source of gas for export is the Kovykta field in eastern Siberia, with the license held by BP's Russian unit, TNK- BP. Gazprom and BP are in ``permanent contact'' over Kovykta, which would probably supply China, Medvedev said.

To contact the reporters on this story: Lucian Kim in Moscow at lkim3@bloomberg.net ; Nina de Roy in London at nderoy1@bloomberg.net

Last Updated: April 9, 2007 01:20 EDT