Gazprom Advances TurkStream, But Debt an Issue
Russian giant Gazprom CEO Alexei Miller said September 27 that almost 300 km of the TurkStream gas pipeline has been built, but at a cost to its level of debt.
Speaking to journalists in Ankara September 27, he said that 224 km of the first of two parallel pipelines had been completed, while 74.km of the second pipe had also been laid.
"The average laying speed is 3.5 km/day, which sometimes reaches 4.5 km/d," the CEO remarked: “There is no doubt that we will build both strings on time.” He added that Russia is expected to set an historic record year-on-year increase in gas supplies to the Turkish market this month (September 2017) of 48%. Gazprom had already said September 19 that it increased gas supplies to Turkey by 22.8% year on year from January 1 to September 15, according to its preliminary data.
The Russian gas giant started laying the second thread of the TurkStream natural gas pipeline in July. Each of the two lines has 15.75bn m³/yr capacity: the first, to be finished in 2018, is to supply gas to Turkey. The second is to transit gas to European countries through Turkey and is due to be finished in 2019.
Debt level to increase
Global projects are however taking a toll on Gazprom’s financial state. Credit ratings agency Fitch in its recent review noted that Gazprom will have to borrow rubles 600bn annually ($10.35bn at current rates), and by early 2020 the debt will have increased by rubles 1.8 trillion.
Gazprom in the next three years will have to borrow a record amount to finance its mega-pipelines bringing gas to Europe and China.
The three major projects – NordStream 2, TurkStream and Power of Siberia – will cost the gas giant about rubles 1.35-1.45 trillion. The company does not have enough cashflow to fully fund these, so some of the construction costs will have to be borrowed.
Throughout 2017, Gazprom will have a negative cash flow. In 1H 2017 capital expenditure for construction was almost rubles 800bn, yielding an operating profit of only rubles 450bn. According to Fitch, this situation will continue for some years.
Azerbaijan Desk