(Corrects to one trillion dollars from one billion in fourth
* Market value down to $77 bln from $360 bln in 2008
* End of LNG monopoly, no price rise at home
* Analysts see no change, firm valued like Soviet ministry
* CEO still eyes 15 pct of global LNG market
By Vladimir Soldatkin
MOSCOW, June 28 Zoya Danilina, who owns some 700
shares in Gazprom, says investors don't have to look
far to understand that Russia's most powerful company has lost
Danilina remembers when her shares were worth over 300
roubles each. Now they fetch about 100 roubles.
"There have been much better days, when tables were served
with black and red caviar," she said on the sidelines of
Gazprom's annual general meeting in Moscow on Friday, looking at
a plate of boiled buckwheat, a popular staple food in Russia.
In the caviar era, Gazprom head Alexei Miller, a close ally
of President Vladimir Putin, was overseeing a company with the
world's third-largest market value at $360 billion. In 2007, he
promised to boost it to $1 trillion.
Fast forward several years and Gazprom, still the world's
largest gas producer and holder of 15 percent of global gas
reserves, is worth $77 billion and could fall further as it
faces a series of setbacks.
The biggest blow came from a shale gas revolution that has
unlocked vast reserves in the United States.
U.S. prices have crashed, closing America as a prospective
market for Gazprom, diverting cheaper liquefied natural gas
(LNG) cargoes not needed in the United States to Europe,
undermining Gazprom's position in its core market.
Europe, tied to Gazprom by a Soviet-built pipeline network,
has balked at its contracts that tie gas prices to more
Last year, Miller was forced to offer billions of dollars in
what Gazprom described as "rebates" to European buyers.
On Thursday, Germany's RWE said it won an
arbitration case against Gazprom, which further loosened the
price link to oil and raised the prospect of more price
Gazprom expects its 2013 earnings to fall by 10 percent,
marking a second yearly decline.
The stock market now values Gazprom - the world's
third-biggest company by earnings behind ExxonMobil and
Apple - at only two times its 2012 earnings of $38
billion. That makes it the cheapest large-cap stock on an
already cheap Russian market.
LNG, HOME PRICE SETBACKS
Investors could possibly forgive those setbacks if they were
confident Gazprom could expand in the fast growing global LNG
markets, while charging rising prices at home.
"Our goal is to control around 15 percent of the global
market for liquefied natural gas," Miller, 51, told the annual
general meeting on Friday.
But such hopes were dealt heavy blows over the past month.
Putin signalled last week the gradual end of Gazprom's
monopoly on exports of LNG and opened the way for rivals Novatek
and Rosneft to compete for huge new Asian
"We offer to lower restrictions gradually on liquefied
natural gas exports," Putin said in a speech at an economic
forum in St Petersburg, both his and Miller's hometown.
Putin also said that monopolies would be able to raise
prices only in line with inflation, reducing hopes for much
higher returns on the domestic market.
Gazprom's domestic industrial customers pay $114 per 1,000
cubic metres - little more than half of the $201 it receives for
exports after being adjusted for transportation and duties.
"Investors are structurally underweight Gazprom as they do
not believe in significant change at the company," said
Kingsmill Bond, chief strategist at Sberbank Investment Research
Under Miller, hired by Putin in 2001, Gazprom often served
as a Kremlin political tool, as described by EU officials.
"The Kremlin has decided that Gazprom is part of Russia's
national security and geopolitics - not a commercial company,"
said Chris Weafer, founder of Macro Advisory, a Russia-focused
"We are going back to Soviet days, when Gazprom was a
government ministry. The market is valuing it like a ministry."
Using Gazprom as a weapon has proved to be a double-edged
sword, poisoning relations with Ukraine, the transit route for
most of Gazprom's Europe-bound gas, after several pricing
disputes, which cut gas flows to Europe during several winters.
Gazprom is now investing billions of dollars in new export
routes to circumvent is ex-Soviet neighbour - Nord Stream to
Germany and the still-to-be built South Stream to Italy.
Investors fear those projects may never pay out.
Finally, Gazprom has failed to sign a supply deal with
China, the world's largest energy market, despite first signing
a memorandum of understanding as long ago as 2006.
Should the deal be signed before the end of the year, it may
still not be enough to revive the appetite of investors, who
have long criticised Gazprom's for overspending.
"The mega-projects will guarantee rapid growth in costs,
while future revenues are absolutely uncertain," said Mikhail
Korchemkin of consultancy East European Gas Analysis.
(Additional reporting by Denis Pinchuk and Douglas Busvine;
Editing by Dmitry Zhdannikov and Jane Baird)