Gazprom SWOT and PESTLE Analysis
COMPANY PROFILE -Gazprom
Business Sector :Energy
Operating Geography :Russia, Asia, Global
About Gazprom :
Gazprom is a global energy headquartered in Moscow, Russia. It currently operates in 20 countries across 4 continents and holds the world’s largest natural gas reserve. It accounts for 12% of the global gas reserves. It exports gas to more than 30 countries beyond the former Soviet Union. Gazprom is involved in exploring, producing, transporting, storing, processing and selling oil and gas condensate and in generating and marketing of heat and electric power. The company has more than 469,000 employees as of January 2018. Gazprom’s mission as per its annual report is “Reliable, efficient and balanced supply of natural gas, other energy resources and their derivatives to consumers. Gazprom’s goal is to “Establishing itself as a leader among global energy companies by diversifying sales markets, ensuring reliable supplies, improving performance, and leveraging R&D capabilities.”Gazprom Revenue :
Roubles 6,546.1 billion (FY ended December 31st 2017) (y-o-y 7% growth)
Roubles 6,111.1 billion (FY ended December 31st 2016)
Ownership / Major shareholders :
As of 31st December 2017, the major shareholders of the company are as follows –1) The Russian Federation represented by the Federal Agency for State Property Management (38.37%)
2) AO ROSNEFTEGAZ (10.97%)
3) AO Rosgazifikatsiya (0.89%)
Competitive Analysis of Gazprom
| 1. Vertical integration and an established portfolio of long-term contracts 2. Focus on Technology 3. Dominant Market share 4. Political support from government 5. Consistent financial performance 6. Transportation, Underground Storage and Distribution | 1. Restricted number of markets with gas export mostly to stagnated European gas markets |
| 1. European and Asian market 2. Increasing market for LNG Projects 3. Expansion of Pipeline | 1. Growing natural gas producers globally 2. Project delays due to US sanctions 3. Increasing focus on renewable energy |
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Detailed SWOT Analysis of Gazprom
Strength
1. Vertical integration and an established portfolio of long-term contracts: One of the key principles of Gazprom is reinforcement of vertical integration. Based on the vertical integration principle Gazprom aims to develop the oil sector by increasing the annual oil production to 80 million tons by 2020.Gazprom underpins European gas market through long-term contracts with oil-pegged prices and take-or-pay clauses. Gazprom signs long term contracts of up to 25 years with Central and Western European countries to export gas. The intergovernmental agreements are vital for stable and sustainable supply of gas. Long term contract guarantees that producers and exporters returns on multibillion investments on major gas projects. Both the exporter and the importer benefit out of long term contracts. Current portfolio of long term contracts signed by Gazprom amounts to 4 trillion cubic meters over the contract duration.
2. Focus on Technology: Gazprom has always had a futuristic view in conducting their business operations. They have constantly invested in technological innovation and development. The R&D initiative such as technology for extracting helium in East Siberian fields helps Gazprom gain a competitive advantage. Gazprom has been making efforts to develop electromagnetic sounding of oil and gas deposits. It is a technique which uses ultra-short high power pulses to explore anisotropic near wellbore area. A set of technical requirements for the hydrocarbon prospecting, exploration, and development software was developed in 2017. Gazprom has invested heavily in research to develop technologies, materials and engineering solutions for their 1000 km gas trunkline system from Bovanenkovo to Ukhta which operates in extreme climatic and geographical conditions. Gazprom has planned to use advanced knowledge-intensive technologies and equipment in constructing the Power of Siberia trunk gas pipeline.
3. Dominant Market share: Gazprom is the world’s largest producer of gas. It is responsible for 17% of world’s total production and has 18.4% of world’s natural gas reserves. As on 31 December 2017, out of the total 49.3 tcm of explored gas reserves in Russia, Gazprom group accounts for 35.4 tcm , companies outside Gazprom group accounts for 12.6 tcm and open acreage holds 1.3 tcm.
4. Political support from government: Russian government holds more than 50% of company’s stock. Most of their reserves are in Russia. There is political protection to their reserves. They have a huge dominance over the domestic market. Gazprom and the Analytical Centre for the Government of the Russian Federation have signed a Cooperation Agreement. The agreement promotes scientific research and development between the two parties in areas such as energy efficiency and saving in oil and gas sector and analysis of long term trends in global energy markets. The state also supports by providing subsidized lending and special investment contracts etc.
5. Consistent financial performance: Gazprom has Price per earnings ratio of 2.8 which is one of the lowest in the world. Hence Gazprom proves to be an attractive investment opportunity to investors. Gazprom paid a dividend of RUB 8.04 per share. It is higher than its North American competitors. The dividends made up 26.6 per cent of profits to shareholders. The dividend pay-out ratio was 190%. Gazprom has been consistently seen an increase in sales. As on 2017, revenues have grown at a compounded rate of 5.7% over the last 5 years which is higher than the industry standard of -3.5%. The company has a median operating margin of around 29% which is highest in the industry.
6. Transportation, Underground Storage and Distribution: The gas transportation systems in Belarus, Armenia and Kyrgyzstan are owned by Gazprom group of companies. The core gas transportation asset abroad for the Gazprom group is the OAO Gazprom transgaz Belarus. Demands of consumers in Belarus and also in Europe and Russia’s Kaliningard. Gazprom ensures periodic inspections and overhaul of gas pipeline for the safety of the transport system. Underground gas storage facilities (UGSF) address the transit risks involved in exports. As on 31-Dec-2017, the total operating gas reserves in UGSFs in Former Soviet Union countries totalled 30bcm and capable of delivering 55.6mmcm of gas daily.
Weakness
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Opportunity
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Threat
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Key Business Segments / Diversification :
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