Gazprom exposure to Ukraine crisis is manageable, says Moody’s

Moody's Investors Service said that Gazprom's (Baa1/stable outlook) strong operating and financial metrics currently allow sufficient headroom to mitigate the negative effects from even a relatively significant interruption or disruption to its gas exports.
That said, Gazprom has a greater exposure to the Ukrainian economy and its political risks than other Russian corporates, with 52% of the company's exports to Europe currently routed through Ukraine and the country contributing up to 8% of Gazprom's revenues.
Although there has been no evidence of gas supply disruptions yet, Moody's said it will continue to monitor the developments for their impact on gas export volumes to and via Ukraine. The rating agency anticipates that Gazprom will accelerate investment into its South Stream project, which is a 63 bln cu. m. (bcm) capacity gas pipeline circumventing Ukraine, and, defer the implementation of other projects, such as the Power of Siberia (POS) pipeline project, which is designed to deliver gas to China from Eastern Siberia.
Moody's notes that European countries will likely apply efforts to support an uninterrupted gas supply from Gazprom which provides nearly one-third of Europe's gas imports (Europe imports nearly 50% of its gas), and half of this gas is routed via Ukraine. This supply channel cannot be easily and cost-effectively substituted.
The evolving situation in the Ukraine adds uncertainty to the reliability of Gazprom's supplies via Ukraine's 143 bcm Soviet-era pipeline network, which connects Gazprom's gas transportation system with the European gas network in Poland, Slovakia, Hungary, Romania and Moldova.
In 2013, gas transmission via Ukraine amounted to 84 bcm per annum (bcmpa), or 52% of total Gazprom's exports to Europe. Gazprom will redirect up to 23 bcm of its export volumes to Nord Stream (55 bcmpa transmission capacity) starting from 2014, as its offshoot NEL (Nordeuropaische Erdgasleitung) comes fully on stream. On other routes only incremental additions to nameplate capacity are possible (Yamal-Russia via Byelorussia –to 33 bcm from 32 bcm, on Blue Stream under the Black Sea to Turkey to 16 bcm from 13.6 bcm.
As such, Moody's expects that, in the event of a complete stoppage in gas transit via Ukraine, Europe will experience a deficit of up to 56 bcm during 2014. Such a shortfall would predominantly affect markets in Italy, Turkey, France, the Czech Republic, Slovakia and Austria. However, warm weather conditions, seasonal reductions in demand and relatively high current gas stockpiles (i.e., European gas reserves are 49%-55% full) would to an extent mitigate the negative effects.
In addition, Ukraine has officially confirmed this week that it would undertake delivery of gas to Europe under its transit agreement with Gazprom signed in 2009, which covers a period of 11 years.