Gazprom asks for discounts from Russian pipemakers as investments peak

Gazprom asks for discounts from Russian pipemakers as investments peak

Gazprom asks for discounts from Russian pipemakers as investments peak

Gas giant Gazprom is demanding big discounts from Russian pipeline suppliers for its major projects, industry sources told Reuters, following the emergence of a producer charging significantly lower prices.

In a move likely to shake up the pipe and metals sectors, the Kremlin-controlled Gazprom is seeking the discounts - put by the sources at 20 percent - as it tries to limit investment spending that is due to peak in the next two years.

Gazprom is involved in three international gas pipeline projects. It is already building TurkStream to Turkey and Power of Siberia to supply China, and is preparing for the Nord Stream 2 link to Europe. Its average annual investments to 2035 are planned at 1 trillion rubles ($17.3 billion), reaching their highest point between 2018 and 2020.

Trying to stand up to Gazprom, a major client which has a de facto monopoly on Russian gas exports by pipeline, appears hopeless, sources at the producers said.

“You can’t say no to Gazprom,” one told Reuters.

Gazprom’s demands for discounts concern large diameter pipes (LDP), a market which is currently oversupplied, one source at a pipe producer and a Gazprom source said.

“We looked at the market and decided that we were paying above the market price. We wanted to discuss this with the pipemakers,” the Gazprom source said.

LDP pipes - those with a diameter of 53 centimeters or more - constitute over 90 percent of Gazprom’s pipe purchases. According to Gazprom’s report for the first half of 2017, it bought them almost entirely from four Russian firms - steelmakers OMK and Severstal, plus specialist pipemakers ChelPipe and TMK which buy in steel.

Talks are still underway between Gazprom and the LDP producers, another source at a pipe maker and the Gazprom source said, on condition of anonymity as they were not allowed to talk to the press.

The press departments of TMK, OMK and ChelPipe declined requests for comment. Gazprom did not respond.

Severstal, which supplied a quarter of Gazprom’s LDP needs in the first half of last year, said it was continuing to make and deliver pipes from its factory in St Petersburg following negotiations with Gazprom.

“We held talks and agreed the main parameters of our cooperation. We have contractual obligations, which meant production at our Izhora plant did not stop,” a company spokeswoman said.

Gazprom’s hand appears to have been further strengthened by the fact that it has already bought many of the pipes needed for Power of Siberia and TurkStream, with the bulk of investment spending channeled into other project costs.

Its insistence on a different deal for the pipes it still requires for the Russian domestic link to Nord Stream 2, follows the arrival on the scene of a newcomer, ZTZ, industry sources said.

Natural Gas,