Does Vladimir Putin use Botox? And is Gazprom’s capital spending ($44bn last year) money poured down a black hole? These are two great mysteries of modern Russia. At least minority shareholders in Gazprom can gaze on the Russian president’s indescribable grin to form their own conclusion upon the first question.
The second – about their own company, the world’s biggest gas producer – will tax them much more. Shares in Gazprom change hands on the Moscow market for 2.8 times forward earnings. This for a company that earned more last year than any other in the world (not counting taxes, interest, depreciation and amortisation). The valuation implies that shareholders are not optimistic that the capital spending will produce great returns.
And so to the agreement that Gazprom has, at last, forged to sell gas to the Chinese. The deal covers at least 38bn cubic metres of gas a year for 30 years. With the $400bn value for the deal as given by Gazprom, this suggests a price of $350 per thousand cubic metres. That is attractive relative to China’s other options of buying gas overland from Myanmar and Central Asia, or in liquefied form from overseas.