Bloomberg has estimated that Russia's Gazprom will beat Exxon Mobil this year to become the most profitable company in the world, and yet its shares are down 18 percent. Why? As well as being the most profitable, it is also the biggest spender, using its cash to finance large infrastructure projects that are also priorities of Russian President Vladimir Putin.
Last year Gazprom spent $53 billion on capital expenditure projects, more than PetroChina's $46 billion or Exxon's $36.8 billion. The huge expenditure meant that just 7 percent of earnings remained to be paid out as dividends, the least amount of the top 10 largest energy companies in the world.
Anaylsts at IFC Metropol and Sberbank CIB have suggested that Gazprom's shareholders are basically paying for Putin's political priorities: building a pipeline to bypass Ukraine, and developing Russia's poor Eastern regions.
Gazprom, with the backing of the Kremlin, will build the $21 billion South Stream pipeline to Europe, even though existing pipelines are operating at 70 percent capacity. And it's not as if demand is likely to explode in the future, and warrant extra carrying capacity. The IEA has predicted that Europe's natural gas consumption will fall by 3.5 percent to 550 billion cubic meters by 2015.
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The real reason to build the new pipeline is to bypass the Ukraine, giving Russia more independence and control over its gas exports to Europe.
Gazprom will also invest around $45 billion to develop the Chayanda gas field in remote eastern Siberia, a notoriously underdeveloped region.
Gazprom spokesman Sergei Kupriyanov explained: "There are indeed a lot of investments now, but we are creating new gas production centers and new transport corridors that will bear fruits in the future."
But Ivan Mazalov, a fund manager at Prosperity Capital Management, said: "A lot of this expenditure is inefficient. ... It is better to return cash to shareholders instead of plowing it into capital expenditures."