Fitch Ratings: Gazprom showing durability

NEW YORK, Aug. 25 (UPI) -- While Russian energy company Gazprom is showing durability, its pipeline ambitions in Europe could face geopolitical and economic delays, Fitch Ratings said.

Fitch issued a BBB- to the Russian energy company, noting it will remain an important natural gas supplier to the European economy, but face pressure on the margins.

"Gazprom's ratings reflect our expectations that it will remain a vital gas supplier to Europe over the medium term," the ratings agency said. "European off-takers are still limited in their ability to diversify gas imports as Europe is coping with declining indigenous gas production."

European economies get about 20 percent of their natural gas from Russia, though the majority of that volume runs through a Soviet-era transit network in Ukraine. Debt issues stretching back to at least 2009 and Kiev's pivot toward the European Union after political upheaval in 2014 create risks to European energy security.

The ratings agency said Gazprom's gas sales to Europe were down 8 percent year-on-year during the first half of 2015. Though European economies are working to break the Russian grip, the situation is expected to remain relatively stable through at least 2017.

Gazprom aims to build its Turkish Stream network through Turkey and expand the capacity on its twin Nord Stream natural gas network through the Baltic Sea to Germany to diversify its transit options.

"We believe that the both projects could be delayed due to the political crisis over Ukraine and the EU's attempts to diversify away from the Russian gas," the ratings agency said. "At the same time, simultaneous construction of these two pipelines, if approved, could put pressure on Gazprom's credit metrics, albeit not enough to trigger negative rating action."

Fitch said it expects overall gas volumes from Russia will decline because of issues in Ukraine and weak sales on the domestic economy. By the next decade, European economies should be receiving natural gas from Shah Deniz, a giant gas field off the coast of Azerbaijan.

Gazprom, Russia's largest natural gas producer, reported a 71 percent increase in net profits to $5.9 billion for the period ending March 31. Total sales from the company increased 6 percent.