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Gazprom sets its sights on US market

By Derek Brower

Gazprom aims to capture 10% of the US gas market within four to five years, the boss of its export division said yesterday.

Alexander Medvedev said the company's operations there would follow the "organic growth route" that has seen Gazprom's business expand in the UK, another liberalised energy market.

"We are now following the same method in the US. We know how to work in fully liberalised markets," he said. Gazprom said its marketing business began trading from a Houston office earlier this week.

The Russian state-controlled gas company has contracted to supply LNG to the US from its Sakhalin-2 plant, in Russia's far east, and could also send LNG to the country from the Shtokman field, in the Barents Sea, once it comes on stream.

And Medvedev rejected notions that recent new discoveries of vast unconventional gas resources in the US would ruin prospects for LNG exporters to the country.

"There are many myths about shale production," he said. Production from shale gas needs continuous drilling to prevent output falling quickly, he said. Optimists had also failed to account for the environmental cost, including heavy water use of the production process, he suggested.

In any case, Medvedev added, LNG supplies to the US would be competitive at a price of $6-7/m Btu. Yesterday in New York, the front-month Nymex natural gas contracts were trading just shy of $5/m Btu, although analysts expect a recovery in US prices next year.

Briefing journalists yesterday at the WGC in Buenos Aires, Medvedev also said Gazprom was close to opening an office in Brazil that would run the company's operations in Latin America. Gazprom is already working in the Venezuelan upstream, where its projects include a heavy-oil block in the country's Orinoco region.

Medvedev said Gazprom would also seek projects in Brazil's LNG sector. There, the state-controlled energy company, Petrobras, is considering development of LNG from the offshore pre-salt sector.

Meanwhile, the Kremlin confirmed yesterday that Turkmenistan and Russia have resolved a dispute that has halted exports of Turkmenistan's gas through Russia's pipelines since April.

The agreement followed a meeting last month between Dmitry Medvedev and Gurganbuly Berdymukhamedov, the countries' presidents. Turkmenistan said it would resume exports by the end of October.

The dispute, which has cost Turkmenistan about $1bn a month, erupted in April after an explosion on a pipeline linking the two countries. However, analysts said disagreements about the price of Turkmenistan's gas were behind the shut-in.

Gazprom imports about 50bn cm/y of gas from Turkmenistan, most of which it sells on to customers in Europe. However, as gas prices in western Europe collapsed this year, the Russian company found itself squeezed by the high rates demanded by Turkmenistan.

Relations with Ukraine have also improved, although Medvedev told reporters yesterday that Gazprom "cannot guarantee" that another conflict with Ukraine over gas supplies will be avoided. About 85% of Gazprom's exports to Europe flow through Ukraine.

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