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Gazprom stays bullish despite demand slump

Gazprom's export plans will not be de-railed by weakening demand

By Derek Brower

The 21st century will belong to natural gas, Gazprom's boss said yesterday. But the next couple of years could be tough for exporters to Europe's shrinking market, admitted one of the continent's biggest buyers.

In a speech that stressed the stability of his firm's gas-export business, Alexei Miller pledged that Gazprom would push ahead with plans to diversify export routes for gas. He also claimed Russia would export up to 90m tonnes a year of LNG by 2020, equating to 25% of the global market.

The first phase of the 55bn cm/y Nord Stream pipeline, targeting Germany, would be on line in 2011, he added, while the 63bn cm/y South Stream project will begin exports to central and eastern Europe no later than 2015.

France's EdF is set to join Gazprom and Italy's Eni in developing South Stream, according to recent reports. Gazprom yesterday listed it as a participant in the project, which could cost up to $29bn. GdF Suez is also on the verge of joining Nord Stream, the managing director of the pipeline's consortium told WGC news yesterday.

And Miller reiterated his company's stance that long-term contracts, which are not favoured by official EU policy, are critical to guarantee investments, including more than $25bn Gazprom will spend by the end of the year on its own projects.

By 2020, Miller said, the company will bring on stream another 110bn cm/y from Russia's far east region alone.

He added that the company, which has a monopoly on gas exports from Russia, remained the best route for central Asian exporters. The EU has sought to tap Turkmenistan and Azerbaijan as sources for Nabucco, a proposed pipeline that would rival Gazprom's South Stream.

Gazprom's bullish supply plans stand in contrast to greater uncertainty about demand for natural gas in the EU, however.

Speaking after Miller, Bernhard Reutersberg, CEO of Germany's E.On, said the continent's gas sector faces decreased consumption on an unprecedented scale.

This year, he predicted, demand could fall by 7% – and producers could not know if the slump would be overcome within two to three years. There is a risk of persistent oversupply because of weak demand and abundant supply, he said.

Meanwhile, the US' withdrawal from the world market following discoveries of huge new unconventional reserves have made the EU a new catchment area for excess gas. The market has not prepared for this and gas prices are collapsing at the hubs, Reutersberg said.

Both men agreed that the gas sector would have to convince consumers in Europe that it could be a reliable bridging fuel to the low-carbon future.

Miller said worries over security of supply in recent years stemmed from ideological and political prejudices. Whether worries about reliability were realistic or not, Reutersberg added, the European gas sector cannot ignore that state of affairs.

Reports from Moscow, meanwhile, say Gazprom is to resume imports of gas from Turkmenistan by 1 November. Gas trade between the two countries was halted after an explosion on a pipeline in April. Gazprom has sought to negotiate a new price for Turkmenistan's gas, which it exports on to Europe.

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