Saturday, September 1, 2012


Russian gas re-think


EPA/STEFAN SAUER
Despite a slowing European economy, which has also hit demand for gas, Gazprom does not intend to reconsider export volumes forecast implying the decrease of Gazprom Group export in 2012, the Russian gas monopoly told New Europe on 30 August. Gazprom was commenting on reports that Russia’s Economy Ministry cut its 2012 gas export forecast to 193bn cubic metres from 212bn cubic metres due to sluggish European demand, which also prompted it to reduce its average export price estimate.
Asked if the ministry’s forecast will affect Gazprom’s export volumes and price to Europe, the Moscow-based company said that, according to Gazprom’s preliminary estimations, the volume of its export is to remain on a par with the year 2011 and may reach 222bn cubic metres in Europe, Turkey and the Commonwealth of Independent States (CIS).
Gazprom reminded that the supply is carried out according to individual price formulas included in each of previously signed long-term export contracts and considering variation in oil and oil products prices. Such scheme secures the balance of interests of sellers and buyers, allows sustaining investment cycle in the industry and excludes price diktat of suppliers, Gazprom said. “At the same time we are ready to show flexibility and to consider changes, occurring at the market, to work out reasonable compromises. Gazprom Group has repeatedly achieved agreements about price formulas correction with certain partners. Such scheme is implied in long-term contracts,” Gazprom’s Information Directorate said.
Gazprom noted that specific export volumes in short-term period depend not as much on economic situation but on weather.
Experts note that the US shale gas boom and ample supplies of liquefied natural gas (LNG) are threatening Russia’s high-priced Russian pipeline gas exports.
But Gazprom has been quick to dismiss the likelihood that Europe could replicate the shale gas boom underway in the US. Gazprom told New Europe that shale gas is no threat to its export policy.
“We are not against shale gas as such since by itself it increases supply and perspectives gas consumption in general. Still, one should understand how high the costs of its production are. The current prices level at American market does not cover the costs of its manufacture. As for possibilities of supplying gas from the USA, the current prices level, liquation and transport costs make exporting American gas to Europe unprofitable. This gas is more likely to get to premium Asian market,” Gazprom said.
Apart from that, due to environmental and economic concerns European countries such as Bulgaria, France and other states do not rush to develop its manufacture, Gazprom argued. “In Poland where work in this direction used to be quite active, the estimations of perspectives of shale gas are becoming more and more moderate. Some large foreign companies are already leaving the market. So there is no significant threat to our business connected with shale gas in Europe. Russian gas is to remain competitive,” Gazprom said.
Nevertheless, on 29 August, Gazprom announced that it had indefinitely shelved the Shtokman project in the Barents Sea it has been pursuing with French and Norwegian partners because the costs of developing it would simply be too high.
Asked if falling demand is going to slow the development of new fields like Shtokman, oil and gas analyst at Alfa Bank Maria Yegikyan told New Europe on 30 August that Gazprom is launching the Bovanenkovo field, which is going to contribute to production growth for Gazprom.
“Shtokman is a unique project in Russia, the realisation of which needs substantial capital expenditures, making the project commercially unfeasible without tax breaks which the Russian government failed to provide to date,” Yegikyan said from Moscow.
Risk to demand is another reason for the indefinite postponement. Gazprom earlier decided to switch from pipeline gas to LNG production at Shtokman. Growing risks of a wave of US LNG exports to Asia, which was targeted as the key market for Shtokman, could potentially challenge the price environment and demand for Shtokman gas, Yegikyan said.
The Shtokman partners have postponed their investment decision several times. Gazprom officials had said in July that talks on Shtokman would be completed by the autumn.          from new europe on line

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