Russia sees Europe relying heavily on its gas for next 25 years

By ELENA MAZNEVA
Bloomberg

The European Union will rely heavily on Russian gas for at least 25 years despite plans by members of the 28-nation bloc to curb its neighbor’s grip over energy supplies, Energy Minister Alexander Novak said.

Relations between the two sides worsened last year after the EU and US imposed sanctions over Russia’s role in a deadly conflict in Ukraine. The EU sought to cut reliance on Russia after supplies of gas piped across Ukraine were earlier disrupted because of conflicts between the two nations.

Russia, which supplied about 30% of EU gas last year, sees the country increasing its share, Alexey Miller, CEO of state-run OAO Gazprom, told a conference in Berlin that he attended with Novak on Monday.

“Russian gas will remain an irreplaceable element of the European gas market,” Miller said. The company may boost 2015 exports to Europe to match or beat the record in 2013, he said.

In December, Russia ditched the planned $45 billion South Stream gas pipeline bringing the fuel directly to Europe under the Black Sea because of EU opposition. Russia then said it would build a new link to Turkey, creating a hub at the border with Greece, where Europe can take its gas if it wishes.

Gazprom plans to switch all the fuel currently crossing Ukraine to the new route from 2020, when a transit contract expires, the company said in January. If there’s no will in the EU to prepare a new network to receive the gas, Russia would find new markets for the fuel, Miller said at the time.

Talking Turkey

Russia then began talks with Turkey and southeastern EU states including Greece and Hungary, offering a price discount to take part in the pipeline. Gazprom also plans to clinch a deal with China this year to supply gas from fields in West Siberia currently serving its European customers.

Miller reiterated that increased cooperation with Asian nations allows the company to diversify exports.

Gazprom will develop a “Eurasian gas market” once it builds a new gas link to China from West Siberia and Asia will influence the EU market, even it’s prices, he said.

Miller criticized the EU’s energy plans. “Gas prices can’t be the same for different countries in the EU,” he said, adding that prices as a result may be higher than otherwise.

EU market changes mean Gazprom is revising plans to supply end-consumers in the region as it’s too risky now, he said.

Russia shipped 147 billion cubic meters of gas outside the former Soviet Union last year, cutting supplies to Europe by 9% as the region’s use fell 11%.

This year, Gazprom may boost deliveries to Europe by 7% to 10%, as oil-linked prices drop, inventories fall and the EU’s gas production decreases, according to UBS and Goldman Sachs Group estimations.

While Gazprom needs huge investment in new export routes, its sales in Europe are seen rising though 2030, with Russia remaining the world’s biggest gas shipper, the International Center for Natural Gas Information, or Cedigaz, said last week.

“European demand outlook is highly uncertain but developments in recent years are not conducive to much optimism, with dwindling demand, political tensions and the will to reduce dependence on Russian gas,” it said.

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