Gas power

Source: PhotoXpress

Source: PhotoXpress

Gazprom won’t give up the “take or pay” system and hopes to compensate for the shortfalls in sales in the coming years when demand for gas revives again. The company envisions significant growth in demand over the next 20 years, notwithstanding global economic problems and alternative sources of energy.

The sluggish pace of economic recovery early this year seems to have forced Gazprom to revise its gas export target downward. Early this year, the export target for 2010 was 160 billion cubic metres, but in late June Gazprom Deputy Chairman of the Management Committee Alexander Medvedev cited a very different figure, 145 billion bcm, which is just 2.1 billion more than in the crisis year of 2009, when Gazprom Group cut gas production from 549.7 to 461.5 billion cubic metres.

During the crisis, the price of Russian gas pegged to the oil price was higher than the spot market price. However, judging by Medvedev’s comments, Russia has no intention of giving up long-term contracts and the corresponding price formula. In some cases, Gazprom has “adapted the contracts to market conditions” by merely putting off the supply of targeted amounts for the following years. The spot market, said Medvedev, does not yet guarantee a solid long-term gas supply, which makes Russian gas “the most accessible, reliable and predictable option.” Indeed, export to Europe has been on the rise. While Italy and Turkey are falling short of contracted targets, Germany, France, Poland and Hungary are increasing demand. The market will bounce back no later than 2013, Medvedev estimates.

Russia is already implementing the Nord Stream gas pipeline project, which will take Russian gas directly to Germany bypassing Belarus and Poland. “Nord Stream is as good as completed. Laying the pipe is the simplest stage. Gas will start flowing to Europe in the autumn of 2011,” Chairman of the Gazprom Management Committee Alexei Miller told RN.

Alexander Medvedev believes that demand for gas in Europe will increase by 210 billion cubic metres by 2030. He stressed that all the current projects, Nord Stream and South Stream, Nabucco and even the projected increase of LNG supplies could not fully meet demand.

However, even before Europe has found alternative sources, Russia decided to reduce its dependence on transit countries and the European market and is vigorously pursuing its Far Eastern programme. “Europe has been and will be the number one external market for Russia,” Alexei Miller told RN. “Gas is delivered to Europe from Western Siberia. As for diversifying our supplies, including to the Asian markets, the resources will come from Eastern Siberia. In the near future, gas exported to the Asian markets will be comparable to the volume supplied to the European markets,” Miller predicts.

Gazprom Group bought a controlling stake in the Sakhalin-2 project in 2007 and launched an LNG production plant in 2009. Gazprom Export’s report says the output has been contracted for by Asia Pacific countries (63.9% by Japan, 16.17% by Korea, and 19.94% by the West Coast of the United States). A contract to supply LNG to Mexico’s west coast has also been signed.

Gazprom is contemplating supplying natural gas to China, Japan and South Korea via pipelines now under construction or at the design stage. The biggest gas field in Eastern Siberia, Kovykta, is thus far not seen as a source for gasification of the Irkutsk Region and supplies to Asia Pacific markets, for which the resource base will be the Irkutsk Region and Sakhalin.

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