Russia's natural gas monopoly, Gazprom,
has repeatedly pledged to increase natural gas
production and exports. However, the gas giant
appears to face an uncertain export future as its
credibility in Europe has been dealt a blow and
some of its ambitious plans have proved slow to
materialize.
In recent weeks, Gazprom was
criticized by its European clients for its
perceived failure to increase gas supplies. On
February 4, Prime Minister Vladimir Putin ordered
his deputy Igor Sechin and Gazprom executives to
sustain gas shipments to Europe. He also argued
that the situation confirmed that the North Stream
[running under the Baltic Sea to Germany] and
South Stream gas pipeline projects remain
necessary. [South Stream, if built, would
transport Russian natural
gas through the Black Sea to Bulgaria.]
In
response, Gazprom deputy chief executive Alexander
Medvedev told Putin that the company's exports to
many countries were exceeding its export contract
obligations. Gazprom deputy CEO Andrei Kruglov
also argued that the European spot gas market
lacked actual gas volumes and was therefore unable
to become a source of alternative gas supply.
Consequently, Gazprom is critical of the spot gas
pricing system and insist that its higher
long-term contract prices remain relevant.
These statements followed accusations by
European officials, who claimed that Gazprom
limited gas supplies amid growing demand caused by
freezing temperatures. Subsequently, Gazprom
conceded it had cut gas shipments to some European
states, including Italy and Poland, by about 10%.
The controversy undermined Gazprom's
efforts to present itself as a reliable supplier.
Russian gas executives argue that these problems
were caused by a sudden upsurge in demand. On
February 6, Gazprom deputy CEO Alexander Medvedev
suggested the current gas demand exceeds
expectations by 50%. However, Gazprom did not
report any domestic gas shortages.
In
2011, the company reported positive production and
financial results. Gazprom's total gas production
reached 513.2 billion cubic meters (bcm) in 2011,
or up from 508.5 bcm in 2010. Last year, Gazprom's
sales reached US$150 billion or 27% up
year-on-year, while net profit amounted to $40
billion, up 25%.
Meanwhile, the
authorities pledged to reform the gas monopoly. On
February 6, Putin indicated tentative plans to
privatize Gazprom. On the other hand, the official
pronouncements of state control over Gazprom
appeared to be somehow detached from reality. On
February 1, Vedomosti business daily reported that
Gazprom is reluctant to allow increasing the
state-owned stake in the company up to 50% plus
one share. Sechin sent a letter to President
Dmitry Medvedev to complain about this.
In
his previous presidential incarnation in 2005,
Putin ordered the government to take over a
controlling stake in Gazprom. The plan was
finalized only in 2010, but its implementation has
been slow.
In 2011, Gazprom exported about
150 bcm of natural gas, including 112 bcm to
Europe. However, just two years ago, Gazprom
planned to export more than 160 bcm per year to
its European clients. The Russian authorities even
promised to export 455 bcm to 520 bcm of natural
gas per annum by 2030.
Now these ambitious
plans face a reality check, despite recently
launching a major pipeline project. Last year,
Gazprom launched the first stage of the Nord
Stream gas pipeline in September 2011. The first
stage of the 1,224 kilometer subsea pipeline has a
capacity of 27.5 bcm per year, which is due to
eventually increase to 55 bcm annually.
Meanwhile, Moscow's plans to export gas to
China apparently remain stalled. On February 1,
Gazprom said it was expecting new price offers
from its Chinese partners. Therefore, the
bilateral negotiations have been inconclusive.
Gazprom's project to build the Altai gas
pipeline to China was delayed for several years as
both sides struggled to agree on gas prices. Six
years ago, Moscow first promised to export Russian
gas to China via a 6,700 km Altai pipeline. In
March 2006, Gazprom and CNPC [China National
Petroleum Corporation] signed a memorandum on the
delivery of Russian natural gas to China from
2011. Gazprom first offered to supply gas at
European prices, while CNPC insisted on lower
prices.
Last October, Putin said bilateral
talks on the terms of Russian gas supplies to
China "were nearing completion". Russian officials
had previously expected a final agreement on gas
prices to be concluded in June 2009, and gas
supplies to start in 2014-2015.
The
Russian gas export strategy used to include cheap
imports from Central Asia for subsequent lucrative
re-sale to Europe. But in 2011, Gazprom imported
only some 27 bcm from Central Asia and Azerbaijan
or unchanged year-on-year, well below the planned
38 bcm in 2010.
Russia also appeared to
have had large-scale gas plans in Central Asia. In
September 2006, Gazprom agreed that Turkmenistan
would export 80 bcm per year to Russia between
2008 and 2028. This agreement failed to
materialize, and now Turkmenistan exports some 10
bcm of gas per year to Russia. In December 2007,
Russia, Kazakhstan and Turkmenistan signed a
formal agreement to build the Pricaspiysky
pipeline system to funnel 20 bcm of Central Asian
natural gas per annum along the Caspian shores to
Russia. However, this project has since been
shelved.
Russia has repeatedly increased
its own gas output and export plans. In 2010, the
authorities pledged to increase natural gas
production up to one trillion cubic meters by 2030
from the current 650 bcm per year, and triple
export volumes. However, recent disagreements with
European importers and unsuccessful attempts to
boost the Asian gas trade served to highlight
difficulties in delivering on these ambitious
pledges.
Prior to working as a
Moscow-based independent researcher and
journalist, Dr Sergei Blagov was a newswire
reporter. He spent nearly seven years reporting
from Hanoi, Vietnam, between 1983 and 1997.
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