Gazprom is losing Europe

2009/07/08

MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) – European gas consumers are frantically looking for an alternative to Russian natural gas. At the same time, Russian energy giant Gazprom is doing its best to control all gas supplies from the Commonwealth of Independent States.

gazprom

Towards this end, Gazprom signed an agreement with Azerbaijan on June 29 to purchase all of its export gas in order to prevent the U.S. and Europe-advocated Nabucco project from succeeding.

The same day, Poland signed a contract on gas supplies with a rival of Gazprom, Qatargas.

Azerbaijani gas

During Russian President Dmitry Medvedev’s blitz visit to Baku on June 29, Gazprom coordinated the acquisition of 500 million cubic meters of natural gas annually from the State Oil Company of Azerbaijan (Socar) beginning on January 1, 2010.

Gazprom CEO Alexei Miller said it was a small amount, but “well begun is half done.”

Azerbaijani President Ilham Aliyev said his country would produce 27 billion cu m (bcm) of natural gas in 2009 and planned to increase production to 30 bcm next year. This means that Azerbaijan’s deliveries to Russia will grow, too. At present, the country supplies the bulk of its natural gas to Turkey and Georgia.

Russia has rich hydrocarbon resources, and so it is more important to it that Gazprom has been added to the list of priority buyers of Azerbaijani gas from the second phase of the Shah Deniz deposit, which is expected to yield 16 bcm annually.

The second phase of the deposit will come on stream only in 2014, but the European Union considers it the main supplier of the Nabucco gas pipeline, which it plans to build across Turkey, bypassing Russia.

According to unofficial information, Russia is prepared to buy Azerbaijani gas at a record high price, $350 per 1,000 cu m. Therefore, other potential buyers of the Shah Deniz gas will have to offer a higher price to Socar to outbid Gazprom.

Until recently, Azerbaijan was the only post-Soviet country from which Russia did not buy natural gas.

On the other hand, the profitability of such contracts is questionable. According to Gazprom’s management, Azerbaijani gas will be supplied to south Russian regions, so that comparable amounts of Russian gas could be redirected to Europe. But Russia is unlikely to increase its gas supplies to Europe soon because of plummeting demand. Therefore, the deal will have no commercial effect at best.

Early this year, Gazprom said it would buy Turkmen gas for $300 per 1,000 cu m, but then it stopped collecting it because of falling demand and prices in Europe, provoking an explosion at the Turkmen pipeline and a subsequent conflict between the two countries.

Azerbaijan, which doesn’t like to keep all its eggs in one basket, also has a gas supply contract with Europe. However, the signing of an intergovernmental agreement on the Nabucco project has been postponed.

Poland makes a deal with Qatar

On the same day, June 29, Polish oil and gas monopoly PGNiG signed an agreement with Qatargas on the annual supply of 1 million metric tons of liquefied natural gas, LNG, which is equivalent to 1.5 bcm of natural gas, from 2014 to 2034. PGNiG is to build a regasification terminal in time for these deliveries.

At present, Poland consumes 13.7 billion cubic meters of gas annually, out of which 7 bcm is supplied by Gazprom, according to the International Energy Agency. Therefore, the deal with Qatar, which may reduce Russian gas supplies by 20%, is Poland’s first step toward lowering its dependence on Russian gas.

However, Gazprom is itself to blame for the appearance of a rival company, Qatargas, in Europe. It was because of its efforts to maintain its monopoly position in the European market and to purchase all gas produced in the CIS that Europeans started searching for ways to diversify gas routes.

The opinions expressed in this article are the author’s and do not necessarily represent those of RIA Novosti.

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