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Russia eyes EU gas export expansion, despite Ukraine crisis

ELENA MAZNEVA and JAKE RUDNITSKY

MOSCOW (Bloomberg) -- Russia is seeking to raise natural-gas exports to Europe as much as 23% over the next two decades even as the escalating crisis in Ukraine sparks concern about the region’s reliance on it for imports.

Supplies from Russia, which provided about 30% of Europe’s gas last year, may increase to 198 Bcm by 2035, Energy Minister Alexander Novak said in an interview in Moscow, while preparing an energy strategy for the government to discuss in May.

The strategy is being drafted as Russia and the EU fight over Ukraine after the ousting of pro-Moscow president Viktor Yanukovych. About half of Russian gas-export monopoly OAO Gazprom’s supplies to Europe travels through Ukrainian pipelines. European officials are seeking to import gas from the U.S. to diversify away from Moscow-controlled supplies.

“This crisis around Ukraine can change things, but only at significant economic costs,” Simon Pirani, senior research fellow at Oxford Institute for Energy Studies, said today by phone. “In the long term, Russia is the swing producer for the European market.”

Gazprom’s exports to Europe reached a record 161.5 Bcm last year. That may climb to 173 Bcm in 2020 on the way to the 2035 forecast, according to the Energy Ministry’s preliminary estimates, which include some LNG deliveries.

Gazprom, which has already built the Nord Stream pipeline connecting Russia directly to Germany, plans to start gas shipments to Europe through the South Stream pipeline at the end of next year, Gazprom CEO Alexey Miller said at a March 4 meeting with Prime Minister Dmitry Medvedev.

“We are consistently increasing supplies through other routes” that bypass Ukraine, Miller said in comments posted on the government website.

Gazprom’s shipments to Europe have been disrupted twice since 2006 when disputes between Russia and Ukraine led it to cut sales to the neighboring country.

While Novak declined to comment on the Ukraine situation, his ministry’s preliminary estimates showed shipments falling to former Soviet republics.

Shipments to countries that used to be part of the Soviet Union are expected to stay near current levels of 56 Bcm in 2020 before falling to 45 Bcm by 2035, Novak said.

Russian exports to Asia may come close to European levels over the next 20 years, Novak said. Supplies to Asian countries are seen at 34 Bcm by 2020 including 29 Bcm of LNG, Novak said. Estimates for 2035 are 117 Bcm, of which 79 Bcm could be supplied as LNG.

Russia shipped 15 Bcm of LNG to Asia last year from Gazprom’s Sakhalin-2 project.

After more than a decade of negotiations, Gazprom plans to supply as much as 38 Bcm of natural gas a year to China National Petroleum Corp. by pipeline. The companies are considering preparing a contract for signing at Putin’s visit to China in May, Gazprom said in January.

The state-run exporter may start supplies under the contract in 2019 to 2020 after building the link, according to Russia’s Energy Ministry.
Competition may arise before then. Two Russian companies—OAO Novatek and OAO Rosneft—are planning to start new LNG projects in 2017 and 2018 to supply fuel to Asia after Putin ended Gazprom’s monopoly on LNG shipments abroad last year.

Rosneft is also seeking access to a new gas-export pipeline through Siberia, Kommersant newspaper reported March 7.

The Energy Ministry’s press service declined to comment on Rosneft’s proposal as it prepares its response by April 18.

“We are not considering ending Gazprom’s monopoly on gas pipeline exports,” Novak said in an interview before Rosneft’s proposal became public. “Russia would not gain if Gazprom and other Russian companies supply gas to one market as they would reduce the price by competing with each other.”

03/11/2014

 

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