Gazprom Warns EU Its Policies May Choke Off Gas Supply

The chairman of Gazprom says the European Union’s energy policies could dam up the flow of gas from Russia to the West, especially at a time when low prices are depressing investment in gas production.

For the immediate future, gas deliveries to the EU and Turkey probably will remain stable, Viktor Zubkov, the chairman of Gazprom’s Board of Directors, told an energy conference in Vienna on Wednesday.

“Over the past three years, Gazprom has delivered 467 billion cubic meters of gas to Europe,” Zubkov said. “it’s hard to say what it will be this year, but we are counting on around 160 billion cubic meters.”

But beyond 2016, he said, Russia’s government-owned gas company may not be able to meet the demand in the West because its price is predicated on the cost of oil, which has been dropping dramatically since the summer of 2014. This has cut into Gazprom’s ability to invest in its infrastructure.

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“The gas price for Gazprom in the first quarter of 2015 amounted to $284 per 1,000 cubic meters,” Zubkov said, “while, according to available estimates, in the first quarter of 2016 it could stand at $180.”

In 2015, Gazprom’s exports to the EU and Turkey rose by 8 percent to 159.4 billion cubic meters, thanks largely to the commodity’s lower price. Zubkov said he expects the price of gas to fall further in the first quarter of this year by more than one-third, down to $180 per 1,000 cubic meters, a boon for its Western customers at least until the end of 2015.

After that, though, he said the low price of gas has put huge financial pressure on the company. “There are actually only quite a few countries that can continue their investment when prices are as low as they are now,” Zubkov said. “In the future, when there won’t be enough investments for 2017-18; there might be huge problems on the gas markets.”

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The Gazprom chairman said the EU itself would be largely to blame if it faced a gas shortage because of what he called its “contradictory” energy policies.

For example, EU energy regulations include language that hampered Moscow’s plans to build the proposed South Stream pipeline, which would have carried gas beneath the Black Sea to Bulgaria, then on to Western Europe. One goal of the project was to bypass Ukraine, with which Russia has been in a long political and energy dispute.

South Stream had to be scrapped in December 2014 because the regulations forbid a single entity to own both the pipeline and the gas it carries through EU territory. Zubkov said his country “needs to understand the role the EU gives to Russian gas in its energy mix. … We need to know clear rules of the game on the market because investments [by Russia in its gas industry] will depend on this.”

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“The situation is rather difficult now, and it could be a great risk for security of supply,” Zubkov told the conference. “We need balanced cooperation with our partners.”

The Gazprom chairman also reassured his audience that his country aims to be a reliable supplier of energy to Europe for the foreseeable future, as long as the EU remains a reliable customer. “We call upon our European partners to keep up a long term balance of the interests of all participants of the market,” he said. “ We don’t know how long the prices will be as low as they are now.”

By Andy Tully of Oilprice.com

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