Gazprom’s Medvedev dismisses role of US LNG in European natural gas market
Russia is the gas supplier of choice for European markets and will remain the most cost-effective and reliable source of gas in Europe, Alexander Medvedev, Gazprom’s deputy CEO, said Tuesday.
Speaking at the European Gas Conference in Vienna, Medvedev said US LNG had been a “big hope” for Europe, but that the record flows of Russian gas to Europe in 2016 — almost 180 Bcm — were evidence of Russia’s position as the leading gas supplier to its European partners.
“Russia is the only gas supplier that can reliably and flexibly supply gas in any amount. We can supply whatever Europe wants — we have the capacity to supply an additional 150 Bcm/year,” he said.
In an apparent reference to US LNG exports starting up in February last year, Medvedev said Europe had chosen Russian gas despite there being newer supply options.
“Our clients have a variety of diversification options, but they still buy Gazprom gas,” he said. “This is a good indicator that — in the face of new alternative gas resources — our gas is and will be the most competitive in Europe.”
He added that LNG supplies were dependent on “volatile” prices, whereas pipeline supplies under long-term contracts were more reliable.
Gazprom chairman Viktor Zubkov, also speaking at the Vienna conference, said the company was “not afraid of commercial competitors or other energy resources.”
European demand for Russian gas was buoyed last year by relatively low prices.
Russian flows last year to Europe and Turkey — but not including the countries of the former Soviet Union — were up by 20 Bcm compared with 2015.
Asked if Gazprom also looked to boost supplies to European hubs in a bid to raise market share, Medvedev said its supplies to its trading subsidiaries in Europe — Gazprom Marketing & Trading in the UK and Wingas in Germany — under their long-term contracts were reflected in the sales figures, as were the volumes sold in its 2016 gas auction for delivery into Germany.
This suggests Gazprom could have sent maximum possible volumes to its own subsidiary companies in Europe last year, which would have boosted its market share.
‘FLEXIBLE CONTRACTS’
Medvedev again highlighted Gazprom’s ability to react to customer demands for more gas.
“We have very flexible contracts and very good prices, and this means we can react on a daily basis to requests from our European partners,” he said.
Asked if the long-term gas supply contract model was under any threat, Medvedev replied that the system still worked.
“We feel comfortable — we are delivering as much gas as needed under our long-term contracts,” he said.
He added that Gazprom had 4 Tcm of gas contracted under long-term agreements out to 2035, giving it security of demand for the next two decades and certainty for investing in new infrastructure — especially its planned pipeline projects to Europe.
“There is no better way to finance projects than long-term contracts — we are ready to sign new long-term contracts to finance new infrastructure,” he said.
There has been some shift in Gazprom behavior in the past few years, including auctions and agreeing shorter term contracts.
For 2017, Gazprom signed a one-year supply deal with Lithuania, but Medvedev said talks were ongoing about returning to a longer-term export deal.
“Now we see a strong desire from Lithuania to sign a five- or 10-year contract. We have a one-year deal now, but we are in talks with them to go back to long-term contract,” he said.
POLITICAL ANGLE
Medvedev also urged European policymakers to encourage more gas consumption against the background of climate change policy and to allow Gazprom to build new pipeline routes to Europe.
“Europe needs a consistent energy policy that is compliant with COP21,” he said.
He also said that reliable gas supply was a “huge political question” that needs a political answer “now”.
“Despite price volatility, Gazprom is still moving forward with its capital investments in Europe,” he said.
Medvedev’s views were echoed Tuesday by Zubkov, who said Gazprom’s policy was directed toward long-term reliability of supply to Europe.
But, he said, the company could only supply gas via pipelines European politicians would allow.
This is a reference to political opposition to Gazprom’s planned Nord Stream 2 and TurkStream pipelines.
“This is a very challenging situation for our company,” Zubkov said. “It would be a pity if we would be politically forced to use routes that are not so favorable to us,” he said.
Manfred Leitner, head of downstream at Austria’s OMV, also said Europe needed to shift its political attitude toward Russia.
