Gazprom Calls for Long-Term Deals

BloombergMedvedev, seen at last year's World Economic Forum, said increased investment depended on its European clients.
Gazprom deputy CEO Alexander Medvedev warned Monday that plans to boost gas production at home depended on signing long-term contracts with Europe, as the state-run monopoly said it would increase capital investment to record levels over the next two years.

"We've been getting contradictory signals from our European partners," Medvedev said. European capitals were urging Gazprom to boost production, while speaking internally of reducing dependence on Russia, he said.

"If you drive a car, you know what happens if you accelerate and break at the same time," he said. "We cannot invest additional billions of dollars unless we have clarity from our clients."

Europe gets 25 percent of its gas supplies from Gazprom, predicted to grow to at least 33 percent by 2020. Fears of overreliance have grown since a 2006 Gazprom dispute with Ukraine partly disrupted the flow of gas to Europe.

Experts warn that Gazprom must move soon to boost production if it hopes to fulfill export contracts, as well as growing demand at home. Soviet-era fields in western Siberia are drying up, while the firm has yet to follow through on long-floated plans to develop new fields offshore and in eastern Siberia.

Gazprom has focused in recent years on acquiring new assets, such as a majority stake in Sakhalin-2 and in Kovykta, following prolonged disputes with the projects' foreign operators.

Yet in a prospectus released ahead of an upcoming bond issue, the state-run firm said it would boost capital investment to 668.6 billion rubles ($28.5 billion) in 2009, up nearly 40 percent from 479.4 billion rubles this year, news agencies reported. That figure is due to grow to 849.6 billion rubles in 2010, the prospectus said.

"We must increase our capital expenditures in order to satisfy the anticipated demand of our customers, replace fields and maintain and develop our gas-transportation system," the prospectus said, Bloomberg reported.

Medvedev, speaking at a Association of European Businesses meeting, insisted that Gazprom was a reliable supplier and blamed its negative image on Western media and politicians.

"We never interrupted gas supplies to Europe, even during the breakup of the Soviet Union," Medvedev said.

Officials of state-run Naftogaz Ukrainy were in Moscow Monday to continue talks on direct gas supplies between the two countries. Medvedev hinted the deal was far from complete.

"The only hope we have is that ... for some reason Ukraine will not try to step out of the agreement," he said. "We have faced this situation in the past."

He denied the current dispute with Ukraine, which saw Gazprom briefly decrease supplies to the country last month, was politically motivated.

The deal to simplify the Russian-Ukrainian gas trade will remove one of the previous intermediaries involved, UkrGazEnergo. A 50-50 joint venture between RosUkrEnergo, a trader 50 percent owned by Gazprom, and Naftogaz, it will stop selling gas inside Ukraine from Tuesday.

That trade will now be handled 50-50 by Gazprom and Naftogaz.