Gazprom Deputy Head Says Gas Undervalued

NEW YORK -- Gas is undervalued and its price is less susceptible to producer influence than oil because long-term contracts dominate the industry, said Alexander Medvedev, a deputy chief executive at Gazprom.

European consumption of the fuel will probably grow faster than previously forecast, Medvedev said in an interview. He said the continent might need an additional 150 billion cubic meters of gas by 2025.

A 15-member group of gas producers, which includes Russia, Iran and Qatar and is known as the Gas Exporting Countries Forum, agreed Dec. 23 to coordinate forecasts, investments and relations with consumers in an attempt to bolster their influence in world markets.

"Objectively, natural gas is undervalued," Medvedev said. "The era of cheap energy is over."

Natural gas futures on the New York Mercantile Exchange have dropped 21 percent this year and are down 69 percent since a 2008 high of $13.694 per million British thermal units reached July 2.

Asked about the purpose of the gas-producer group, Medvedev said "what is really important is to have a dialogue with consumers about the fuel and environmental aspects of its use."

Medvedev said consumer concerns that the group might seek to influence the gas price were unfounded. "It's a joke," he said, adding that long-term contracts prevent manipulation of output. The group pumps about 40 percent of global gas supply.

The Organization of the Petroleum Exporting Countries, formed in 1960, did not gain substantial influence over crude oil prices until the 1973 oil embargo and after U.S. crude output had peaked, Edward Kott, a commodities analyst at Louis Capital, said in a report Feb. 5. OPEC accounts for about 43 percent of global oil output.

The gas price is linked to the price of oil, which is also undervalued, Medvedev said. "Oil at $85 per barrel is more justified than $45 per barrel," he said.

Crude oil for March delivery surged 10.3 percent to $37.48 a barrel in New York on Friday.

The global financial crisis may mean an opportunity for Gazprom to purchase more assets at low prices, including in North America, Medvedev said, declining to comment further. But before Gazprom looks into purchasing more assets, "the dust should settle a little bit," Medvedev said.

He also said Gazprom was dedicated to securing stable supplies to its consumers in Europe after the deliveries via Ukraine were halted for several days in 2006 and again last month.

The company has no plans to sell its 50 percent stake in Swiss-registered trader RosUkrEnergo, Medvedev said, adding that the trader owed Gazprom about $500 million.