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. Last Updated: 07/27/2016

Gazprom Anticipates Robust Demand From Europe

Gazprom expects robust gas demand in Europe and a recovery in pipeline gas prices no later than 2012 despite a new fall in supplies in May amid Europe's financial turmoil.

"We expect the gap between pipelines gas prices and spot prices to close no later than 2012," chief executive Alexei Miller told the European Business Conference in Cannes.

Gazprom, which supplies a quarter of Europe's gas needs via major pipelines under long-term contracts, saw an unprecedented slump in demand last year as the global financial crisis played out and as its main customers switched to cheaper liquefied natural gas and spot gas sources.

Demand for Russian gas picked up again from the end of 2009 amid the first signs of an economic recovery in Europe and because of freezing winter temperatures, but Miller said Thursday that he was less upbeat on short-term prospects.

"At the moment the financial and economic crunch negatively affects gas consumption.

"At the end of 2009 and in the first four months of 2010, a dynamic uplift in gas demand in the EU countries was registered, but the month of May will spoil the positive trend. As we see, the financial turmoil in the euro zone started to affect the energy markets," he said.

"Nevertheless we are confident that in the long-term prospect gas demand in Europe will be on the rise, while its domestic production will follow a rapid downturn tendency," he added.

Miller said the company expects the gap between pipeline gas prices and spot prices to close no later than 2012. Long-term contracts, under which the Russian gas export monopoly sells most of its fuel, provide stability that is of “paramount importance since Europe will have to ramp up gas imports in the future.”

Gazprom lowered its production target on Wednesday, after European demand slumped again last month. Gazprom plans to pump 519.3 billion cubic meters of gas this year, said Vsevolod Cherepanov, head of the gas, condensate and oil production department. A target of 529 billion cubic meters of gas given in April will be possible only next year, he said.

The May slump in demand spoiled a trend of rising gas demand that began at the end of last year, Miller said.

“Financial turmoil in the euro zone started to affect the energy markets,” he said. “We are confident that in the long term, gas demand in Europe can only rise.”

Miller said he came to Cannes to smash “myths” about “shale fever” and liquefied natural gas squeezing the company’s pipeline gas out of the European market. Gazprom is investing with European partners to develop pipelines, including the Nord Stream and South Stream projects, to raise exports.

“Shale gas will play a very important and useful role in balancing gas markets at the regional level,” Miller said. “But even if you’ve come to like foie gras, that doesn’t mean regular steaks aren’t needed.”

(Reuters, Bloomberg)