Gazprom insists on long-term contracts for gas to Europe

(Interfax – BRUSSELS, May 30, 2013) Natural gas consumers can only be guaranteed reliable and stable supplies if there are long-term contracts in place that entail take-or-pay terms, Deputy CEO of Russian gas giant Gazprom (RTS: GAZP) Alexander Medvedev said in Brussels on Thursday.

“It is precisely these (long-term contracts) that serve as the foundation of the gas business, providing the producer and exporter a guarantee of return on multi-billion-dollar capital investments, which don’t lessen per unit of produced gas. And this guarantees uninterrupted gas supplies to the buyer,” the top manager said at the international conference ‘Russia-EU Energy Dialogue: Gas Aspect’.

“Besides that, if you look at forward curves, starting in July, spot forward prices, not to mention day-ahead prices, will be higher – significantly higher – than the prices in our long-term contracts. How the consumer will behave in this situation – and that period is likely to be long-term – the European Commission is so far representing itself poorly,” Medvedev said.

Gazprom’s deputy CEO is convinced that “Europe needs more gas.”

He pointed to forecasts indicating that the need for gas imports over and above the current level will be 145 billion cubic meters (bcm) by 2025 and 200 bcm by 2030. At least 80 bcm of extra imports will already be needed by 2020. That, Medvedev said, is connected with the faster decline in Europe’s domestic production.

“And I want to note that there aren’t transport capacities for supplies of this gas either by pipeline or in the form of liquefied natural gas (LNG). What I mean is that there aren’t regasification terminals or pipeline capacities,” Medvedev said.

The long investment cycle is necessary to prepare both a production base and transport to handle large quantities of gas. “A decision needs to be made today,” he said.

Russia has proposed looking at these estimates together with the European Commission, and it wants to hear how much gas Europe needs in line with rising consumption, Gazprom’s deputy CEO said.

“We’re ready to supply as much gas as Europe needs or wants,” Medvedev said.

He warned against the seduction of projects involving shale gas and renewable energy resources, the subsidies for which are beyond the scope of fair competition. He also cautioned Europe against consuming coal, which increases greenhouse gas emissions.

Medvedev said he does not doubt the continued prospects for competitiveness on the European natural gas market.