Marshall Horn - Gazprom Chief Insists Demand for Russian Gas is Growing

Marshall Horn,

Demand for Russian gas is increasing, and the issue of new long-term supply contracts to Europe was at the top of the agenda during talks between Russian President Vladimir Putin and the head of Gazprom, Alexey Miller.

According to Miller, with regard to the demand for gas exports, the trend is “extremely positive”, TASS quoted him as saying in an interview.

“For example, a major consumer of Russian gas in Germany - the number one market for Russia gas - bought more 68 percent more gas in May than compared to the year before,” said Miller.

“This suggests that the demand for Russian gas is increasing, and without a doubt, the issue of new contracts for long-term supplies of Russian gas to the European market is at the top of the agenda in negotiations with our European partners,” the head of Gazprom said.

In general, the situation in both domestic and foreign markets is improving, Miller said. He insisted that the situation in 2015 “is much better than at the end of 2014”.

When asked by President Putin whether or not Gazprom had the ability to ramp up production, Mr Miller said the company was more than capable of meeting any increase in demand.

“Yes, we can quickly increase production and meet the demand for both Russian and foreign customers. At the same time, we can guarantee absolute reliability and security of gas supplies”, Miller said.

Miller told TASS that Gazprom had extracted some 444 billion cubic meters of gas throughout 2014, though it could easily raise output to 617 billion cubic meters if necessary. “That is enough to allow us to seamlessly pass the autumn-winter periods and meet peak demand that may arise in the case of abnormally severe weather,” he said.

The Chinese contract

Regarding Gazprom’s dealings with China, Mr. Miller said he expects a contract on the supply of gas through the “Western Route” to be signed and sealed later this summer. Last May, Russia and China signed an agreement on the framework of the project and the basic conditions of the gas supplies. However, the two parties have not yet signed a formal contract.

“We’ve already finalized a number of details, in particular the 30-year term of gas supplies to China, annual contract quantities (30 billion cubic meters), the construction period, agreed on a number of points regarding the gas quality specifications,” the Gazprom chief said. In his opinion, “the foundation, the basis of a future contract has already been laid.”

With regard to the pipeline, groundwork prior to its construction has already begun and the project is on track to be completed by 2019.

“No doubt, the most important project for us is the “Power of Siberia” pipeline,” Miller said. “We are on schedule, absolutely no problems at all.” The Gazprom chief added there would be an opening cermony later this month before construction commenced on the Chinese side of the pipeline.

One issue yet to be resolved is the question of currency. Miller said he had discussed the possibility of trading in rubles or the Chinese yuan as opposed to U.S. dollars in previous negotiations. However, he said no agreement has been reached so far.

Once fully operational, the Western Route will deliver at least 30 billion cubic meters of gas to China annually, although the pipeline could potentially deliver up to 100 billion cubic meters a year.

Image credit: stefano.campolo via Flickr.com

via Marshall Horn, CFTC Gazprom Chief Insists Demand for Russian Gas is Growing