Russia Sees ‘Too Much’ EU Energy Diversification

By Ewa Krukowska

Russian Energy Minister Sergei Shmatko said the European Union is pursuing “too much” a policy of energy-source diversification and assured his country can provide “good and economically viable” supplies.

The EU relies on Moscow-based OAO Gazprom for about a quarter of its natural gas, about 80 percent of which is shipped via Ukraine. The 27-nation bloc is seeking additional sources after price disputes between Russia and its neighbor disrupted fuel supplies to the EU twice since 2006.

“I think we have to say unfortunately that in the area of energy, if you look at the situation between Russia and the EU partners, there’s a certain lack of trust here and there,” Shmatko told an EU-Russia energy conference in Brussels. “We see too much of this sort of policy diversification in Europe.”

The EU is the biggest market for Gazprom in terms of revenue, and prices at home are as much as 10 times lower, according to Chief Executive Officer Alexei Miller. Gas demand in Europe shrank last year following the global economic crisis, while supplies of liquefied natural gas rose amid increasing production from shale formations in the U.S., leading to oversupply and a drop in spot prices.

Ensuring the security of the EU’s gas and oil supplies is a priority for Energy Commissioner Guenther Oettinger, who took up his post in February. To diversify its supply sources, the bloc agreed last year to help fund the 7.9 billion-euro ($10.8 billion) Nabucco pipeline, which is due to send Caspian-region gas via Turkey to Austria.
New Routes

“Obviously, Europe is looking for new routes of supply and new sources,” Shmatko said. “And we of course understand that this is a fair approach by the EU to minimize any external risks. However, we would still like to point out that any diversification means additional costs to you.”

Nabucco, which would bypass Ukraine, is competing with the Gazprom-led Nord Stream pipeline project that would send Russian gas under the Baltic Sea to Germany. Gazprom and Italy’s Eni SpA are also jointly heading the South Stream project that links southeastern Europe to Russia via the Black Sea.

“We are convinced that we can provide good and economically viable supplies,” Shmatko said. “I think that if we work together as partners, there will be a win-win situation.”

Gazprom, which sells gas to Europe under multiyear contracts with prices linked to those for oil products, exported 140 billion cubic meters of gas to Europe last year and expects to ship a similar amount this year.
Oil Prices

As gas for next month tumbled 25 percent in New York this year, diverging from oil prices, Gazprom said earlier this month it reached agreements with E.ON AG, Eni and GDF Suez SA related to their request for reconsideration of prices.

Companies in the region are still “under great pressure” and want to increase even further the flexibility of supplies, said Jean-Francois Cirelli, vice chairman of GDF Suez and president of the European industry association Eurogas. The EU and Russia need to “restore complete trust” in their energy cooperation, he told the conference.

A “gas glut” in supply capacity will exceed 200 billion cubic meters next year, from 130 billion this year, according to the International Energy Agency. The market should return to balance between supply and demand by 2015, Gazprom’s Deputy Chief Executive Officer Alexander Medvedev told reporters in Brussels today.

Ministers from the 11-member Gas Exporting Countries Forum are scheduled to meet on Dec. 2 in Doha to discuss the state of the world gas market.