CONFERENCE CALL: Gazprom extols virtues of Russian gas to skeptical EU audience

CONFERENCE CALL: Gazprom extols virtues of Russian gas to skeptical EU audience
By Kester Eddy in Budapest December 6, 2016

European governments, energy policymakers and even some corporate leaders need to forget wishful thinking and look at the hard facts: Russian gas is essential for the overall wellbeing of you, your economies and your fellow citizens, now and in the foreseeable future: accept that, and let’s go forward and cooperate on developments.

That, in essence – though couched in more diplomatic language – was the message by Alexander Medvedev, deputy chairman of Gazprom, the Russian state-owned energy group, delivered on December 5 to the “Budapest Energy Summit”, on day one of two-day jamboree for energy specialists in the Hungarian capital.

“I’d like to take all the political slogans off the table, and speak about concrete figures and facts,” the 61-year-old graduate from the Moscow Physics and Technology Institute began, “and I will try to explain why the gas extracted from the Russian far north and travelling thousands of kilometres will, very reliably and cost-efficiently, provide European households with heat and light for years to come.”

Despite efforts by some EU strategists to abandon fossil fuels – the result, he said, of “politically driven requests for diversification of gas sources” – gas consumption within Europe is experiencing “a renaissance”.

“In 2015, gas consumption in Europe grew by 5.6% compared to 2014, and in the first three quarters of 2016 [it] demonstrated a 4% growth [vis-a-vis 2015],” Medvedev said. Moreover, gas is “making a comeback in power generation by taking back market share from coal”.

Since gas sourced from EU domestic sources is in decline – down from 300bn cubic meters (cm) in 2010 to less than 260bn cm this year – like it or not, with Russia already supplying almost one-third of EU gas demand, even to maintain current usage levels will necessitate further growth of Russian supplies.

“Over the first 11 months of 2016, Gazprom has exported 12% more gas than in the same period of last year, [including] 17.6bn cm of gas to Europe in November, breaking the company’s all-time monthly record,” he said.

In total, the Russian state monopoly expects to supply 175bn cm of gas to Europe and Turkey this year, another all-time high, topping the 2015 total by 15bn cm, a 9.4% jump.

True, new and alternative sources could, on paper, be tapped to diversify supplies, but with Europe likely to see gas demand rise by another 100bn cm “within the next decade”, Medvedev dismissed such responses, at least on a significant scale, as fundamentally flawed on the grounds of both cost and reliability of supply.

No, the solution to Europe’s energy well-being is – naturally enough in Gazprom’s mind – further exploitation of Russia’s massive gas resources, specifically through additional links such as Nord Stream 2, the controversial second pipeline that Gazprom plans between Russia and Germany, but which is opposed by many within the EU as ultimately increasing dependency on – and increasing the risk of blackmail by – Russia.

Old-fashioned view

Prior to Medvedev’s presentation, the summit had contemplated a wide variety of diffuse and varied topics: words such as innovation, e-mobility, renewables, photo-voltaic and ‘prosumer’ (a conflation of consumer and producer, the latter referring to micro- or home-based electricity generation units that feed into the grid if production is in excess of the owner’s demand) were much in vogue.

Meanwhile corporates such as MVM, the Hungarian state-owned energy group, expressed hopes of expansion into neighbouring states, while Mol, the Budapest headquarted oil and gas group, spoke of leveraging its 2,000 petrol stations – or “sales points” – to hook a good proportion of its 10mn customers on its newly created coffee blend, part of its drive to create a significantly enlarged income stream from retail.

All of which was interesting, but hardly of the same import as the Gazprom official’s missive which, given the lack of discussion (no questions were taken from the audience throughout), merely concluded with polite applause.

However, at least one senior energy professional was unfazed by fears of future gas shortages unless links with Gazprom were further expanded. “From what I heard, it was a somewhat old-fashioned view,” the power veteran told bne IntelliNews during the break. “With wind [generation] and especially photo-voltaic [solar power] coming on stream, and unit costs declining all the time, the energy market in ten years time will be very different from what it is now. The Russians know this, they are smart people, but they want to send the message out that everybody will still need gas more and more.”

Perhaps. Medvedev, though appearing supremely confident of his thesis, sought to behave like a benevolent uncle, always willing to cooperate with European partners throughout. “In spite of strained political discussions, it’s important to remember that behind every pipeline of Gazprom, there stands a commercial interest and economic feasibility, backed by our partners in Europe. The Nord Stream 2 project, which is so significant to Europe, joins the interests of the largest energy companies, and their clients,” he reasoned. “Let’s not give way to transient political sentiment… Russian gas is and will remain the logically right and economically beneficial and secure solution to meet European energy demands… at competitive prices.”

Yet, in spite of such conciliatory speech, he could not resist a barbed comment towards one recalcitrant neighbouring state, which is responsible for transiting much of Russia’s to Europe. “I believe it’s quite clear that molecules of gas have no nationality, [but] I was really surprised by the statement of our Ukrainian colleagues who have been telling for one year that they are not dependent on Russian gas anymore,” he said, adding, just to make the message crystal clear: “But I believe that those who understand know how it goes – the reverse flow to Ukraine is… Russian gas.”