Gazprom’s prospects on European market

Nevertheless, Gazprom plans to continue playing an important role on the energy market in the EU. Europe has always remained the main gas export market for Russia. In order to strengthen its positions there Gazprom is now implementing projects on construction of new pipelines. The North Stream pipeline has already been put into operation and the construction of the South Stream is about to start. But the current difficult economic situation in Europe affects gas consumption volumes. The EU countries are also striving to diversification of gas supplies and the competition on the EU gas market is growing, Valery Yazev , president of the Russian Gas Association.

"In the first six months of 2012, the EU imports of natural gas fell by 34% pipeline gas supplies decreased by 12%, LNG supplies from Qatar fell by 34%. The question is whether it is temporary difficulties of the result of the EU energy policy? These problems do not weaken Russia’s interest in the European market. Although Russia’s gas exports will decrease this year, Russia’s will keep its share on the European gas market which is 38.5%. But the competition on the European market is getting stronger."

Alongside Norway, Algeria, the Netherlands, Qatar, Nigeria new players are to enter the market in the near future. These are Azerbaijan, Turkmenistan, Cyprus, Mozambique and Israel. It is the European market, which continues to bring main income to gas exporters. It is the most developed and important gas market for Russia.

There are objective changes on the EU market. Inter-fuel competition is growing and some countries have begun to implement the provision of the European Union's Third Energy Package. One of the core elements of the third package is ownership unbundling which stipulates the separation of companies' generation and sale operations from their transmission networks. According to Tatiana Mitrova, head of the Institute of Energy Studies, Europe has never experienced the situation it has now when it sees the decrease in demand instead of growth. Nobody knows how to adapt to this situation.

"The most unpleasant thing is that in the last 10 years the demand for gas on the European market has not been growing. European industry experts and gas companies missed this fact and now they begin to admit it post factum. Will the growth resume? Here we have hot debates. It will depend on the market regulation and on gas prices. It is important to remember that gas production in Europe is decreasing while the need for gas import is growing. Who will meet the demands - is an open question."

The position of the EU government with regard to the European gas market here is very unfavorable for Russia. Europe wants a maximum diversification of sources of supplies. One of the declarations the European Parliament issued last summer stressed that diversification meant gas imports from other countries than Russia. That means a very serious political influence.

Nobody speaks about the reduction in volumes of gas supplies from Russia and plans to drive away Russia from the European market. But industry experts think that Gazprom and other Russian gas companies will have to correct their programs adjusting them to new circumstances. Anyway, Russia has a “safety cushion” - a portfolio of long-term contracts with European consumers, which have already been signed. The terms of the main contracts expire after 2020, so Gazprom has time to adjust to the new market conditions.