Arab Today, arab today european cold snap tests gazprom\s reach
Last Updated : GMT 05:43:52
Arab Today, arab today
Arab Today, arab today

European cold snap tests Gazprom\'s reach

Arab Today, arab today

Arab Today, arab today European cold snap tests Gazprom\'s reach

Moscow - AFP

Gazprom's inability to pump extra gas to Europe during the big winter chill has cast clouds over the Russian giant's vision of becoming the world's fail-safe supplier of last resort. Analysts said the snag's emergence, during one of Europe's coldest spells on record, points to supply inflexibility on the part of Gazprom that could spur the EU's bid to talk down the price of nearly a third of its total gas imports. Nations stretching from Germany to Greece reported gas shortfalls that reached 28.9 percent in Italy and nearly forced cuts to some domestic clients. "European clients of Gazprom have another strong argument for the price negotiation. The high prices of Russian gas did not guarantee the security of supply," said East European Gas Analysis chief Mikhail Korchemkin. "The cold weather spike in demanded raises questions about ... Europe's apparent expectation that Gazprom can quickly ramp up exports volumes as a 'swing supplier'," added IHS regional energy analyst Andrew Neff. There has been some dispute about whether Gazprom actually reduced its exports to supply shivering Russian clients or had simply failed to meet the extra demand put forward by European utilities. Both sides agree that no contractual obligations were broken and that Europe was largely able to meet the extra demand by digging into its own natural gas reserves. But analysts said Gazprom's problems stem from a risky strategy that focused on building up the state monopoly's pipeline network instead of ensuring it had enough European storage facilities for tapping in times of peak demand. That lapse appears to have been only compounded by a sharp cut in Gazprom's imports from Turkmenistan -- long used to supplement European sales -- ahead of this year's commissioning of its first mega-field on the Yamal Peninsula. "Turkmenistan and storage gas could have contributed some 240 million cubic metres per day -- enough to provide a stable gas flow to Europe," said Korchemkin. The firm's export chief Alexander Medvedev has conceded that Gazprom now lacks the gas storage space in Europe need to cover unexpected demand spikes in the years to come. "We cannot promise that this will not happen again next winter or over the next five years," Medvedev told Russia Today "That is why we have given the green light to a programme aimed at doubling the volume of our European storage facilities." Gazprom's difficulties lie primarily in the billions it has had to pour into projects such as the South Stream pipeline to Europe and development of new fields and links in Yamal. Both are long-term strategies designed to keep Gazprom's best-paying clients dependent on Russian gas for future decades. Yet their annual $13 billion cost swallows roughly a quarter of the net earnings expected for 2011. "All these pipelines are being built at record costs. In fact, Gazprom has abandoned the gas storage expansion programme to build more pipelines," said Korchemkin. Some analysts saw more serious flaws in Gazprom's field development and pipeline construction ambitions. They note that Europe wants to limit its Russian purchases while relying on Gazprom to meet surges in demand. And China is still haggling with the firm over tariffs and prices as it looks to other suppliers in Central Asia. "The problem for Gazprom at its giant new field in Yamal is the lack of steady clients for all that gas," said Troika Dialog analyst Valery Nesterov. "This is a question of capital investments and strategy. But now there is an understanding that (European storage development) is important to business," Nesterov said. Alfa Bank said some EU states may in fact have been overstating their "supposed under-supply" figures as a negotiating tactic aimed at reducing the overall amount of gas they have to buy from Gazprom this year. Nesterov for his part said Gazprom this month told analysts it still viewed Europe as a priority despite its Asian expansion plans. "Gazprom intends to keep a 30-percent share of the European market. Europe's dependence is here to stay for the long term," Nesterov said.

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