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    Gazprom to discuss strategy as U.S. market set to slip away

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    Gazprom top executives are to hold a key board meeting today as the energy giant faces up to the possibility of losing the U.S. market.

    Gazprom top executives are to hold a key board meeting today as the energy giant faces up to the possibility of losing the U.S. market.

    Respected Russian business daily Kommersant reported on Tuesday that abundant shale gas has made the United States, the world's largest natural gas market, self-sufficient while surplus liquefied natural gas undermines the competitiveness of Russian natural gas in Europe.

    The lack of revolutionary ideas from Gazprom's management to reverse negative trends jeopardizes the development of the huge Shtokman gas field in the Russian Arctic, which was primarily designed to cater to the U.S. and Canadian markets, the paper said.

    Gazprom deputy CEO Alexander Medvedev, who is expected to sum up the results of the energy giant's 2009 operations, will confirm that Gazprom's sales fell 11.4% last year to 140 billion cubic meters due to a slump in global gas consumption. Medvedev earlier said Gazprom's export revenues were expected to plummet to $40-42 billion in 2009 compared with $64 billion in the previous year, the paper said.

    In a report obtained by Kommersant, Medvedev points to additional liquefied natural gas capacities in Qatar, which built up its LNG production by 67% to 167 billion cu m last year, as the primary reason for declining Russian natural gas sales in Europe.

    According to the paper, Qatar's cheap LNG flooded the European spot market from May to December 2009 while natural gas on long-term contracts even in the last month of the year was twice as expensive.

    The situation for Gazprom is also aggravated by the so-called 'revolution' in gas extraction from non-traditional sources in the U.S., the paper said, referring to the report.

    "Whereas several years ago, none of the companies known to us predicted rapid gas production in the U.S., today virtually all companies speak about the prospects of shale gas production - something that may radically change the entire global gas market," the paper quoted the report as saying.

    The surplus of gas in the United States has redirected LNG supplies to European countries and presented Gazprom with the dilemma of whether to continue investment into the Shtokman field, the paper said.

    Moreover, the old formula of gas pricing based on the prices of petroleum products with a lag of nine months is yet another reason for Gazprom's reduced sales compared with other competitors whose gas prices follow developments on oil markets with a lag of six and even three months.

    Mikhail Korchemkin, the head of East European Gas Analysis, told Kommersant that competition on the global gas market would be tight.

    "The main uncertainty involves shale gas reserves in Europe amounting to 15 trillion cu m. Expenses on this gas production will determine European prices in the next 10-15 years," he said.

    "If Gazprom fulfills its entire program of building gas pipelines, its transport expenses will not allow Russian gas to compete in Europe," the paper quoted him as saying.

    MOSCOW, January 26 (RIA Novosti)

     

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