Alexander Medvedev answers your questions – Part one

In this week’s readers’ Q&A session, Alexander Medvedev, deputy chief executive of Gazprom, answers your questions.

In the first of two posts, he discusses changes to gas pricing, how reliable a partner his company is for EU countries and how Gazprom will respond to the shale gas boom.

In the second post, published later, he will answer questions on support from Vladimir Putin, the likelihood of a deal between South Stream and Nabucco and future Russian gas demand.

Next in the hotseat are Terry Duffy and Craig Donohue, chairman and chief executive of the CME Group. They will be answering your oil-price related questions next Friday, February 25th. Send in your questions for consideration by the end of Sunday, February 20th to energysource@ft.com.

But for now, over to Alexander:

Gas Pricing

Will we continue to see changes to the long term contract prices from oil-price-linked formulae to formulae incorporating references to spot prices?
Adam Townsend

Fundamentally, the oil linkage provides the best balance between the upstream operators and wholesale buyers of natural gas. There have been several periods in the recent past when spot was more expensive than oil-linked, and we could have made a short-term gain.

During the recent Europe-wide cold snap, buyers would have taken significant hits if they had been buying significant volumes on spot – which is complex in itself due to the lack of liquidity and physical infrastructure necessary.

Whilst we are currently seeing a slight differential between the spot and oil linked-price, we would suggest that this is a fairly short term phenomenon. We believe that industrial demand will pick up in 2012-2013, which will drive prices back up.

International gas disputes

Is Gazprom a reliable partner for EU countries? How can we be sure that a crisis such as that between Ukraine and Russia will not happen in future?
Marcin Gawęda, Onet Biznes

Gazprom has a decades-long unbroken relationship in supplying secure volumes of natural gas to EU member companies. For more than four decades we have delivered gas uninterrupted to our European customers. During the dispute with Ukraine the issue was Ukraine’s non-compliance with its contractual obligations as a transit country – this was a crisis of transit, not of supply.

Russia and Europe need to work hard to diversify supply routes in order to mitigate the dangers posed by political interferences  in transit countries, but also by natural catastrophes or terrorist attacks. Projects such as Nord Stream and South Stream will help ensure that we will meet the supply needs of all of our European customers.

Gas-powered vehicles

How much natural gas could be used for vehicles in Europe, say in 2020? Would you plan to install gas stations branded Gazprom?
Evgeni Utkin, Quotidiano Energia

There is a potentially massive market for vehicles that run on liquefied natural gas or compressed natural gas. We welcome international efforts like the Blue Corridor project in Europe, designed to help having freight transferred on vehicles that run on CNG.

We have a significant level of experience that would allow us to enter this market. Clearly, we are one of the world’s major natural gas focussed energy companies. We also have a strong heritage in both petrochemicals and a successful retail network of GazpromNeft branded gas stations that are an integral part of the GazpromNeft business.

However at the moment, the major question is one of profitability, or return on investment. Whilst we are constantly examining the investment possibilities in this area, we are not yet ready to commit either financial or operational resources.

New extraction technologies

Technology is making it possible to develop enormous gas resorces, such as shale gas, all around the world. How is this going to impact on Gazprom?
Jose Luis Sureda

Gazprom has been at the forefront of efforts to develop affordable alternate sources of Russian gas to complement our globally significant conventional reserves.

As the first Russian company to start coalbed methane production, Gazprom is also the first to account for these reserves on our balance sheets.

Regarding shale, it would be foolish to suggest that it has not had a short term effect on the global natural gas industry. However, we would suggest that a little time is taken before the strategic effects are agreed. We do remain an interested observer in developments moving forward.

Shale gas

Russia is such a dominant gas supplier, and also has great shale potential.  Surely the best long term solution is for Gazprom to embrace shale instead of fighting a losing battle against it?
Nick Grealy, No Hot Air

I take the point, but Gazprom has the largest conventional natural gas reserves, which would be, in general, cheaper and more operationally flexible to monetise and develop, than the potential shale reserves. If technology moves on to the point where it makes economic sense for Gazprom to explore and develop these reserves, then we would of course consider it – however at the moment that is not the case.

In this second post, he tackles renewable heat, biofuels and carbon regulation.

Earlier, he discussed how discredited the European emissions trading scheme is and what the jump in oil prices means for renewables.

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