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Gazprom gas prices for Europe may fall 17% by 2017

July 11, 2014, 14:57 UTC+3 MOSCOW

The ministry expects oil prices to be quite flat: $104 per barrel of Urals in 2014, and $100 per barrel in 2015-2016

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MOSCOW, July 11. /ITAR-TASS/. Gas prices under Gazprom’s long-term contracts with European countries may fall 17% to $320 per 1,000 cubic meters by 2017 due to gas supply diversification, including shale gas production, business daily Vedomosti reported Friday, citing a representative of Russia’s Economic Development Ministry.

The diversification of gas supplies to Europe will contribute to the gas market saturation in the mid-term and lead to a gradual decrease of gas prices relative to oil prices, the representative said.

Infographics Russian gas in Europe

Russian gas in Europe

One-third of gas consumed in EU comes from Russia. Infographics ITAR-TASS
Gazprom usually binds gas contract prices for Europe to oil quotations and uses the economic ministry’s forecast as the basis, a source close to the company said. The ministry expects oil prices to be quite flat: $104 per barrel of Urals in 2014, and $100 per barrel in 2015-2016. “Probably the calculations are made on the basis of forward prices on the European spot gas markets,” another source close to Gazprom said.

The ministry could also take into account discounts, which Gazprom may provide in the future, as some European companies are insisting on revision of contract prices, East European Gas Analysis Director Mikhail Korchemkin said. By binding gas prices to spot ones Gazprom will reduce risks of a fall in oil prices in the mid-term, Korchemkin said, attributing the fall to higher oil supply from the US, Iran, and Iraq, and completion of mind monetary policy cycles in some key countries.

However, the ministry’s gas price forecast may look too pessimistic, Deputy Director of the National Energy Security Fund Alexei Grivach said, the daily reported. Gazprom is already selling gas under long-term contracts with large discounts relative to oil prices, and moreover, Europe cannot receive gas from alternative sources at lower prices, he said. The company’s gas prices will remain within a $350-$400 range, Grivach estimated.

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