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Reliability of Gazprom as EU’s main gas provider in question

February 07, 2012, 15:49 UTC+3 Alexandrova Lyudmila

The reliability of Russia’s gas monopoly Gazprom as the main supplier of gas to the European Union has been called in question. In a situation where Europe is suffering from low air temperatures problems suddenly developed with undersupplies of Russian gas. Gazprom disclaims responsibility and puts the blame on Ukraine.

A week ago reports started pouring in from the EU countries talking about reduction in Russian gas supplies. The decline was observed in eight countries – Poland, Slovakia, Austria, Hungary, Bulgaria, Romania, Greece and Italy, said the European Commission's spokeswoman Marlene Holzner. There was a certain reduction in gas traffic to Germany, but German importers were warned in advance. Pressure in the pipelines in Italy was down by 24 percent, in Austria, by 30 percent, and in Poland, by 8 percent.

On the whole, undersupply averaged to 10-12 percent. On Monday, Holzner said that the situation with Russian natural gas supplies to the European Union improved over the past weekend, but a number of European countries were still experiencing a shortage of Russian gas.

So far, the European countries have not experienced any special problems with replacing the missing amounts of Russian gas. “A decline in supplies will not cause problems, and the market participants will get the undersupplied amounts of gas from other sources and underground storages,” the European Commission’s spokeswoman told RBC. According to Bloomberg, the underground storages contain 25 percent more gas than they contained on the same date last year, including 68 percent in Germany and 63 percent, in France. Italy is an exception where gas reserves in stock are slightly below the same period of 2011 (at a level of 63 percent).

It turned out that the problems emerged despite the fact that Gazprom’s daily production (1.6 billion cubic meters of gas) and the retrieval of gas from underground storages (630 million cubic meters) are at their peak. On February 2 Gazprom’s representatives said that they have considerably increased the amount of supplies to the European countries. Instead of 150 billion cubic meters in annual terms the Russian gas monopoly started pumping through 180 billion cubic meters. A day later the chief of the pricing department of Gazpromexport, Sergei Komlev, said that Europe would like to get too much gas, while the company had no ability to build up supplies.

At a meeting with Prime Minister Vladimir Putin the holding company’s deputy CEO, Andrei Kruglov, acknowledged that several years ago Russia reduced supplies of gas to Western Europe by 10 percent, but then the amounts of gas provided were back to those stated in the contracts. Kruglov said that Gazprom’s gas production was at its peak, just as the retrieval of gas from underground storages. The blame was placed on Ukraine, which, the official said, was taking more gas than expected.

What makes the situation still worse is that January and February in Russia were one of the coldest ones over the past decade. So a choice has to be made – either maintaining supplies inside of the country or exporting gas to Europe.

Putin urged to maximize the efforts in meeting the demand of foreign clients, not forgetting though that domestic needs were the top priority. Also, in his opinion, the work on new gas pipeline projects should be stepped up. If a second line of the Nord Stream were operational now (due to be commissioned later this year), Gazprom would have tapped new gas fields, including Bovanenkovo. Also it would be working more actively on the Shtokman deposit and today there would not have been such problems, Putin said.

There have not been any such cases before, Kommersant quotes the head of East European Gas Analysis, Mikhail Korchemkin, as saying. Even during a far harsher winter, that of 2006, Gazprom managed to comply with its liabilities. But the monopoly has since reduced the import of gas from Turkmenistan from 40 billion cubic meters to 10 billion cubic meters. Now it under-uses two of its Westbound pipelines (Orenburg-Western border and Orenburg Novopskov) with a capacity of 50 billion cubic meters a year. The pipelines from Yamal, where Gazprom produces 90 percent of its gas, are packed to capacity, which is the system’s bottleneck.

After the commissioning of Nord Stream last autumn the potential export capacities of Gazprom reached 210 billion cubic meters, but in reality they are not enough even for the export of 180 billion cubic meters, which Gazprom’s Deputy CEO Alexander Medvedev declared earlier. The poor development of the system of the underground gas storages in Russia in recent years also makes itself felt.

Ukraine has already reacted to the accusations of the Russian gas monopoly. Naftogaz Ukrainy said that it was taking Russian gas in strict compliance with the contract. Besides, the holding company has maximized the retrieval of gas from its storages to have reduced the consumption of Russian gas.

Prime Minister Nikolai Azarov said that Ukraine was prepared to lower the consumption of gas “without harm to itself” to let Gazprom supply the necessary amount of fuel to Europe. Ukraine, he said, might lower the import and to use more gas from its underground storages.

In principle Gazprom may face sanctions. However, the monopoly has a good chance of avoiding them, if the contract amount of supplies will be measured by quarters. Respectively, Gazprom may deliver more gas, when it gets warmer.

Even if Poland and Italy fine Gazprom, the sanctions are unlikely to be significant, Vitaly Kryukov, of IFD-Kapital, is quoted by the RBC Daily as saying.

A Gazprom official said that “the monopoly is prepared for fines, but they are seldom levied.”

MOSCOW, February 7.