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Russia to expand EU gas exports despite Ukraine

03.12.2014  | 

Russia is seeking to raise natural-gas exports to Europe as much as 23% in the next two decades even as the escalating crisis in Ukraine sparks concern about the region’s reliance on it for imports.



Russia is seeking to raise natural-gas exports to Europe as much as 23% in the next two decades even as the escalating crisis in Ukraine sparks concern about the region’s reliance on it for imports.

Supplies from Russia, which provided about 30% of Europe’s gas last year, may increase to 198 billion cubic meters by 2035, Energy Minister Alexander Novak said in an interview in Moscow, while preparing an energy strategy the government plans to discuss in May.

The strategy is being drafted as the US and the European Union threaten Russia with sanctions after pro-Moscow troops took control of Ukraine’s Crimea region. About half of Russian gas exporter OAO Gazprom’s supplies to Europe travels through Ukrainian pipelines. EU officials are calling for gas imports from the US to diversify away from Moscow-controlled supplies.

“This crisis around Ukraine can change things, but only at significant economic costs,” Simon Pirani, senior research fellow at Oxford Institute for Energy Studies, said Tuesday by phone. “In the long term, Russia is the swing producer for the European market.”

Gas exports to Europe reached a record 161.5 billion cubic meters last year, according to Gazprom. That may climb to 173 billion cubic meters in 2020 on the way to the 2035 forecast, according to the Energy Ministry’s preliminary estimates, which include some liquefied natural gas.

Bypassing Ukraine

Europe-bound shipments have been disrupted twice since 2006 when disputes between Russian and Ukraine led Gazprom to cut sales to the neighboring country. The shortfall raised cries in Europe to seek additional fuel sources, while Russia responded by planning to add capacity circumventing Ukraine.

Gazprom, which is using the Nord Stream pipeline to send gas directly to Germany, plans to start shipments to Europe through the South Stream pipeline at the end of next year, Gazprom CEO Alexey Miller said at a March 4 meeting with Prime Minister Dmitry Medvedev.

“We are consistently increasing supplies through other routes” that bypass Ukraine, Miller said in comments posted on the government website.

Gas transit via Ukraine is continuing as usual, a Gazprom press official said Tuesday, asking not to be identified because of company policy.

Security Questions

“The Ukraine crisis has raised questions about the security of Russian gas supplies and these will be amplified if there is any actual disruption of gas flowing to Ukraine,” Richard Mallinson, a London-based analyst at Energy Aspects, said by e-mail.

While Novak declined to comment on the Ukraine situation, his ministry’s preliminary estimates showed shipments falling to former Soviet republics.

Shipments to countries that used to be part of the Soviet Union are expected to stay near current levels of 56 billion cubic meters in 2020 before falling to 45 billion meters by 2035, Novak said.

Asia, LNG

LNG exports from the US will not end Europe’s dependence on Russian gas because of price and availability of supply, Christopher Granville, managing director of Trusted Sources UK, said in an e-mailed report.

“If Gazprom decides to encourage gas-on-gas competition on European hubs, it has the ability to keep US LNG out of the market or at least to force European customers to make the choice of giving priority to security of supply over price,” Granville said.

Russian exports to Asia will approach European levels over the next 20 years, Novak. Supplies to Asian countries are seen at 34 billion cubic meters by 2020 including 29 billion cubic meters of LNG, Novak said. Estimates for 2035 are 117 billion cubic meters, of which 79 billion cubic meters could be supplied as LNG.

Russia shipped 15 billion cubic meters of LNG to Asia last year from Gazprom’s Sakhalin-2 project.

China Gas

After more than a decade of negotiations, Gazprom plans to supply as much as 38 billion cubic meters of natural gas a year to China National Petroleum Corp. by pipeline. The companies are considering preparing a contract for signing at Putin’s visit to China in May, Gazprom said in January.

The state-run exporter may start supplies under the contract in 2019 to 2020 after building the link, according to Russia’s Energy Ministry.

Competition may arise before then. Two Russian companies -- OAO Novatek and OAO Rosneft -- are planning to start new LNG projects in 2017 and 2018 to supply fuel to Asia after Putin ended Gazprom’s monopoly on LNG shipments abroad last year.

Rosneft is also seeking access to a new gas-export pipeline through Siberia, Kommersant newspaper reported March 7.

The Energy Ministry’s press service declined to comment on Rosneft’s proposal as it prepares its response by April 18.

“We are not considering ending Gazprom’s monopoly on gas pipeline exports,” Novak said in an interview before Rosneft’s proposal became public. “Russia would not gain if Gazprom and other Russian companies supply gas to one market as they would reduce the price by competing with each other.”

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