gazprom predicts oil at us250 in 2009

Carl Mortished | June 11, 2008

THE chief executive at Gazprom, the Russian energy giant, has predicted that the price of oil will nearly double to $US250 ($264) a barrel and Europe's dependence on Russia for supplies will increase.

Alexei Miller said the price of gas will rise with oil due to the company’s long-term gas contracts to European customers, which are linked to oil prices.

Speaking at a business conference in the French resort town of Deauville, Mr Miller said that the root cause of rising energy prices was not speculation but competition for resources.

He said: “There is a certain influence from speculators but this is not a determining influence. We think the oil price will reach $US250 per barrel in 2009. The competition for resources is growing and the tendency is very noticeable.”

Mr Miller said Gazprom would invest $US30 billion per year in developing new gas transport links and he berated European governments for their efforts to diversify away from Gazprom and seek supplies in Central Asia which he said could lead to higher prices.

“Europe’s desire to diversify is based on the concept that anything is better than relying on Russia but to diversify at any price gives unexpected results,” said Mr Miller, suggesting that Europe’s efforts to build separate gas links to Central Asia bypassing Russia had failed.

Mr Miller said that a route for South Stream, a gas pipeline linking the Balkans with Russia via a sub-sea pipeline across the Black Sea, had been agreed and that Slovenia and Austria had recently joined the project.

Widely viewed in Brussels as a rival to the EU’s Nabucco pipeline project, which seeks to link Europe to Middle Eastern and Central Asian gasfields via Turkey, South Stream is being vigorously promoted by Gazprom and least week secured the support of OMV, the Austrian energy group which is the lead partner in the Nabucco consortium.

Mr Miller said: “Some people see South Stream as a threat to Nabucco. Since demand for gas is growing it is not a threat.”

He insisted that his company’s relationship with Europe was one of mutual dependency and he predicted that within seven to ten years Gazprom would be the world’s largest company with a market capitalisation of more than $US1 trillion.

“We are already the biggest by gas endowment; we have eight times the reserves of ExxonMobil,” he said.

Gazprom’s deputy chief and the head of Gazexport, Alexander Medvedev, criticised the EU’s efforts to link Gazprom’s long-term sales contracts to spot market prices, suggesting that it would not lead to more competition.

“It would be naive to think that in ten years to come there will be a buyer’s market on the Continent," he said. "The countries that will have gas resources and that will be able to satisfy demand are Russia, Qatar and Iran. We should not invent gas suppliers that have no gas supplies.”

Mr Medvedev said that Gazprom was not involved in the current talks over the future control of TNK-BP, the Russian affiliate of BP which is embroiled in a dispute with its joint venture partners, Mikhail Fridman, Len Blavatnik and Viktor Vekselberg.

He said that Gazprom had confirmed its interest in the asset when the subject of the sale of a stake arose a year ago: “Today, there is a corporate conflict internally. We hope the conflict will be resolved.”

Oil is Gazprom’s second priority after gas and the development of the Russian market which he said would within three to four years become as profitable as the firm's export markets.

Gazprom plans to raise its oil output, which is 100 million tonnes per year, by 4 per cent per year to 2012 at which point it would represent 15 per cent of the company’s total hydrocarbon output.