Gazprom’s gas exports to Europe will be cut if the economic downturn deepens, the deputy chairman of the Russian state owned energy group has warned.
Alexander Medvedev said that Gazprom plans to reduce exports this year if energy demand continues to fall. This could result in higher utility bills for consumers in Britain but Medvedev told the Guardian that they should stop complaining.
“The British do not complain about their climate, why should they complain about their prices?,” he joked at a Gazprom press conference in London.
The global economic downturn has led to a collapse in the price of oil, which sets long term gas prices, and will hit Gazprom’s profits this year.
Gazprom, which supplies Europe with a quarter of its gas, is now reviewing its budget fixed for 2009. The company said it would wait until the end of this winter before deciding if energy demand in Europe had fallen sufficiently to warrant a cut in exports. Gazprom said it is ready to cut exports to Europe by up to 7bn cubic metres, or 4%, this year.
Andrey Kruglov, head of the department for finance and economics at Gazprom, said: “We see demand is going to be lower than our projections. Volume [of gas supplies] indicators are going to be dependent on economic and financial indicators. I can’t say how significant these changes will be as only one month of this year has passed. We will have to wait at least until the end of the quarter and wait and see what happens in the economy in Russia and the global community. However we have started developing different scenarios already now, based on oil at $25, $30 and $40.”
Last year, Gazprom hiked the price of its gas exports, blaming record oil prices of $147. Since last summer’s peak oil is now trading at less than $50 a barrel and wholesale gas prices in the UK have almost halved. Medvedev said that spot price was now lower than the price of gas Gazprom was selling in fixed long term contracts, arguing that this meant British consumers were already benefiting.
“The price decrease is there. The British market is liberalised and that has been the case for quite a long time,’ he added. ‘I would say that British consumers are benefiting in full from liberalised [energy] prices. The problem with this [liberalised market] is that prices are very unpredictable and prone to fluctuations.”
He said that in the long term, he did not think there was a risk of an oversupply of gas. Gazprom also sought to reassure European gas consumers that there would not be repeat of last month’s tit-for-tat row with Ukraine when both sides cut gas supplies to the rest of Europe.
A spokesman said: “If our Ukrainian partners comply with all the provisions in the contracts we hope that subsequent new year holidays will be much more comfortable.” He said that the crisis demonstrated the need to build more export pipelines for Europe.
Gazprom said it was reviewing its £18bn investment programme to develop its gas reserves as it looked to make further savings. It said that it was asking some industrial customers to pay in advance for gas supplies to reduce their risk from companies going bust. The company has set up a $700m (£472m) contingency fund to prop up any division in financial difficulties.