Russian PM: Era of Cheap Natural Gas is Ending

By Peter Fedynsky

Moscow
23 December 2008

Russian Prime Minister Vladimir Putin warns that the era of cheap natural gas is ending because of multi-billion dollar investments needed to develop the industry.

Speaking in Moscow at a meeting of the Gas Exporting Countries Forum, or GECF, Prime Minister Putin said liquefied natural gas has become an expanding global business that requires construction of more liquefaction facilities and special terminals to transfer supplies. He says existing gas fields are being depleted and promising new ones are farther away from leading consumption centers. As a result, says Mr. Putin, expenses for exploration, extraction, and transport of gas are rising.

Mr. Putin says this means that despite well-known global financial problems and the economic downturn, and despite even lower energy prices, the era of cheap energy, including the era of cheap gas, is clearly coming to an end.

The Gas Exporting Countries Forum, founded in 2001, groups Russia and 13 other gas exporting nations, including Iran, Venezuela and Qatar. Norway and Equatorial Guinea have observer status.  Its members say the forum discusses such topics as worldwide gas development, supply and demand, exploration, as well as production and transportation.  GECF members says they do not control gas prices the way OPEC influences the price of oil. However, the Bloomberg news agency quotes Venezuelan Energy Minister Rafael Ramirez as saying when the gas market is more developed worldwide, perhaps the GECF will have more instruments to regulate the market.

Natalia Milchakova, oil and gas analyst at the Otkrytia Financial Corporation in Moscow told VOA that gas producers cannot now control prices the way the OPEC oil cartel does, because pricing mechanisms for the respective energy resources are related to the means of delivering them. Gas, today is delivered mostly by pipelines based on long term contracts, while oil is transported in ships and can be withheld to increase prices. However, Milchakova says liquefaction allows gas to be transported like oil, which could change the situation.

The analyst says she does not exclude the possibility that the GECF can somehow influence market supplies and therefore prices, but notes that is not likely in the near future.

Meanwhile, Moscow continues to threaten Ukraine with a gas cutoff on January first if Kyiv does not pay off a $2 billion debt in full. This is the third year in a row that Russia has raised a debt issue at the height of winter. Most of Russia's gas exports to Western Europe run through pipelines in Ukraine. The Chairman of Russia's Gazprom energy company and First Deputy Prime Minister, Viktor Zubkov, did not rule out gas supply disruptions to Europe if Russia and Ukraine do not settle their differences.