Russia to Keep Its Grip on Europe's Gas Market After Record 2017

(Bloomberg) -- Russia is working to keep natural gas exports to Europe near record levels in 2018 after the continent's biggest supplier, Gazprom PJSC, said its deliveries this year signal it is achieving on its ambitions to expand.

The state-controlled gas giant plans to ship a minimum of 180 billion cubic meters next year, Deputy Chief Executive Officer Alexander Medvedev said in an interview in St. Petersburg. That volume would be the second highest ever after at least 190 billion cubic meters expected this year, which is a record.

“Of course, it's business, not sports,” Medvedev said. Yet, this is “a new stage” in the company's history.

Gazprom meets more than a third of Europe's demand for natural gas, Russia's biggest and most lucrative market worth some $37 billion in revenue this year. Tighter trade links with the Kremlin-backed company contrast with increasing tensions on the military and political front.

Officials across Europe accuse Russia of everything from meddling in elections to menacing coastlines and airspace with warships and planes. Earlier this month, the U.K.'s armed forces warned of a growing threat for the Atlantic undersea communications cables, the internet and international trade from Russia's submarines.

European Union lawmakers have had their hearts set on diversifying energy supplies away from Russia and are urging expansion of ports to handle liquefied natural gas tankers from the U.S. Production there has skyrocketed, making the U.S. a potential top producer of LNG in the mid-2020s, according to International Energy Agency estimates.

Gazprom accuses the U.S. of politicizing its economic interests in the EU through a sanctions law earlier this year that targeted pipeline projects. Executives in Russia have so far shrugged off the threat of serious competition in Europe.

While EU gas demand depends on weather and economic growth, it's likely to increase next year as domestic production falls and coal prices recover, making imports from Gazprom more competitive, Medvedev said. Russia has the biggest potential to meet the additional demand, he said.

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Medvedev acknowledged that Europe may take more LNG imports, especially when demand exceeds the capacity of pipeline suppliers. In Britain, pipeline imports are near peak levels, and there's little storage available to give its system flexibility. The executive said supplies drawn from pipelines will remain more competitive than LNG.

Latin America and Asia so far remain priority markets for the super-chilled gas, especially from the U.S., amid higher prices there, Medvedev said. “This applies to both traditional and new markets -- China, India, Pakistan, Bangladesh, Vietnam.”

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“A global LNG market still does not exist,” he said. “There are three large regional markets -- America, Europe and Asia -- with a big price difference. An Asian price premium will stay in place as demand there is booming.”

--With assistance from Dina Khrennikova

To contact the reporter on this story: Elena Mazneva in Moscow at emazneva@bloomberg.net.

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net, Reed Landberg, Andrew Reierson

©2017 Bloomberg L.P.