UPDATE 1-Gazprom says Europe to depend more on Russian gas in years to come

Mon Mar 3, 2014 11:56am EST

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By Dmitry Zhdannikov

LONDON, March 3 (Reuters) - Europe will become even more dependent on Gazprom's gas supplies in years to come, the Russian state company said on Monday, despite calls for sanctions against Moscow over the Ukraine crisis.

With its stock down more than 13 percent amid market jitters over the stability of Russian gas flows via Ukraine, Gazprom's management was upbeat as it held its annual meeting with investors in London.

Link to fund manager interview:

"Gazprom has increased its share in European markets because Europe's domestic production has fallen in countries such as Britain and Norway ... we see no signals that the situation in Europe will change," Gazprom deputy head Alexander Medvedev said.

Gazprom, which supplies more than a quarter of Europe's gas needs, cut exports twice to Ukraine over the past decade amid pricing disputes with Kiev.

The European Union has accused Gazprom of using gas as a political tool and said it would seek to diversify its sources of supply.

Gazprom's share of European gas markets last year rose to 30 percent from 25.6 percent in 2012, Medvedev said, as it shipped record volumes of 162.7 billion cubic metres (bcm) while Europe's consumption shrank.

"Europe simply won't see the arrival of gas suppliers of such calibre (as Russia, Norway or Algeria) any time soon," Medvedev said.

Russian gas exports to Europe in the next four years should be only slightly lower than in 2013, he said. Ukraine transits less than half of total Russian volumes to Europe, with the rest going via Belarus, under the Baltic and Black Seas.

Medvedev said that until Russia builds a new pipeline - known as South Stream - to Europe under the Black Sea, it would rely on Ukraine for the transit of at least 70 bcm a year.

"We cannot fully avoid transit risks without building South Stream. This is why we are moving so confidently towards starting the project in 2015," he said.

SANCTIONS

Gazprom's executives said transit to Europe was flowing normally via Ukraine but otherwise gave little indication about events there. Investors asked few questions about the issue.

"Gazprom's management has no influence on the situation in Ukraine. It is the government that will decide, not Gazprom," Oleg Maximov from Sberbank CIB said.

Jeffrey Woodruff from Fitch Ratings said gas disruptions were not his base scenario for now.

"If it were to happen, it could take longer to resolve than during previous disruptions - because Gazprom was in control of the supply situation back in 2006 and 2009. This time, disruptions could possibly come from sanctions, which could take longer to resolve," he said.

Gazprom declined to comment on possible sanctions.

The company's head of strategy, Dmitry Lyugai, said Gazprom believed Europe would be able to cover no more than a tenth of its current demand from shale gas fields by 2030.

"There will be no shale miracle in Europe," he said.

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