July 3, 2008 / 2:12 PM / 11 years ago

UPDATE 2-Gazprom CEO stands firm on $250 oil, $1000 gas view

(Adds more quotes on global prices, details on Azerbaijan)

By Oleg Shchedrov

BAKU, July 3 (Reuters) - Europe’s bill for Russian gas will rise by a quarter by the end of 2008 and will eventually double, the head of Gazprom (GAZP.MM) said on Thursday, repeating his view that the oil price will rise by another $100 a barrel.

Alexei Miller told reporters during a trip to Azerbaijan he expected prices to rise to $500 per 1,000 cubic metres from the current $400 by the end of 2008. If oil prices were to hit $250 per barrel, gas prices would hit $1,000, he said.

Many analysts and oil executives have already described Miller’s previous predictions of an oil price rally to $250 as apocalyptic.

They also warned against attempts to talk oil and gas prices up, especially when predictions come from the very company that supplies a quarter of Europe’s gas needs.

With a market capitalisation of $320 billion, Gazprom is one of the world’s five most valuable firms, and Miller has said rising oil prices would help Gazprom become the world’s most valued stock, worth over $1 trillion.

On Thursday he said oil prices could rise faster than many people expect.

“According to certain forecasts, the price of oil may reach $250 per barrel in the near future. If it does happen, the price of gas will exceed $1,000 per 1,000 cubic metres,” said Miller, who is accompanying Russian President Dmitry Medvedev on his trip to Azerbaijan.

“But this price won’t be something extraordinary for the market,” he added. “We at Gazprom are now reviewing the price forecast for the year-end and we believe prices in Europe will exceed $500 (per 1,000 cubic metres)”.

Miller said the global oil production would not be able to cope with demand for the foreseeable future.

“We see that production of hydrocarbons in the world is beginning to work on the basis of new principles. It is not the principle of supply and demand, but the principle of balance between price and production volumes. Today people are focused on achieving a maximum long-term economic return,” he said.

Gazprom is already enjoying record revenues in Europe and it said in June it expected its export sales to soar 62 percent this year to a record $64 billion.

The price spike would mean bad news for customers, who are already suffering from record energy bills.

Russia’s neighbour Ukraine will have the most to lose as Gazprom has told Kiev it would switch to European prices from next year. This year Kiev is paying a fixed price of $179.5 per 1,000 cubic metres.

Gazprom’s export gas prices depend on international oil products prices and change with a lag of six to nine months.

U.S. light crude futures CLc1 hit a record of $145.85 per barrel on Thursday.

RUSSIA WANTS AZERI GAS

Miller also said Russia and Azerbaijan had agreed to start talks on Gazprom’s purchases of Azeri gas after agreeing on the idea in principle a month ago.

Baku is planning to supply its gas to Southern Europe via Turkey, the first major project on the territory of the former Soviet Union that bypasses Russia.

Azerbaijan’s key gas project is known as Shakh Deniz, located off the shore of the Caspian Sea. It already supplies Turkey with over 5 billion cubic metres a year.

Baku has only a minority stake in the project, which is controlled by BP (BP.L) and StatoilHydro STL.OL, which have been cool to the idea of gas sales to Russia so far.

Miller’s spokesman Sergei Kupriyanov said Gazprom would be ready to buy as much gas as Baku is prepared to sell and would pay market prices. He also said the two countries were discussing the idea of gas swaps in Europe.

Azeri President Ilham Aliyev said after talks with Medvedev he was aware of new joint projects but refrained from direct comments about the sale of Azeri gas to Russia.

Gazprom has been buying gas from Central Asia at knock-down prices for years to cover its own large export and domestic needs but has pledged to switch to market prices from next year. (Reporting by Oleg Shchedrov, writing by Dmitry Zhdannikov)

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