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Energy

UPDATE 3-Gazprom upbeat on long-term demand despite May slump

* Pipeline gas prices to recover by 2012

* European demand will be robust as own output falling

* European financial jitters soured demand in May

(Updates with CEO comments on Southstream, oil price)

By Muriel Boselli

CANNES, France, June 10 (Reuters) - Russia's gas export monopoly Gazprom GAZP.MM expects robust gas demand in Europe and a recovery in pipeline gas prices no later than 2012 despite a new fall in supplies in May due to Europe's financial turmoil.

“We expect the gap between pipelines gas prices and spot prices to close no later than 2012,” Chief Executive Alexei Miller told the European Business Conference in Cannes.

Miller, who two years ago had predicted a boom in oil prices just before the economic slump sent prices lower, added that he expects oil prices to hit $100 per barrel by 2012.

Gazprom, which supplies a quarter of Europe’s gas needs via major pipelines under long-term contracts, said there was an unprecedented slump in demand last year as the global financial crisis played out and as its main customers switched to cheaper liquefied natural gas and spot gas sources.

The company had to postpone the launch of some of its key projects, including on the Yamal peninsula and the giant Barents Sea Shtokman field.

Miller said Gazprom was determined to stick to its latest deadline to complete the South Stream gas pipeline, designed to supply southern Europe with new volumes of Russian gas, by end of 2015 but admitted the target was ambitious. [ID:nLDE65728W]

“Our foreign partners know it’s a tight schedule, and a tough one,” said Miller.

Demand for Russian gas picked up again from the end of 2009 as the first signs of an economic recovery in Europe emerged and due to freezing winter temperatures.

On Thursday, Miller said he was less upbeat on short-term prospects.

“At the moment the financial and economic crunch negatively affects gas consumption”.

“At the end of 2009 and in the first four months of 2010, a dynamic uplift in gas demand in the EU countries was registered but the month of May will spoil the positive trend. As we see, the financial turmoil in the euro zone has started to affect the energy markets,” he said.

“Nevertheless we are confident that in the long-term prospect gas demand in Europe will be on the rise, while its domestic production will follow a rapid downturn tendency,” he added.

SHALE GAS

Miller described the booming shale gas industry as a “fashion trend,” which has relatively low output, sharp depletion rates after the first few years of production and high investment costs.

“As a result shale gas can serve as local source of energy, compensating a reduction of production volumes of traditional gas in the regional markets,” he said. However, new ways to balance gas markets were always welcomed, he added.

Gazprom said on Tuesday it was now looking into shale gas projects in the U.S. in a move to further diversify its resource base and tap into this lucrative sector. [ID:nLDE6572B0]

Shale gas accounts for 15-20 percent of U.S. natural gas production, providing a relatively clean energy source for a country sensitive to its dependence on foreign oil.

The boom in shale natural gas drilling has raised hopes the United States will be able to rely on the cleaner-burning fuel to meet future energy needs, but concerns about its impact on water quality could slow the industry’s ability to tap this bountiful resource. (Writing by Dmitry Zhdannikov, Muriel Boselli; editing by Alison Birrane and James Jukwey)

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