June 20, 2010 / 8:16 AM / 9 years ago

Sechin says Gazprom must raise game

ST PETERSBURG, Russia (Reuters) - Russian gas behemoth Gazprom must raise its game by penetrating the swiftly growing markets of Asia after a fall in exports to European Union customers, Russia’s energy tsar told Reuters.

Gazprom usually supplies a quarter of the European Union’s gas needs but exports tumbled last year as some customers turned to cheaper alternatives such as liquefied natural gas on the growing spot market.

In a sign of the seriousness with which Moscow views the changes to the world gas market, Deputy Prime Minister Igor Sechin called on EU customers — Gazprom’s biggest source of revenue — to give a clear projection of future demand.

“We would like to understand the long-term projection of consumption,” Sechin, the official in charge of Russia’s mighty oil, gas and metals sector, told Reuters in a 90-minute interview in Russia’s former imperial capital of St Petersburg.

“The winter was hard and a host of partners started to replace gas with cheaper spot prices but spot is temporary,” said Sechin, who is also board chairman at Russia’s biggest oil company, Rosneft. “For stability you have to pay.”

Gazprom sales to Europe fell to $42 billion in 2009, according to preliminary data, down from $65 billion in 2008, though Gazprom says its sales are improving this year.

Sechin, 49, said the market conditions showed Gazprom, the world’s largest gas producer, had to boost its effectiveness by entering new markets and spoke of the intense interest China, Japan, Vietnam and South Korea had in securing Russian supplies.

“As market conditions show, Gazprom must increase the effectiveness of its work by diversifying its markets,” he said. “We also see the risks linked to one market and... Gazprom will continue to work with the aim of entering new markets.”

Energy experts have criticised Gazprom for focusing on securing its grip on pipelines to lock up gas supplies from Russia and Central Asia, at a time when the increasing use of transportable liquefied natural gas (LNG) is making pipelines less important.

Sechin said Russia needed to strike a balance between the two. “Gazprom traditionally delivered gas to Europe, a pipeline system was created and not to use it does not seem reasonable to me,” he said. “We need to combine pipeline transport and LNG.”

The deputy premier rejected suggestions that private gas companies, such as Russia’s Novatek, might be allowed to export gas as well as Gazprom. “We will not cancel Gazprom’s monopoly on exports,” he said.

ENERGY SUPERPOWER?

Russia is the world’s biggest energy producer with estimated proven gas reserves of 43.3 trillion cubic meters (tcm). Sechin indicated it had much more, saying one region alone — the Arctic region of Yamal — had estimated reserves of 53 tcm.

“The Russian Federation has gas and her reserves are very significant,” said Sechin, a close ally of Prime Minister Vladimir Putin and his point man for the energy industry.

“We can ensure gas for Europe and for Asian partners but we would like Gazprom to have a long-term perspective of clear work with all our partners,” Sechin said.

When asked if he saw potential for a possible merger between Rosneft and Gazprom to craft a national champion, Sechin refused to be drawn. He said such a major transaction would require extremely careful thinking and that he did not like speculating on such vague proposals.

Oil, gas and metals exports have driven Russia’s economy since Soviet times, though the volatility of world energy prices has locked the economy into a cycle of booms and busts.

As part of a plan to feed the energy-hungry economies of Asia and move dependence away from sales to Europe, Russia is trying boost oil production in the vast but distant province of East Siberia.

But investors in major East Siberian oil producers have been spooked by a tug of war among senior officials over re-imposing an oil export duty on 22 oil fields in East Siberia.

When asked about the issue, Sechin called for an overhaul of the oil taxation system which he said was a decade old.

“One option is to move to taxation on excess profits,” Sechin said. “We believe that on the whole this system should be universal, work not only on production and also take into account the problems of refining, transport and sales.

“We have been requested to prepare the proposal by the end of the year,” he said.

Writing by Guy Faulconbridge, editing by Michael Stott and Robert Woodward

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