Gazprom plans to deliver gas to energy-hungry China from 2015, Deputy Chief Executive Alexander Medvedev said, as the company opens one of the world's largest economies for Russian supplies of the fuel. "We should finalise commercial contracts in the middle of next year," Medvedev told Reuters Insider TV on January 21.
That will enable Gazprom to deliver gas from "2015 to the western corridor" of China, he said. China is seeking to fuel its economic growth - estimated in a Reuters poll at 9.7 percent this year after 8.7 percent in 2009 - with energy sources that emit little carbon dioxide such as nuclear power and gas and wants more reliable power supplies.
More and more countries are vying for natural gas from central Asia and Russia, whose main export markets have traditionally been Europe. Most recently, Turkmenistan opened a new pipeline to China in December.
State-owned Gazprom, which holds the world's largest gas reserves, has enough supplies for China and Europe, and both regions should pay market prices for the fuel, Medvedev said. "We don't see any reason why China will not be in a position to pay a reference price," he said, specifying that he was referring to "market prices". He declined to say what those prices were in 2009.
Ukraine's state energy company Naftogaz said at the end of December it could pay some $305 per 1,000 cubic meters from January 2010.
Gas emits less carbon dioxide than coal when burned for power production, and countries such as Germany and China are seeking to increase their power production using the fuel.
The producer plans to ship 60 billion cubic meters to China a year, Medvedev said. That compares to an average of 150 billion cubic meters Gazprom delivers annually to Europe on average. Deliveries plummeted in 2009 but Gazprom is betting on reviving demand for the fuel. It is promising improved earnings and demand after profits in the first half dropped 50 percent as demand slumped due to the financial crisis.
"We anticipate that profit and cashflow in the second half will be substantially better than in the first half," Medvedev said. Demand for gas producers as well as European utilities has declined to levels seen years ago and both industries will recover on a similar pace, according to Medvedev.
Gas demand will return to pre-crisis levels around 2012/2013, Medvedev said, close to estimates of analysts that see power demand in Europe to have recovered by the middle of the decade. Gazprom's earnings might be helped as the company has reached agreements with European gas distributors such as E.ON and GDF-Suez, which face lower demand but are tied in sometimes decade-long gas purchase contracts with Gazprom.
Under the agreements, European gas companies will make "advance payments" for the gas they contracted but have not taken and will then be able to fully pay for the fuel when they take it at a later stage, he said. Gas supplies to western Europe will be safe this winter, Medvedev said, as he expected Ukraine to honour its agreements with Gazprom under which it will pay market based prices from the beginning of this year.