Europe's demand for Russian gas grows

Sam Fletcher
Senior Writer

European demand for natural gas from Russia and central Asia is projected to grow to 330 billion cu m in 2020 from 145 billion cu m at present, said Aberdeen consultant Wood Mackenzie Ltd. in a Feb. 22 report.

"Fundamentally, Russia's supply potential is not in doubt; in fact, it has ample reserves to sustain production at current levels for approximately 85 years and significant exploration upside," said Tim Lambert, vice-president of consulting, Wood Mackenzie.

"The bigger issue is that increasing exports to the level required by Europe implies huge investments," Lambert said. "We estimate a total capital expenditure requirement in Russian gas fields and pipelines of around $240 billion [in 2004 dollars] over the 2004-20 period to ensure that Europe's demand for gas will be met."

Expected increases in domestic and export gas prices should almost triple revenues for OAO Gazprom to $77 billion by 2020. Still, the company would have to raise as much as $65 billion through debt to finance the amount of investment estimated by Wood Mackenzie. At the same time, Gazprom would have to significantly improve its performance on cost control, the analyst said.

However, European consumers are concerned that Gazprom currently does not intend to undertake anything approaching that level of investment. The Russian government's energy strategy, which Wood Mackenzie describes as "a key determinant of Gazprom's plans," indicates much lower levels of exports to Europe and other priorities for the company.

"Gazprom has significant aspirations in sectors other than European gas," said Lambert. "The most recent illustration of these ambitions has been the move to build a major oil business by acquiring OAO Rosneft—perhaps including the Yuganskneftegas unit of OAO Yukos—and other entities in the Russian oil sector."

He said, "Gazprom is also building a position in liquefied natural gas, entering gas markets in the US and Asia, and developing Russia's Far East. This is a program that would daunt even a supermajor."

As a result, the future looks potentially "awkward" for European gas customers who face increased reliance on Russia and Gazprom to supply up to 38% of that market. However, the alternative of Gazprom failing to meet Europe's increased call would be even worse. "Security and diversity of supply, demand side measures, and diversification of power generation fuels will all need to be high on the policy agenda," said Wood Mackenzie analysts.

US oil demand up
The Energy Information Administration in late February released its first revisions of December US oil data, increasing US demand by 190,000 b/d to a record 21.08 million b/d for the month. "This is the first time US demand has moved above 21 million b/d for a month," said Paul Horsnell of Barclays Capital Inc., London. He also noted that it marked the fourth consecutive month that EIA has revised demand "significantly higher than the level that had been implied by the weekly data."

Despite 14.6% fewer home heating oil degree-days in December 2004 than December 2003, US demand increased by "a very healthy" 401,000 b/d, which implies a "strong underlying rate of growth," Horsnell said. As a result, he said, "We are now projecting demand growth to average 2.3 million b/d in 2005."

Moreover, Horsnell repeated "more strongly" an earlier warning "that the oil supply system would be seriously stressed by global demand rising above 86 million b/d in the [fourth quarter] of this year." He now projects fourth quarter demand at 86.8 million b/d if weather conditions are normal.

That implies a demand level exceeding 88 million b/d next December. "The stresses along the supply chain would be expected to be severe with demand at those levels, and the refining industry remains the point of greatest weakness and inflexibility," Horsnell said.

EIA reported commercial US inventories of crude increased by 600,000 bbl to 297 million bbl during the week ended Feb. 18. US gasoline stocks jumped by 1.8 million bbl to 223.5 million bbl during the same period, while distillate fuel inventories fell by 700,000 bbl to 111.8 million bbl.

"Crude oil and distillate developments seem fairly benign, but that leaves gasoline where inventories are continuing to rise strongly," Horsnell said. "Getting the gasoline market back into equilibrium is likely to be a process of attrition."

Imports of crude by the US decreased by 791,000 b/d to an average 9.6 million b/d during the latest period. "Imports from Venezuela were particularly high last week," said EIA. Input into US refineries averaged 15 million b/d during the same period, down by 336,000 b/d, with refineries operating at 90.2% of capacity.

(Online Feb. 28, 2005; author's e-mail:

Related Articles

Delaware City refinery, Praxair ink deal for carbon dioxide recovery plant

07/17/2015 Delaware City Refining Co. LLC (DCR), a subsidiary of PBF Energy Inc., Parsippany, NJ, has entered a long-term agreement with Praxair Inc. to suppl...

TGP advances Northeast Energy Direct gas line to New England

07/17/2015 Tennessee Gas Pipeline Co. (TGP), a subsidiary of Kinder Morgan Inc. (KMI), Houston, has been cleared by KMI’s board to proceed with plans to build...

Nexen pipeline leaks 5,000 cu m of emulsion in Alberta

07/17/2015 Alberta Energy Regulator (AER) reported that a Nexen Energy ULC pipeline has leaked 5,000 cu m of emulsion—a mixture of bitumen, produced water, an...

MARKET WATCH: NYMEX crude oil prices drops below $51/bbl

07/17/2015 Light, sweet crude oil prices for August delivery dropped modestly to settle at just under $51/bbl on the New York July 16, but Brent crude oil Aug...

API: US petroleum demand rose in June, second quarter

07/16/2015 Total US petroleum deliveries, a measure of demand, increased 4.2% from June 2014 to average 19.6 million b/d last month. In the second quarter, de...

ConocoPhillips plans further capex reduction for deepwater exploration

07/16/2015 ConocoPhillips reported plans to further reduce its capital expenditures for deepwater exploration, with the “most significant reductions” coming f...

DOE official: LNG exports could be limited by silt-clogged waterways, ports

07/16/2015 Silt, which is increasingly filling US waterways and ports, potentially could limit US LNG exports if it is not dredged soon, a top US Department o...

Fitch notes increase in energy-default rate

07/16/2015 Recent actions of two exploration and production companies have pushed the trailing 12-month energy default rate among issuers of high-yield bonds ...

S-Oil lets contracts for Onsan refinery, olefins projects

07/16/2015 S-Oil Corp., Seoul, has let a series of contracts to Axens to supply technology for a residue upgrading and capacity expansion project at its 669,0...
White Papers

Definitive Guide to Cybersecurity for the Oil & Gas Industry

In the Oil and Gas industry, there is no single adversary and no single threat to the information tech...

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by
Available Webcasts

Better Data, Better Analytics, Better Decisions

When Tue, Oct 27, 2015

The Oil & Gas industry has large amounts of data stored in multiple systems which are purpose built for certain tasks. However, good decisions require insights based upon the data in all of these systems. These systems in turn do not talk to each other. So the process of analyzing data, gaining insights, and making decisions is a slow one and often a flawed one. Good decisions require accurate analytics and accurate analytics require superior/sustainable data quality and governance. This webinar focuses on:

  • The importance of data quality and governance
  • How technological advances are making data quality and governance sustainable in order to get the accurate analytics to make solid decisions.

Please join us for this webcast sponsored by Seven Lakes Technologies and Noah Consulting.


Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected