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: samf@ogjonline.com)

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

Quicksilver Canada gets LNG export approval

07/02/2015 Quicksilver Resources Canada Inc. has received approval from the National Energy Board of Canada to export 20 million tonnes/year of LNG from a pos...

Origin lets contract for Otway basin fields

07/02/2015 Origin Energy Ltd., Sydney, has let a $1.3 million (Aus.) contract to Wood Group Kenny for provision of a detailed engineering design for the onsho...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

Shell makes FID on Appomattox deepwater development in Gulf of Mexico

07/01/2015 Royal Dutch Shell PLC has taken a final investment decision (FID) on the Appomattox deepwater development, authorizing construction and installatio...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...
White Papers

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

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When 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.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


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