Supply Of Russian Gas 'In Jeopardy'

Taken from The Independent, UK, 20 November 2006
By Andrew Osborne

Russia is not the all-powerful energy superpower it claims to be and will struggle to keep Europe reliably supplied with natural gas unless it takes urgent multi-billion pound action, a leading academic has claimed.

In an interview with The Independent, Dr Alan Riley, an expert at the Centre for European Policy Studies, claimed that Europe could face gas supply problems as early as this winter due to years of chronic underinvestment in Russia.

He alleged that Moscow has failed to invest in opening up new gas fields, that it is investing "in the wrong things", and that there will be a "significant" shortfall of Russian gas by 2010 unless Gazprom, Russia's state-controlled energy giant, spends tens of billions of pounds on tackling the problem. The price of gas will rise sharply and the higher costs will be passed on to European consumers, he warned.

"The Russians say there is no problem and are blasé about it," Dr Riley said.

"But there is a very short period to put this problem right and the situation is very serious. Gazprom (which has debts estimated at $38bn [£20bn]) is simply not investing in gas fields."

According to the academic, Russia has opened up only one new gas field since the collapse of the Soviet Union in 1991 and demand for gas is set to rise within Russia, putting even more strain on the supply chain.

He called on Gazprom to urgently increase spending on repairing leaking gas pipes, to rapidly build more efficient compressor stations, and said the Kremlin had to quickly open up new gas fields in some of Siberia's remotest corners to avert a supply crunch.

Controversially, Dr Riley also claimed that Russia's status as an omnipotent energy superpower where oil wells and gas fields have replaced nuclear warheads as instruments of influence is over-hyped.

"Russia is often portrayed in the Western media as an all-powerful energy superpower. It is not. In fact Russia and the EU are locked into a sort of mutual dependency. Russia's pipelines all point in one direction, towards the European Union."

He added that the looming gas deficit could be "vast", citing an estimate from Vladimir Milov, a former Russian deputy energy minister, who warned that Moscow faces a shortfall of 126 billion cubic metres of gas by 2010.

To put that in perspective the UK's consumption of natural gas last year was 95 bcm.

Dr Riley argues that injecting more competition into Russia's heavily protected energy sector would give producers more of an incentive to invest in securing future supplies.

However, his gloomy forecast is not accepted in Russia, at least at an official level. Gazprom insists it has enough gas to meet all its export commitments through to 2020 and has dismissed claims to the contrary as "scaremongering" and "disinformation".