European Union plans to force liberalization of the continent's natural gas market could lead to a sharp jump in prices, a top executive at Russian gas giant OAO Gazprom , Europe's top import supplier, said Tuesday.
Alexander Medvedev, deputy CEO of Gazprom, told a small group of foreign reporters that Russian and European Union officials will conduct expert-level talks later this month to help work out differences over the EU's reform plans, which include a proposal to mandate "unbundling" - separation of transport from distribution and production.
But Medvedev backed off earlier hints from Russian officials that the EU plan might lead Gazprom to suspend or redirect major new gas projects. He said the gas giant is going ahead with its planned investments in new fields, though the EU proposal could affect its plans to build a new pipeline and other infrastructure in Europe.
Gazprom, which is the world's largest gas producer and also has ambitions to expand its operations in distribution and marketing in Europe, its largest export market, has sharply criticized the EU plan.
Medvedev said the proposal "will inevitably create a situation where prices will grow" by as much as 50%. While that would be beneficial for Gazprom as an exporter, he said it would hurt the company's interests in distribution and marketing.
"Liberalization...doesn't work in such infrastructural industries as power generation and especially gas," he said.
Gazprom is in a dialog with EU officials on the plan, which Medvedev dismissed as "very raw, like sashimi," and is hopeful that its views will be taken into consideration. Several large EU governments, as well as energy companies, also have criticized the plan.
On other issues, Medvedev complained that surging costs for supplies, services, and equipment are making new projects more expensive. The huge Shtokman development in the Barents Sea, for which Gazprom has partnered with Total SA and StatoilHydro ASA , will cost "on the order of $15 billion," though final estimates won't be ready until an investment decision is made. First production is targeted for 2013, he said.
Medvedev said he's "positive" about talks now underway on finalizing a supply deal to bring Russian gas to China, but refused to forecast when they might be completed. "The ball is in the Chinese court," he said, noting that it would take 4 years from the time a deal is signed until Gazprom could begin shipments.
The two sides have repeatedly signed agreements on supplies, but a final contract has been elusive, in large part because of differences over price. Medvedev refused to elaborate on what separates the two sides now.
He said Gazprom remains opposed to a plan by the Exxon Mobil Corp. (XOM)-led Sakhalin-1 consortium to ship its gas to China. Under a newly approved Russian gas strategy for that region, that output is earmarked for the domestic market, he said. Exxon has long maintained there isn't adequate demand locally and that it won't start production of the gas until it has a market.
Medvedev said talks with Exxon at the moment are "not active," but reiterated that Gazprom is willing to buy the project's entire gas output for sale to the domestic market. He questioned the economic justification of Exxon's plan to build a dedicated export pipeline to carry the gas to China.
He also denied recent reports that Gazprom had been in discussions with BP PLC about a stake in BP's 50%-owned TNK-BP Ltd.'s (TNBP.RS) Russian venture. He said there have been no discussions between Gazprom or its affiliates and any of the shareholders of TNK-BP, which include a group of Russian billionaires along with BP.
He said that if the shareholders ever decide to sell, Gazprom "will consider" buying assets, but that "today, we don't have any particular plans."
Medvedev also noted that Gazprom hasn't felt much impact from the tensions on global credit markets, despite its heavy reliance on international borrowing.
He said talks with Ukraine on a new supply deal covering 2008-2011 are underway, and that Gazprom is willing to allow the rates it pays Ukraine for transit of export gas to Europe and underground storage of the fuel to rise to European-market levels if Ukraine agrees to gradual increases in the price it pays for gas.
He said the role of trader RosUkrEnergo AG, which handles much of the business, is a matter for Ukrainian authorities to decide, although Gazprom would prefer to deal directly with Ukraine's state gas company.