Russian gas giant OAO Gazprom (GAZP.RS) said Thursday it expects an increase in European gas consumption during the coming decade, contradicting the view of some industry observers who predict a gas glut.
State-controlled Gazprom said demand for natural gas will rise 70 billion cubic meters by 2020, Sergei Komlev, head of contract strategy and pricing at Gazprom Export, said at an investment conference in Moscow.
Yet experts, including Fatih Birol chief economist at the International Energy Agency, foresee low demand for gas in the coming five years.
"I have no good news for Russia, I'm afraid," Birol said. "I see a global gas glut hitting until 2015."
Demand for Russian gas in Europe--Gazprom's most lucrative market--plummeted last year amid the economic slowdown and as Europe consumed more Norwegian gas and increased the use of alternative energy sources, including liquefied natural gas.
Gazprom Monday posted an 8% drop in sales for the third quarter, compared with a year earlier.
The Cambridge Energy Research Agency, or CERA, predicts the current oversupply will last at least until 2012, after which it will depend on the pace of economic growth.
"Big volumes of LNG will push into the European market in the next few years," said CERA Senior Director Michael Stoppard. Estimates show global LNG capacity will increase by 50% between 2009 and 2013--a factor which will also add to the gas glut, Stoppard said.
Birol predicted demand for conventional gas will be hit by shale gas--a new technology that allows producers to extract reserves that were previously unrecoverable through the use of sophisticated fracturing techniques.
Last year, the U.S. overtook Russia as the world's biggest producer of natural gas, partly because of increased shale gas output in the U.S.
"There is a silent revolution taking place in the U.S.," he said.
Gazprom's Komlev, however, pointed out that the future of shale gas is very uncertain, because this gas is more expensive to produce than conventional gas. Many producers have made huge investments and are now heavily burdened with debt, said Komlev.
Gazprom supplies about a quarter of Europe's gas needs, but its market share dropped last year, partly because of a pricing dispute with neighboring Ukraine in January, which resulted in an almost three-week shutoff of Russian supplies to Europe through Ukraine.
Gazprom's Komlev said 2009 was a difficult year and that this year will be equally challenging.
"But we aren't as pessimistic about gas demand as some commentators," Komlev said. "We don't see a catastrophic decline in demand."
Demand will rise as indigenous production in Europe declines, and under current export contracts, Gazprom will attain around one-third of the European gas market by 2020, up from the current 25%, he said.
"Despite lower demand last year, our European buyers haven't asked us to lower volumes in the longer term," said Komlev. "They assume that demand will rise."
The disagreement over the future marks a drastic change to just a few years ago, when the industry was certain consumption would rise and Gazprom was being criticized for not investing enough to satisfy growing European demand. Today's focus on renewable energy--especially in Europe--has taken focus away from the industry, argues CERA's Stoppard. From a commercial and environmental perspective the case for natural gas is strong, he says.
"But the gas industry is being outcompeted in shaping the energy policy in Europe," said Stoppard.