Shale gas means pollution and seismic risks, says Gazprom chief

What are the plans for bringing the Nord Stream gas pipeline into operation?

At the moment, almost all the volumes that can be pumped via the first Nord Stream line have been contracted. Contracts have been signed with Dong Energy to supply 1 billion cubic meters a year through the first line and another 1 billion cubic meters through the second line.

The project is running on schedule. All necessary permission has been obtained from the countries whose territorial waters or economic zones will be crossed by the pipeline. The first line is scheduled for commissioning in 2011, and the second one will be operational in 2012.

Why has Shtokman been postponed?

Given the market changes, especially in the Liquefied Natural Gas (LNG) market, the Shtokman Development AG board of directors made a decision to construct the early production facilities for pipeline gas (including a floating production unit (FPU), a subsea pipeline to shore and an onshore gas treatment plant) as a separate stage within Phase 1. The final investment decision regarding production of pipeline gas will be taken in March 2011, and the decision on LNG – in the second stage – by the end of 2011. Shareholders believe that under this arrangement they will be able to commence pipeline-gas production in 2016 and to ensure LNG production in 2017.

Gazprom held a meeting on gas supplies to the Asia–Pacific region, and the “East Programme” was identified as a strategic priority. Why?

With its huge resource base in West Siberia and a planned new gas production centre in the Sakha Republic in East Siberia, Gazprom has a robust position to meet the long-term gas demand of the Asia-Pacific economies.

Gazprom has consistently developed its production infrastructure in the Russian Far East, creating a good basis for eastward deliveries that will have strategic value. Once the Sakhalin – Khabarovsk – Vladivostok gas transport system (GTS) has been completed, we plan to begin construction of the Yakutiya – Khabarovsk – Vladivostok GTS in 2012. Thus we will be able both to supply gas to the southern parts of our Far East and grow our gas exports to the Asia–Pacific by pipeline and by sea with the help local gas liquification or compression facilities that we plan to build in the Primorsky Region.

Can you elaborate on Gazprom’s plans for this region?

Gas contracts with Asia will offer an important export diversification option for the Russian gas industry. We expect our eastward exports to be significant and comparable with what we ship to Europe.

The markets we are targeting include China, South Korea and Japan, and at a later stage such niche markets as Singapore.

Will any of this affect European supplies?
Absolutely not. In the long term, Gazprom will maintain its position as a major exporter of hydrocarbons to the EU, since it possesses the world’s biggest reserves of natural gas accessible for pipeline transport. Most European nations will be switching to gas, which is steadily ousting other sources of energy as a much cleaner option to fuel their economies.
Moreover, Gazprom has the world’s biggest portfolio of long-term gas supply contracts. The finalised contracts alone account for almost 3 trillion cubic meters of gas in the coming years, and some of these agreements run to 2035.

The United States have resolutely embraced unconventional shale gas. How might this affect Gazprom’s gas supplies?

We cannot deny the impact of shale gas, which accounts for about 10% of overall consumption in the US. However, this is still a long way from a genuine energy revolution.

Increased shale gas production in the United States has spurred competition in the North American market by limiting the opportunities for LNG producers, including Gazprom, to fill the gap in the shrinking conventional production. In the longer term, shale gas will apparently replace the declining conventional gas production in the United States.

Could the “shale gas fever” combine with the economic downturn to transform global gas markets?

Shale gas is produced by means of hydraulic fracturing based on pumping a mixture of water and chemicals into boreholes at high pressure in order to crack up the rock and release the gas. This inevitably leads to environmental damage. Apart from huge water consumption, this production method may lead to pollution of underground water and even provoke seismic activity. And as far as Europe is concerned, it is still too early to talk about large-scale production potential.

Will Gazprom go for new projects and markets this year? What are your growth expectations?

Demand for natural gas is set to grow worldwide in the next few decades. Gas has all it takes to maintain the balance between competitiveness and prosperity, on the one hand, and sustainability and environmental awareness on the other. A recent market survey completed by the International Gas Union confirms this point: by 2030 global demand for gas is expected to rise from the current 3 trillion to more than 4 trillion cubic meters annually, and its share in global energy consumption will rise from 21 to 28%.

Our company sees multiple opportunities for business development in Asian markets in terms of both pipeline and LNG exports. On top of that, Gazprom is committed to gain a leading role as a global LNG supplier. This segment will take us into marine transportation and regasification business and will expand our export geography. LNG will also enhance the flexibility of natural gas supplies to our existing clients.

In Europe, we have the benefit of a proven and well-maintained infrastructure linking Russian gas fields with Germany, Italy and many other countries. Gazprom has been investing heavily in new underground storage facilities in the EU and is working on new pipeline projects to meet future demand. We believe that this strategy will mitigate transit risks and provide the groundwork for expanding Gazprom’s presence on the EU market up to 32% by 2020.

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