Russia here to stay as energy superpower
Tue Jan 3, 2006
By Margaret Orgill - ANALYSIS
LONDON (Reuters) - Russia's emergence as an energy powerhouse is unlikely to be thrown off course by the row with Ukraine as Europe's demand for oil and gas continues to grow, analysts said on Tuesday.
Russian oil and gas companies are stepping up production to meet the rising demand and fill a growing energy gap created by falling flows from mature North Sea fields.
"If this builds into a more major row, then you can't rule out some commercial impact. But I doubt this will happen -- the Russians are very sensitive about their image in Europe," said Jonathan Stern of the Oxford Institute of Energy Studies.
The row between Moscow and Ukraine, which led to gas supply cuts to states from Serbia to Germany at the weekend, has triggered calls from politicians to diversify gas deliveries away from Russia.
Gas monopoly Gazprom (GAZPPE.RTS: Quote, Profile, Research) warned on Tuesday there was still a risk of supply disruptions to Europe if Ukraine continues to expropriate Russian gas from the pipeline crossing its territory.
Europe relies on Russia for a quarter of its gas imports. Russia plans to increase its gas exports to Europe by a third to 200 billion cubic meters a year by 2020 but its market share will remain constant as European demand grows.
Russia's oil output has also grown rapidly in recent years and hit a post-Soviet high in December 2005.
The country produces every tenth barrel of oil in the world and is the world's second largest crude exporter after Saudi Arabia, with supplies going mainly to Europe.
Russia's crude exports of up to 5 million barrels per day cover more than a quarter of Europe's oil needs and Russia's main crude oil export blend Urals is the main traded grade both on the Mediterranean and in northwest Europe.
UTILITIES LOOK TO DIVERSIFY GAS SUPPLY
Analysts say the row will prompt European utilities to intensify their search for new suppliers to reduce their dependence on Russia.Poland's prime minister said on Tuesday that diversifying gas supplies away from Russia was a priority and talks were under way to buy gas from Norway or the Caspian region.
"There will be a lot of reconsideration of future options -- companies will be asking how reliable are the Russians," said analyst Patrick Heren of UK-based Heren Energy.
"This will make it more attractive to look for gas elsewhere."
But companies' options are limited. The mature North Sea is starting to run out of gas and once self-sufficient Britain has now become a gas importer.
The main alternative is to import liquefied natural gas (LNG) from more distant producers such as Egypt, Nigeria and Qatar. Over 20 LNG import projects are planned in Europe.
LNG is gas which is cooled into liquid for easy transport by tanker.
A single ship can deliver enough gas to supply London for a week.
Spain, which depends almost entirely on imported gas, has rules to prevent over-reliance on a single source. Gas companies are only allowed to import 60 percent of the country's needs from its top supplier Algeria.
(Additional reporting by Dmitri Zhdannikov in Moscow)
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