Gas market news

Alexander Medvedev, Deputy Chairman of the Management Committee of Gazprom, Director General of Gazprom export: Statement on restored gas supplies to EU

I am pleased to announce that Gazprom Group has restored in full natural gas supplies to cover demand of European customers which soared to extreme heights all over the continent in February 2012 due to the unprecedented cold snap.

Recent turbulent days and weeks have exposed a number of problems inherent to the present state of the gas market in Europe. The roots of these problems are found primarily in the politically-motivated decisions regarding energy which were taken by the European Union during recent several years. The policy to demolish the existing gas market model in continental Europe, which had proved its efficiency, brought about negative consequences and revealed systemic defaults of the implemented reforms.

Amid the crisis, spot markets and renewables failed to compensate for the increased demand. It is yet another proof that spot markets are playing not the determinating but the balancing role in continental Europe. The undermaturity of spot markets makes them most vulnerable to any outside pressure. For instance, at the beginning of February, even on the spot markets where there was no liquidity of gas prices went up by 60%. It means that gas-indexed prices might turn gas trade stability into a hostage of market speculation. Moreover, there is no reason to believe that spot markets will house enough gas volumes to cover demand.

At the same time, the signals coming from the EU governing bodies during the last several years, and also the gas market reforms undertaken by them, turned the demand forecasts vague. As a consequence, these factors obstructed the investment activities of the producers, mainly in the natural gas up-stream segment.
At the beginning of February 2012, we became aware of the fact that at a time of abnormally low temperatures leading to soaring demand on the European export markets gas supplies face obstacles. This is applicable not only to gas shipment from Russia, which provides only one quarter of all import gas flow to EU, but this is also true of supplies from Norway, Algeria and other countries.

The February cold crunch highlighted the gradual build-up of a systemic problem in the current gas industry, and this is exactly what we have been warning about continuously. Politically-motivated decisions are breaking the mechanism of mutual commitments and long term stability, while offering as a substitution to rely on immature, not liquid and fragmented markets which are fundamentally incapable to solve even short term problems under the present state of play of the gas market in continental Europe.

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