Bloomberg News

Russia Aims to Boost Gas Supply to Europe After Nuclear Exit

July 19, 2011

(Updates with analyst comment in third paragraph.)

July 19 (Bloomberg) -- Russia will consider opportunities for increasing direct natural gas supplies to Europe and potentially build new pipelines as Germany shifts away from nuclear power, Russian Energy Minister Sergei Shmatko said.

The retreat from nuclear may create increased demand that would support pipeline projects such as OAO Gazprom’s planned South Stream or the expansion of the Nord Stream pipe to Germany, Shmatko told reporters while accompanying President Dmitry Medvedev at a meeting with German Chancellor Angela Merkel in Hanover.

“Gazprom sees this as a huge opportunity and rightly so,” Julian Lee, a senior analyst at the London-based Centre for Global Energy Studies, said by phone today. “This will put a rocket under German gas demand and Gazprom is very well positioned geographically and politically to serve a large part of that.”

RWE AG, Germany’s second-largest utility, and Gazprom last week agreed to start talks on forming a power generation venture in Germany and the U.K., a move that could secure demand for the Russian company’s gas. Germany made the decision to exit nuclear power so quickly that Russia hasn’t yet gotten comprehensive forecasts of the country’s additional gas needs, Shmatko said.

Germany decided to exit nuclear energy after a tsunami caused a meltdown at the Fukushima Dai-Ichi plant in Japan, raising safety concerns. Merkel has pledged to use renewable energy to fill the gap in power generation created by an exit from nuclear energy.

Power Demand

Even so Germany will need an intermediate, if not long- term, solution to power demand as it won’t be able to switch to renewable energies immediately, Lee said.

German demand for additional natural gas will be limited, Merkel said today at a meeting with Medvedev. Germany will fulfill additional needs from the Nord Stream pipeline project, she said.

“The post-2020 nuclear space is Gazprom’s to win or lose, but if they stick with current pricing and contractual context it will mostly be lost,” Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies. Gazprom must make concessions on pricing terms in contracts or it will not be able to sell additional volumes, he said.

An expansion of the Nord Stream link under the Baltic Sea directly to Germany beyond a planned 55 billion cubic meters a year will depend on signing long-term contracts for supplies, Shmatko said.

--Editors: Will Kennedy, Tony Barrett

To contact the reporter on this story: Ilya Arkhipov in Hannover, Germany at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Torrey Clark at tclark8@bloomberg.net


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