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Gazprom makes concessions to European partners

Gazprom is reported to have decided to meet requests of its main partners in countries outside the CIS (Europe and Turkey) that have been actively demanding to ease conditions of long-term contracts since the beginning of the crisis. The gas monopolist's inflexible marketing policy has led to prices of Gazprom's piped gas on long-term contracts being almost 1.5 times higher than prices of its competitors selling gas at spot prices. Now it has turned out that the Russian gas giant made the take-or-pay contract conditions for Turkey's Botas, Italy's Eni and even German's E.on more favorable.

Gazprom's decisions look logical amid growing risks of losing some part of the Old World market. The logic of "retaining long-term contracts" by all means has been evidently found not quite suitable at the current moment. Results of the gas concern's work on the European market in 2009 were rather poor: sales dropped by 11.7% against the previous year. A wave of rising criticism of Gazprom last winter was stemmed only by an absolutely external factor not related to activities of managers - cold weather in Europe and Russia in the 2009 winter. Otherwise, the expected figures could have been even worse and would have created a negative psychological atmosphere around the assessment of results of Gazprom's work.

At the same time, it is clear that Gazprom considers its current concessions as temporary. The company obviously expects piped gas and spot prices to gravitate towards each other in the next few years, which gives the teams of Alexey Miller and Alexander Medvedev time to have a break. So far the 2010 arrangements are quite optimistic: the concern is planning to increase gas exports to countries outside the CIS to 160.8bn cu m, 15% higher than in 2009. As far as plans for the more distant future are concerned, they are even more optimistic. According to Gazprom's plans, gas production will advance by about 35% to 40% from 664bn cu m in 2008 to some 885bn to 940bn cu m in 2030. The firm's share on the European market is to expand from the current 25% to 32% in ten years. The question is to what degree these long-term plans will promote achievement of such excellent results.

By Stanislav Mitrakhovich, NESF leading expert


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