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14 Jan, 2009 18:58

Cost of gas dispute mounts for Gazprom, as customers look for other supplies

Cost of gas dispute mounts for Gazprom, as customers look for other supplies

The shape of the European gas market could forever be changed in the aftermath of the gas dispute between Russia and Ukraine. The dispute has already cost Gazprom as much as $1.1 Billion already in export earnings.

Gazprom's attempts to recover an outstanding debt have led to a row that's caused it to lose over a billion dollars in export earnings according to CEO, Aleksey Miller.

“Starting from the 1 of January Gazprom has lost 1.1 billion dollars of export earnings under gas supply contracts to Europe since January 1.”

The EU's response to the Russia-Ukraine gas dispute has been to increase imports of alternative supplies according to Energy expert, Ian Cronshaw

“Europe may import more gas – some of it may come as LNG, a lot of it will need to come by pipeline as well, obviously from Russia as it's the largest source, but from other resources such as North Africa and Norway.”

Norway – which accounts for 16% of the EU's energy needs, was among the main beneficiaries of the gas stand-off – it's seen gas exports climb to record levels of more than 340 million cubic metres.

Thats prompted speculation about long-term changes to the shape of the market. But Gazprom Deputy CEO, Aleksandr Medvedev, maintains it won't lose its piece of the pie.

“Our long-term contracts will continue to work and what's going on cannot affect our market share.”

Experts say that currently, alternative sources of supply can only complement deliveries from Russia, but not substitute for them entirely. Ron Smith, Head of Rsearch at Alfa Bank says that many alternative producers are already extracting gas at maximum capacity.

“There's not much flexibility on the part of European consumers. They consume some gas from Norway, from Algeria and Northern Africa, but that was already the case, it's not that they've switched and replaced Russian supply, they can't do that. There's a limit to how much gas physically you can pull out either those areas. Norway is already producing as much gas as it can.”

Whether Gazprom regains its position on the global market remains uncertain, one thing is clear. The more flexible the global gas market, the less ordinary consumers will be exposed to rows between suppliers and transit countries.