Gazprom Reveals Strategy During Miller's Visit to Greece

The 17th Annual General Meeting of the European Business Congress held in Athens on May 29th and 30th provided interesting insights both into Gazprom's developing strategy and the intentions of its partners across Europe. The event was attended by more than 300 business leaders from across Europe, Greek energy and corporate officials along with top level management from Gazprom headed by Alexey Miller.

The head of the Russian natural gas giant was eager to relay to the participants the key points under which his Company plans to proceed, in light of the Ukrainian crisis. Of a special note was the latest mega-deal with China, which marks a milestone for Gazprom that opens up for the first time a significant pipeline corridor to the largest market in the world. The pipeline will have a capacity of 38 bcm and will provide stable quantities of gas for 30 years, whilst having the capacity of expanding to 60 bcm. Moreover, the deal includes the 'Eastern Siberian leg' of a long-term cooperation deal between the two countries and foundations were laid for an eventual 'Western leg' - a pipeline running from Western Siberian gas reserves to the western regions of China with similar figures. Thus, it will not be improbable to estimate that in the coming decades Gazprom would be able to supply China with a maximum of 120 bcm, not counting LNG shipments from Sakhalin and perhaps other production sources.

Although pricing between the two sides has not be made entirely known, the $400 billion deal for 30 years would translate to around $385 per 1,000 cubic meter, since for the first 3-5 years the amounts will be between 15-20 bcm per year before reaching the projected capacity of 38 bcm. In reality, that is more than traditional costumers in Europe pay (example Germany's price for Russia gas). In that sense the reminder by the Russian side to its EU costumers that a new client has been found willing to pay a bit more and buy substantial amounts, is clearly a manner under which "diversification" is being shown not in terms of the importer side but that of the exporter.

The moves by the Japanese side to secure its own pipeline deal with around 20-25 bcm per annum was also another item discussed since it constitutes yet another 'game changer' in the wider Eurasian natural gas game. All the above tend to explain a rather cryptic verse of Miller's speech that the Russo-Chinese deal will affect pricing in Europe by creating competition and the importance of that agreement will be felt in due time.

Gazprom's head nevertheless stretched the importance that Europe has for his entity, in which he wants to increase supplies and in that respect there was detailed reference to South Stream, which has been presented by Gazprom as an actual enchase of energy security of the EU with respect to the destabilization in Ukraine.

Miller's strategy for the use of gas goes and grows deeper than pipelines and exports. There were special references for the expansion of the use of gas as a fuel for transportation of road vehicles and sea vessels. Already 80 countries are using this type of transportation mode, with 14.5 million vehicles being supplied in more than 20,000 filling stations.

Furthermore, during the proceedings of the business forum, an interesting twist was experienced, when the Greek energy minister Ioannis Maniatis, stated that the 'Southern Leg' of South Stream should pass from Greece, thus re-activating a plan that has been effectively put on ice by both sides over the past couple of years. The interesting aspect is that this proposal comes about in a time where the EU Commission is trying to obstruct the pipeline's process and exercises heavy political pressure in countries such as Bulgaria, Serbia and Hungary. Also, Greece had just last year agreed to participate in the Trans-Adriatic Pipeline (TAP) project and concurrently had numerously stated that it aims to use prospective LNG installations as an alternative 'Mediterranean to Baltic' energy corridor that will assist in reducing Gazprom's exports into Europe. Further, Greece is also lobbying for the establishment of the so-called East Med Pipeline going from offshore Israel to Greece and then to the rest of the EU markets, while placing that project as a 'diversification toll'. 

Well-placed sources within the Northern European energy community relayed to Natural Gas Europe that "The Greek proposal is surprising given the fact that the country until nowadays had withdrew itself from the South Stream and in reality followed a different gas market path. It looks like Greece has not really worked out well which strategy it wants to follow since all these projects need long-term political and corporate commitment ".

The overall assessment is that Greece is effectively off South Stream's route, with the possible exception of a spur from Bulgaria that could be linked with TAP to construct a sort of a regional gas hub, together with the upcoming LNG upgrades in the country.

Already Gazprom is investing considerable economic and political capital for the Northern leg of South Stream, which will face serious legal and regulatory hurdles, despite assurances by Miller that by late 2015 gas will indeed be pumped in Bulgaria and on its way northwards.