Deputy Chairman Medvedev says there’s no reason to start a price war with the U.S.
Russia’s state-controlled gas giant Gazprom (ticker: OGZPY, Gazprom.com) has no plans to start a price war with the U.S. over natural gas in Europe, according to company deputy chairman Alexander Medvedev.
“There is no need for us to launch any price war,” Medvedev told investors in London. “We are very relaxed about U.S. LNG, though very attentive.” Medvedev went on to say that U.S. LNG suppliers will find it difficult to compete in Europe with Russian supplies with the added cost of liquefaction.
Gazprom has long been the single largest supplier of natural gas to Europe. Last year, Russian gas made up 31% of European gas consumption, up from 30.2% the year before. The company has publicly stated that it plans to hold its share of European markets around 30%, but a non-public budget obtained by Bloomberg showed the company plans to increase its share of the market to 33% this year.
“The European market is and shall remain the main market for our exports,” said Medvedev. Russia’s attempts to increase its gas exports to China have met with difficulty, making the company’s share of European markets even more important.
Russia could pursue a Saudi-style natural gas policy
While Medvedev said Gazprom remains calm but attentive about U.S. LNG, he added that if LNG from the states became more competitive, the company would seek to cut its own costs, reports The Wall Street Journal. Gazprom’s defense of its core European market will be fundamental both to its financial performance to the Kremlin’s ability to use gas as a geopolitical tool over the next few years, said James Henderson, Russian oil and gas analyst at the Oxford Institute for Energy Studies.
“There may be some logic for Gazprom, as one of the lowest cost suppliers to Europe with spare capacity, in adopting a Saudi-like strategy to reinforce its long-term competitive advantage,” said Henderson in a recent report.
Cutting natural gas prices would likely put the already ailing Russian economy under tremendous strain. Russian Finance Minister Anton Siluanov recently proposed a 10% cut to spending from the previous budget.
Stakes in major state assets like national airline Aeroflat, Russia’s largest oil producer Rosneft (ticker: RNFTF, Rosneft.com), and state hydroelectricity company RusHydro could be sold in order to help fund the budget.
Russia also lacks the financial cushion Saudi Arabia enjoys in its sovereign wealth fund. Russia’s sovereign fund stood at $59.35 billion at the end of November. Siluanov warned that the fund could be depleted entirely in 2016 if spending cuts were not enacted. Saudi Arabia is extremely secretive about its holdings and investment strategies, but is believed to have $757.2 billion in assets under management in its foreign wealth fund, making it the third-largest in the world after Abu Dhabi and Norway.