Gazprom’s Alexander Medvedev on Natural Gas and Russia’s Energy Future.

Courtesy Gazprom

Courtesy Gazprom

BY DIANE FRANCIS, EDITOR AT LARGE, NATIONAL POST AND AUTHOR OF “MERGER OF THE CENTURY: WHY CANADA AND AMERICA SHOULD BECOME ONE COUNTRY”

Alexander Medvedev is one of Russia’s most powerful businessmen. He’s Deputy Chairman of Gazprom’s Management Committee and Director General of Gazprom Export. Gazprom is one of the world’s 20 biggest corporations, the world’s biggest natural gas producer and an energy giant with enormous, growing markets across Russia’s borders in Europe and Asia.

He agreed to an interview with Energy magazine to discuss areas of common interest and importance such as shale gas, environmental challenges, LNG development, his export strategy, and his company’s prospects. Here’s a transcript of that interview:

What role will the global abundance of shale gas play in Russia’s energy future?  Does this create a threat or an opportunity for Russia? 

flagThe shale gas development in the U.S. has demonstrated the potential of increasing the share of natural gas in the fuel mix: energy intensive industries are returning to the United States, while emission levels have been spectacularly reduced down to 1992-levels. There is no doubt that shale gas has increased the profile of natural gas around the world. It offers an interesting possibility to complement conventional gas in responding to growing global demand for blue fuel. But the development of unconventional resources has historically always been the reaction to dwindling access to conventional reserves. Gazprom on the other hand has the privilege to be able to concentrate on the monetisation of our large conventional gas fields: developing more expensive unconventional resources would not make commercial sense. Of course, Gazprom has also invested in unconventional gas production, such as coal bed methane, in the past and we will be ready to invest in shale gas projects if need be.

Courtesy Gazprom

Courtesy Gazprom

The abundant supply of natural gas (as a result of shale gas resources) has created a new dialogue surrounding the geo-politics of natural gas. How do you think Russia will operate in a more integrated global marketplace with significantly more LNG moving around the world? 

There is no doubt that LNG will feature more prominently in the global markets and Gazprom is already highly involved in LNG production and export, supplying Asia and other markets. We already deliver LNG from Sakhalin-2, and are working on the Vladivostok-LNG project to supply gas to Japan. We are also planning to further increase LNG production in Russia, which will help us increase exports, diversify supply routes and enter new markets that remain inaccessible to pipelines. So as the market is evolving, Gazprom will continue doing what it does best, anticipate and proactively adapt to challenges and opportunities in each of our markets and provide our customers with stable and reliable supplies of natural gas.

In some respects, Canada and Russia have a lot in common.  The abundance of shale resources across North America is having a significant impact on Canada’s traditional export market – the United States.  Analysts suggest that Canada could lose this export market entirely within the next 10-20 years as the U.S. produces more gas, hence Canada’s interest in developing LNG facilities to access global markets. For Russia, with significant shale supplies now known across Europe, do you see Gazprom’s traditional markets shifting and emerging market opportunities for Gazprom?  

We expect European gas demand to continue to grow while domestic production will fall rather sharply, as we are rather skeptical about the possibility to replicate the U.S. shale gas boom in Europe, not least because of environmental concerns and the cost of production.

Gazprom’s strategy is based on our ability to anticipate and proactively adapt to challenges and opportunities in each of our markets, particularly when it comes to meeting our customers’ demand for stable and reliable supplies of natural gas. Gazprom is best placed to become an “energy bridge” between Asia and Europe, with more than half of the 2013-2030 CAPEX to be spent on Gazprom’s pivot to Asia.

“Gazprom is also looking at new opportunities to broaden the use of natural gas, and one of the most promising fields is transport.”

Gazprom is the only major gas producer with two land-based links to major export markets. For decades Gazprom has been a reliable supplier to its European customers and we are very much focused on maintaining and affirming our leadership in our existing markets in Europe. We are also actively expanding our exposure to new geographies, particularly in Asia with its seemingly unquenchable thirst for energy. We are very close to agreeing on the final terms of pipeline gas supplies from Russia to China, a further long-term value driver for Gazprom, in addition to the expanding role of LNG as a means to supply a growing customer base in the Asia Pacific region with natural gas.

Furthermore, our growth strategy also looks at securing entry points along the entire natural gas value chain and diversifying our income streams thanks to the integrated nature of our business. For example, as Gazprom’s traditional core market, the European gas market liberalization also opens up new opportunities for Gazprom to increase gas sales to corporate and residential end consumers, including in Austria, the Czech Republic, France, Germany, Italy, Slovakia, the Netherlands, and the UK. Gazprom is also looking at new opportunities to broaden the use of natural gas, and one of the most promising fields is transport. The use of gas in transport (CNG and LNG) grew by 220 per cent between 2008 and 2012 worldwide, and depending on today’s choices the demand for natural gas vehicle fuel could reach 40 billion cubic meters in Europe by 2030, approximately 10 times its level today.

Natural gas is a much cleaner energy form than coal, yet big energy consuming nations like China and India are unlikely to give up cheap coal based energy. How is Gazprom trying to improve the adoption of natural gas in areas where it can displace coal and help the environment?

There is no question, natural gas is by far the cleanest fossil fuel: burning gas instead of oil reduces CO2 emissions by 20 per cent and if used as a replacement for coal by 50-60 per cent. The adoption of natural gas as a key element of a country’s energy mix is not only a question for countries like China and India, but also for the European Union.

Unfortunately, EU policies have led to absurd outcomes, with on the one hand support schemes for renewable energies having spiralled out of control and on the other hand, heavily polluting coal and lignite plants celebrating a revival under the current regulatory regime.

With regards to China, we firmly believe that natural gas will be a growing part of China’s future energy mix. Efforts to tackle the recently particularly severe pollution across China as well as the Chinese domestic gas market reforms are a clear indicator that China will embrace natural gas as the most efficient and environmentally friendly fuel. Improved energy efficiency and emission reduction are also of crucial importance in India and we expect a further increase of the use of natural gas in the country, also thanks to Russian LNG supplies.

truckA few projects are underway in Canada to move LNG by truck to support energy needs in remote northern communities. Is this something that Gazprom is looking at?

Absolutely. Gazprom has been looking at options to deliver small-scale LNG to provide gas to distant regions or industries not connected to the pipeline network. It offers as well a new, economically viable and ecologically clean fuel for road transport as well as sea ships, which is becoming a topical issue given the recent restrictions on emissions in the sector.

“Natural gas is by far the cleanest fossil fuel.”

Natural gas as a transportation fuel is one of the biggest opportunities from a global market perspective – not just for cars and trucks, but also rail and marine. Does Gazprom see a time when natural gas replaces oil as the dominant fuel?

Gazprom is the leader in the NGV market in Russia today and Gazprom is actively working on developing this segment further, both in Russia and internationally. We believe that the use of natural gas in road transport can achieve substantial economic effects while drastically reducing the level of harmful emissions (CO2 down 25 per cent compared to petrol, CO emissions down 80 per cent, no soot or particulate matter). Depending on today’s choices the demand for natural gas vehicle fuel could reach 40 billion cubic meters in Europe by 2030, approximately 10 times its level today.

ctbThe use of natural gas in transport is one of the most promising growth opportunities. However, international and national efforts are needed to achieve tangible results. Gas-fired vehicles (cars, vans bus, trucks) are already available for sale by a lot of vehicle manufacturers, but a denser network of fuelling stations is needed. Automakers, gas suppliers and national authorities should cooperate in infrastructure development projects. Gazprom is ready for such cooperation and is already actively involved in several projects in Europe.

For example, Gazprom Germania fuels Solbus LNG buses in Poland that have proven particularly attractive to municipalities. Networks of NGV fuelling stations are run in Germany by Gazprom Germania. In the Czech Republic Vemex, which is also a member of Gazprom Group, has seven stations and plans to expand this network into neighbouring Slovakia. Gazprom and Russia’s Sinara Group are also working together to devise and implement programs for creating, testing and introducing locomotives running on natural gas.

Avec l’autorisation de Gazprom

Courtesy Gazprom

Furthermore, in light of efforts to reduce emissions into the Baltic and North Seas, Gazprom is also expanding its client portfolio providing LNG as bunker fuel for marine vessels. In September 2012 a Memorandum of Understanding was signed between Gazprom and Summa Group for Gazprom to provide LNG as a bunker fuel for marine vessels owned or operated by Summa Group as well as the cooperation between the companies in developing the bunkering infrastructure.

What do you see as other emerging/near commercialization natural gas technologies? Does Gazprom have a mandate/program to support innovation?

Innovation is a fundamental driver of Gazprom’s business and an integral part of supporting its position as a technological leader in the global energy industry.
For example, developing a gas-to-liquids (GTL) technology is a prioritized and promising area of Gazprom’s innovation activities. By introducing its own developments in this sector Gazprom is looking to further diversify the range of its marketable products and enhance their added value. Gazprom is also working with a number of Russian nanotech companies, including RUSNANO portfolio companies.

maps
For example, Gazprom is working with Plakart to develop metallized protective coatings with high corrosion resistance. The pilot operation of coatings at Gazprom’s Astrakhan Gas Processing Plant was completed successfully. Plakart’s anticorrosion as well as fireproof and wear-resistant coatings will be used for protecting the process equipment of Gazprom’s gas transmission and gas production facilities. The relevant specifications are currently under development at Gazprom VNIIGAZ.

Canada’s ageing workforce is expected to leave natural gas companies short on the types of skilled workers they need to run their businesses. Is there a similar skills shortage happening or anticipated in Russia?

Gazprom is very fortunate in that it does not face a similar shortage of skilled workers. Gazprom has been ranked as one of the most desired places to work in Russia and as our global business and footprint grows we are also attracting more and more skilled employees not only from Russia but also internationally. However, we do not rest on our laurels and are also very much looking at the next generation of energy experts through academic sponsorships and training programs in Russia and internationally. For example, for years Gazprom has been cooperating with the Admiral Makarov State Maritime Academy on providing sailing internships on our LNG fleet for cadets and graduates from the academy are frequently hired to staff our LNG carriers. Our first LNG shipment through the Northern Sea Route on the Ob River tanker was staffed with two navigators and one mechanic who graduated from the academy.

“hydrocarbon production on the Arctic shelf is an important development objective”

Avec l’autorisation de Gazprom

Courtesy Gazprom

With respect to the North, in your view is there any opportunity for cooperative action between Canada and Russia in respect to use of natural gas in the North?

The hydrocarbon production on the Arctic shelf is an important development objective for Gazprom. The Prirazlomnoye development in the Pechora Sea will become the first-ever hydrocarbon production project in the Russian Arctic shelf. It is in the very nature of the gas industry to work in partnership and there may be opportunities for collaboration between Gazprom and Canadian partners in the future.