Alexey Miller’s interview with Süddeutsche Zeitung (Germany)

26.01.2012

The interview was taken by Markus Balser

Our Gas is Still Too Profitable

Alexey Miller, Chairman of the Gazprom Management Committee speaking about the power of raw materials, the concerns over euro’s fall and the invasion of Germany.

The debt crisis is worsening in Europe. Does it seem that customers’ concerns are growing on the other end of the pipeline?

Of course, anti-crisis measures which are taken in Europe are the right way to go. The question is whether or not they are sufficient. It is important to prevent a recession. It would encumber budgets of the European countries and aggravate the situation. We still have not received a clear answer on how problems in the eurozone are to be settled. We hope the eurozone will not founder in 2012, like Costa Concordia.

Not a very pleasant comparison. Is Moscow afraid of a shipwreck?

Anyway, we are assessing risks highly and think that the crisis exacerbation in the eurozone is more dangerous than the crisis between late 2008 and 2009.

Global corporations, such as General Electric, run out of patience in Europe and turn away in anger. Will Gazprom also hold its investments?

We consider issues cautiously, including the issue of investments. In general, we have approved a very conservative investment program for 2012. We also hope that a long-term solution will be developed ensuring stability of the European economy and an attractive investment climate. But as for the energy market, we have some doubts.

What do you mean?

In the coming years Europe will need significant investments in the energy infrastructure, particularly from international investors. Taking the financial crisis into account, it will be a difficult job. Gazprom has announced its readiness for cooperation. But considering the European Commission’s recommendations for the domestic market more sharply, you will understand that these recommendations mean rather limitations than openness. We are getting the impression that the European Commission considers regulations as a lever of pressure on energy exporting countries, such as Russia. Nevertheless, every action triggers a counteraction. Some Russian experts are proposing symmetric measures to be considered.

Sounds like a warning. Are you planning legal measures against Brussels?

At least, this issued should be considered.

The EU is planning to oblige big suppliers like Gazprom to give up their monopoly for the supplies infrastructure and to provide access for competitors to use the gas pipeline network. This measure will lead to the market liberalization. For Gazprom it means interference with its property. Will Gazprom accept that?

Frankly speaking, gas fields without pipelines are worthless. An attempt to separate one from another has little in common with the gas market reality and, as a result, hinders the investments which are important for providing energy security to Europe. The EU should be careful, as due to the European Commission efforts it can lose both gas and the infrastructure for its delivery to the Europeans market.

Gazprom’s power in the energy sector also has limits in Germany. Counselor Angela Merkel rejected the initiative of Sergey Shmatko, Russian Energy Minister “for deeper partnership in the energy sector”. Are you disappointed?

Undoubtedly, a political dialog is useful when the issue is related to energy security, to such huge projects as Nord Stream.

The recently opened gas trunkline through the Baltic Sea.

The political support is necessary. However, we are not waiting for political decisions, we are currently discussing with our German partners the ways of improving energy supplies.

If you had such an opportunity. Vladimir Putin, Prime Minister of the Russian Federation not once criticized Germany’s reticence about Russian investments. Do you need more freedom to enter the German market?

We object to politicizing the gas market. But it seems that the situation is gradually changing.

Negotiations with RWE about a joint venture came to nothing. Instead, you are entering a regional market of end consumers. You have recently purchased the energy division of Envacom located in Hesse and are planning cooperation with municipal companies. Isn’t it a breakthrough?

Definitely, for German customers it is. Our deal is profitable for them, because it will revive competition. Our appearance in new segments of the market makes it more competitive.

For all that, what is Gazprom planning to undertake in the coming years?

We are capable of making significant investments as far as gas fields ownership provides us with a reliable source of income. Germany is a very liquid market, that is why we are interested in it. We have always been endeavoring to operate there more actively. We would like not only to supply gas, but also to be engaged in electricity production. Gazprom’s readiness to invest in power generating capacities is still very high.

Many German companies have given up construction of new power plants considering these investments profitless. Many require subsidies. Does Gazprom also need subsidies?

No, it doesn’t. Instead of ever more subsidies, sufficient courage is necessary for us to return to market principles.

Gas-fired power plants in Germany will stand idle longer and longer in the future, bringing no profit in the meantime due to a boom in solar and wind energy. It will have the same impact on you, won’t it?

Perhaps, it will. But seeking for government aid is not a solution. German energy suppliers had to accept huge losses due to the nuclear phase out. I understand those who hope for state support. However, we object to subsidies. In the recent years, the European energy landscape became true jungles of subsidies which have nothing in common with the economic logic. It would probably be interesting for taxpayers to know what sums are transferred and expenses are concealed there.

Your relations with such big German customers as E.ON are constrained due to the dispute about high prices on gas. They are stating that Gazprom claims high prices using its market power.

General statements that gas is too expensive are simply incorrect. It is true that we are negotiating about a price structure with many companies. However, any price alterations should have serious, fair grounds such as drastic changes in the market where gas is to be delivered.

You don’t see these changes, do you?

No, we don’t. The gas price which is linked with the basket of oil products has grown over the recent decade as well as the price on most of other raw materials. Our gas is not too expensive at all. Quite to the contrary, it is too profitable.

But the global gas market has significantly changed. Owing to new production and transmission technologies gas has become available in excess. The price is likely to drop.

It is unlikely. In the coming 20 years natural gas will be the most demanded energy carrier. Newly industrialized countries and industrial countries of APEC are ready to purchase any amount of gas available in the market.

The USA and Europe more often try to produce gas. Your competitors are becoming more independent. Is Russia losing its advantage?

Russia confidently takes the first place in gas production in the world. And according to our opinion, this position won’t change. The so called shale gas revolution is one and the same thing as American Hollywood. Our forecasts are different. For instance, gas consumption in Europe will continue growing while production will keep decreasing. It is clear for me that the market has a great future.