When Russia looks at the gas market in the US,, the country understands that what makes it work is the pipeline infrastructure. Gazprom envisions the same for Europe and Asia with Russia connecting the two continents.

KUALA LUMPUR, Malaysia -- North America began its development of a transcontinental pipeline system during a period of self-sufficiency of natural gas. Gazprom sees the advantage of having a transcontinental market for gas and is working to transform the European and Asian systems into an intercontinental market.

“We anticipate further development of interregional and intercontinental trade in natural gas due to the uneven distribution of resources. Moreover, we expect that after the completion of gas pipeline systems in Eurasia between Algeria and Western Europe, as well as between Russia and China, a giant transcontinental gas market covering Europe and Asia can be formed,” said Alexander Medvedev, deputy chairman, Management Committee, Gazprom.

Medvedev, speaking at the World Gas Conference 2012 on June 5 in Kuala Lumpur, noted that “despite the powerful factors of globalization, in reality there are three macro-regional markets today -- North America, Europe, and East Asia. Each of these markets retains its regional identity.”

Such a transcontinental market would tend to even the disparity in gas prices between Europe and Asia. But, that hasn’t happened yet.

“Regional specificity is reflected, in particular, in natural gas pricing in various regions. Global LNG suppliers are not yet able to satisfy requests as to organize a gas-to-gas competition at a level sufficient to equalize prices on a global scale.

“Prices in East Asia are significantly higher than the European level, not to mention the American prices, which are actually behind a protective barrier of government policies aimed at using natural gas as a means to restart the American economy,” Medvedev said.

“Whereas North America is planning its economic future based on self-sufficiency in raw hydrocarbons, the reverse process is seen in Europe, and European consumers will need high volumes of imports,” he added.

The higher prices, especially in Asia, are driving countries to seek alternative fuels, even to natural gas.

“The need for available energy at affordable prices is now so great that we have seen -- with great concern -- the rapid increase in the use of coal, the most intense source of hazardous emissions,” Medvedev emphasized.

World’s Appetite For Energy Grows

“The rate of growth in world energy demand is clearly outpacing development of energy technologies based on solar, wind, tides, or carbon capture and storage. This means that for a sustainable development, the global economy immediately needs an energy alternative. Here, natural gas offers such alternative,” he said.

Gazprom assumed the rate of growth in world demand would increase gas usage by 55% by 2035. This increase in demand will, by more than 80%, be achieved through developing economies of countries outside the OECD, according to Medvedev.

However, Gazprom sees more than enough gas to meet that demand. “We believe that gas reserves, including those owned by Gazprom, are sufficient to meet annual demand at 5 Tcm (176 Tcf). If necessary, production may be increases by another 0.5 Tcm (17.6 Tcf),” he explained.

However, to achieve the incremental production, unconventional gas resources will have to be tapped. In doing that, the marginal cost of production will increase by approximately 50%, Medvedev said.

That philosophy is reflected in Gazprom’s approach to gas development. “We believe that the strategy of relying on conventional natural gas resources is Gazprom’s most justifiable development strategy for sustainable development of the global gas industry,” he said.

“With regard to unconventional resources, these are also under our constant attention. In Russia, low-permeability gas reservoirs -- followed by coalbed methane -- dominate by quantitative index. That being the case, on a priority basis, we deal with the development of coalbed methane production technology, leaving shale resources as a strategic reserve for future generations,” he said.

Adding coalbed methane, tight gas, and shale gas, though, provides a huge resource for the global gas markets.
“The untapped potentials of hydrocarbon energy are quite large,” Medvedev noted. “The total recoverable natural gas reserves are estimated at about 850 Tcm (30,000 Tcf).”

Although Gazprom believes that quite possibly there is a future for renewable energy sources and technologies, which are still in the experimental stages, fossil fuels will still be the main fuel for power generation at present.

Sustainable Development

Natural gas will play key roles in both sustainable development and environmental cleanup.  

“In order to fulfill its mission and provide the world economy with default fuel, the gas industry itself must stay on the path of sustainable development. The key to solving this problem is integration in the broadest sense: integration of markets, integration of technologies, and integration of innovations with reliable ideas that ensure the entrance of the gas industry into today’s frontiers,” he said.

Medvedev said such development will include environmental stewardship. “Assessing the prospects for sustainable development of the gas industry, Gazprom, with the maximum degree of responsibility, establishes its own corporate priorities, pursuing not only the goal of maximizing profits but also the long-term interests of the broader community of stakeholders.

“In our calculations, we rely on our vision of a new architecture of world gas markets, our real opportunities, available resources, technical equipment, geographic location of reserves, production, and transportation capacities.”

Contact the author, Scott Weeden, at sweeden@hartenergy.com.