Russ Oil-Gas

June 24, 2009 (Reuters by Simon Shuster) - MOSCOW, Russia's Gazprom (GAZP.MM) expects its sales to Europe to drop 40 percent this year, its export chief said on Wednesday, but sees European demand picking up from April as the average price in 2009 falls by a third. At a news briefing, Alexander Medvedev rebuffed accusations that a rigid pricing policy was to blame for the plummetting sales, and insisted that Gazprom would not offer cheaper gas to stimulate demand. Exports to Europe from the world's largest gas company will stand at only 142 billion cubic metres this year, down from 158.8 last year, with export revenues falling to $40 billion from $65 billion, Medvedev said. "When there is a global storm there is no safe haven anywhere," he said. Medvedev added that a sharp drop in exports in the first half of 2009 was not the result of the financial crisis, but of gas prices on the spot market that were half those in Gazprom's long-term contacts. "Our consumers, being rational in their approach, have opted for the less expensive choice," he said. But the average price of gas is falling, and will soon help bring consumers back around to Russian imports, Medvedev said. He forecast that the average cost of Russian gas will be more than $280 per thousand cubic metres on export markets in 2009, down from $400 in 2008 but at the upper range of previous guidance. NO NEED FOR PANIC: Some analysts agreed that discounts could be counterproductive for Gazprom. "If they now, as prices are falling, break their pricing policy by giving discounts, their customers in Europe would also ask for discounts when the prices start rising," said Maria Radina, an oil and gas analyst at UBS in Moscow. "That could result in a complete spot situation, which would mean a loss of predictability in future sales and volumes." European consumers, which buy a quarter of their gas from Gazprom, have also been buying more alternative fuels and cutting imports as they wait for gas prices to catch up with the sharply lower oil prices. Medvedev said Algeria and Nigeria suffered from the same problem in the fourth quarter of 2008 and the first quarter of 2009 and only Norway had increased supplies. "But we don't see any reason to panic or for pessimism," said Medvedev, adding he believed Gazprom will boost its European market share in the future. "Norway has no special flexibility. The structure of their price formula is such that the spot segment is prevailing," he said, countering remarks by an energy ministry official this week that Gazprom should have been more flexible in its pricing. "The advantage of our contracts is in price predictability," he said. "It doesn't make any sense to halve prices to see offtake picking up by, let's say, 3 percent". "And starting from April we are seeing gas imports are beginning to exceed our expectations," he added.