Natural gas exports

Timon Singh

Russia has the world's largest natural gas reserves (almost twice that of its nearest competitor - Iran) and as such, natural gas exports make up a large percentage of the country's economy.

In 2007, it was estimated that 20.5 percent of Russia's GDP comes from the fuel sector with gas exports generating more than 60 percent of Russia's export revenues and accounting for 30 percent of all foreign direct investment in the country. Unsurprisingly, Russia is the largest exporter and producer of natural gas in the world.

Dependency

The dependency on Russia for gas supplies has been a major concern for European governments, with over a third of their gas imports coming from state-controlled government Gazprom.

Gazprom delivers gas to 25 European countries with the exception of Spain and Portugal. To maintain demand, most of the European gas is sold on long-term contracts that can last up to 20-25 years.

Last year's 'fuel crisis', that saw the Ukraine's gas supplies cut off after they failed to pay their bills on time, was a stark warning to Western governments that they are more dependant on Russian fuel than is comfortable.

After all, Gazprom is the sole gas supplier to the likes of Bosnia and Herzegovina, Estonia, Finland, The Republic of Macedonia, Latvia, Lithuania, Moldova and Slovakia. It also provides 97 percent of Bulgaria's gas, 89 percent of Hungary's and 86 percent of Poland's.

As a whole, the EU receives a quarter of its gas from Gazprom.

What is alarming though, is that exports to Europe are set to increase by 12.5 percent.

Maintaining reserves

Despite recent profit slumps due to an increase in prices for gas from Central Asia and an increase in gas trading activities on the European market, Gazprom is still a giant in the energy sector and the largest extractor of natural gas. As such, it is also the largest company in Russia.

Recently, Gazprom has been securing a number of deals around the world with countries that have relatively untapped gas reserves, such as Nigeria, to ensure its survival. With an ever increasing population and a greater demand for gas, Russia is making sure that it can maintain its gas exports.

As such, it has also stated that it would begin work on gas fields, such as the Kirinsky field, ahead of schedule. Last month, Alexander Mandel, head of OAO Gazprom Dobycha Shelf, the Gazprom subsidiary that oversees offshore projects said, "I think that at the end of 2011-12 we could already start production at the Kirinsky field."

He did add that the decision to proceed with the field's development would depend on gas demand - however recent deals with Serbia and China would seem to insure that Russia's output is to going to grow exponentially.

Relevant articles:

Gazprom's profits drop by 50% | Naftogaz to pay Gazprom | Gazprom eyeing US gas market?