Russia's Gazprom Plans Underground Gas-Storage Facility Expansion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russia's state-owned oil-pipeline operator OAO Gazprom (MCX:GAZP) (Moscow) will expand underground gas-storage facilities as part of efforts to continue gas transmission to Europe via new routes. The company's decision to transport gas to Europe via other countries stems from a conflict with land-locked Belarus, through which Russian gas has traditionally been transported to Europe.

As of May 1, 2010, Belarus owed nearly $200 million to Gazprom, promptly Gazprom to reduce gas supply to Belarus nearly 15%. Antagonized by this move, the government of Belarus refused to allow Russian gas to be transported to Europe through its territory.

Although Gazprom restarted gas supplies to Belarus in full after the latter settled the $200 million debt, a Gazprom spokesperson recently told local media that the company can continue to supply gas to Europe via Ukraine and to the Kaliningrad region via Lithuania.

"Confirmation has already been obtained from Kyiv of its readiness to ensure additional deliveries of Russian gas to Europe. We plan to use underground storage facilities and spot markets," Gazprom official Sergey Kupriyanov told local media, adding that Belarus' decision to cut off Russian gas transport was a baseless move. "Kaliningrad will get gas through Lithuania, and all our customers will be provided gas in full," he said.

Selling gas in the spot market will enable Gazprom to deal with market volatility and price flexibilities in the future.

Gazprom is constructing several new underground gas-storage facilities in Europe and plans to use the stored gas for supplies to European customers. Gazprom Chief Executive Officer Alexei Miller confirmed at a recent shareholder's meeting that "Gazprom's efforts to build up underground gas-storage capacities are also aimed at enhancing the gas supply reliability." Gazprom operates 25 underground storage units in Russia, with a cumulative installed capacity of 65.2 billion cubic meters. Work is currently under way to build salt-cavern facilities in the Volgograd and Kaliningrad Oblasts, Miller said.

"At the moment, we are operating Europe's largest underground gas storage facility at Rehden in Germany, and Haidach in Austria, and at the same time, we are utilizing storage capacities in U.K., France and Latvia," Miller said at the meeting, adding that a total of 2.5 billion cubic meters of gas was injected into storage units in other countries, with total gas withdrawals of more than 3 billion cubic meters in 2009. "We have already started developing gas-storage facilities in Serbia, the Netherlands, and Germany, and are planning to construct underground facilities in Hungary and the U.K."

The company is also undertaking feasibility studies for similar underground storage units in Italy, Romania, Turkey, Slovakia and the Czech Republic. Given a timely commissioning of these projects, Gazprom's underground gas-storage capacities in Europe will reach 3.3 billion cubic meters in the next three years and exceed 6.5 billion cubic meters by 2016. The company expects daily with withdrawals from underground facilities to surpass 80 million cubic meters during this time.

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