Russia faces gas shortfall, leaked report claims

Russia's future as an energy superpower has been called into question by claims that it will not produce enough gas next year to satisfy both foreign and domestic demand due to years of under-investment.

Russia boasts 26.6 per cent of the world's gas reserves and Gazprom, the state-controlled energy giant, is the world's largest producer of gas.

But a leaked report from Russia's Energy Ministry says gas is not being extracted as quickly or efficiently as it should be and next year, for the first time, there will be a small shortfall.

If the situation is to be remedied, Gazprom and others will apparently need to spend $600bn (£316bn) in the next four years to correct years of under-investment. While the report suggests Russia will be able to keep Europe supplied with Siberian gas for the time being, it raises questions about Gazprom's ability to expand into the UK and European markets at the rate it wants. Gazprom is on record as saying it aims to supply 20 per cent of the UK's gas needs by 2015.

But if the report's estimates are right, Gazprom may not have as much gas as it wishes available for export in the years ahead because of rising domestic demand and static extraction rates. The report, leaked to the daily Vedomosti, forecast that Russia would have a shortfall in 2007 of 4.2 billion cubic metres of gas. It warned that the deficit could reach 27.7 billion cubic metres in 2010, rising to 46.6 billion in 2015.

If accurate, the shortfalls are not catastrophic; last year Russia extracted close to 600 billion cubic metres of gas. The figures do, however, show Gazprom urgently needs to step up its reserves replacement programme.

Gazprom has dismissed such warnings in the past as scaremongering and insists it can meet all its commitments up to 2020.

Yet the leaking of the report appears to be part of a Gazprom-driven campaign to get the Kremlin to allow it to charge higher prices for its gas in Russia to ensure it doesn't run into trouble. At the moment, price controls mean it is forced to charge around $50 per 1,000 cubic metres domestically compared to around $230 in western Europe.

Gazprom wants President Vladimir Putin to allow it to charge more domestically so that consumption falls and it has more gas to export at a premium price.

With parliamentary elections looming next year, Mr Putin is likely to be reluctant to inflict such financial pain on the public.