Russian Prime Minister Vladimir Putin has set Russia on a collision course with western Europe after he warned that the era of cheap gas is over even as oil prices continue to slump.
Russia’s prime minister was speaking as he hosted a meeting of a dozen gas-producing countries on Tuesday in Moscow to set up an OPEC-like production cartel.
“Costs of exploration, gas production and transportation are going up,” he said. “It means the industry’s development costs will skyrocket. The time of cheap energy resources, cheap gas is surely coming to an end.”
Analysts said that in the short term, energy markets do not reflect his comments. Gas prices are index-linked to the price of oil, typically with a time lag of about six months. Oil has slumped from an all-time high of US$147 a barrel this summer to barely above US$40 this week. Adam Sieminski, chief energy economist at Deutsche Bank, said that natural gas prices should fall sharply in the next six months.
If Russia tried to keep the price it charges European consumers for gas artificially high next year, he said, it would encourage countries to seek other sources of energy, such as nuclear power, over the longer term.
Russia supplies a quarter of Europe’s gas. Other countries in the Gas Exporting Countries Forum include Algeria, Iran and Venezuela.
Russia has already flexed its muscles on energy this week. The state-owned gas monopoly Gazprom warned that supplies to Europe could be disrupted this winter because of a long-running row with Ukraine — through which most of the gas exported to Europe passes — over prices.
But Russia has resisted pressure from OPEC to cut its oil production. This week the cartel agreed to reduce output by a further 2.2 million barrels a day — its largest single cut — but the oil price continued to fall.