18-09-08 After a drop in gas production last year, Russia the first eight months of 2008 increased production with 1,2 %. The country's gas industry is however far from meeting demands, and pressure is increasing on gas major Gazprom.
According to the Federal Statistics Service (Rosstat), the Russian industry in the period January-August produced a total of 434 bn cm of gas, a 1.2 % increase year-on-year from 2007. The figures are lower than projected. According the prognosis from the Federal Ministry of Industry and Energy, 2003 production is to increase by 3 %. In 2007, the Russian gas production actually dropped 0,8 % to a total of 650,76 bn cm compared with figures from 2006.

The production problem
The slow production growth comes in a situation with increasing pressure on Russian gas major Gazprom. The company, which is committed to follow up its major export obligations, is confronted by a rapidly growing Russian domestic demand. According to a critical article from Boris Nemtsov and Vladimir Milov, Gazprom might soon be unable to meet its obligations.
The article states that domestic demands now increase with an annual 18 %. Meanwhile, Gazprom is increasingly committed to deliver gas to consumers abroad. Several major new projects, among them the Nord Stream and South Stream pipelines, will increase foreign demands further, thus straining the company's capacities. Gazprom today provides about 40 % of Russian domestic energy needs and export about 550 bn cm, which is more than 50 % of Europe's gas consumption.

At the same time, Gazprom has over the last years failed to invest in the development of new fields. For example, the company in the period 2001-2007 invested $ 27 bn in new gas production, while it spent far more -- $ 44,6 bn -- in the acquisition of energy companies.
Likewise, the company's debts are mounting, company staff grows and efficiency levels decline, Nemtsov and Milov argue.

New resources
They say that Gazprom now is getting far more dependent of gas imports from Central Asia, already amounting to 8 % of the company's gas.
The only way to solve the situation will be to invest in new fields. Gazprom is now gradually starting the development of several major new projects, which will boost the company's reserves. Among them are the Bovanenkovskoe field in the Yamal Peninsula and the Shtokman field in the Barents Sea. Resources are abundant, but Gazprom will have pay heavily to get them developed.