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Speech by Alexey Miller, “Natural Gas as Destination Fuel for the Future” Conference annual International Business Congress

Vienna, May 25, 2017

Dear colleagues,

I am happy to see that today’s meeting has brought together not only energy businesses, but also investment companies, banks, and technology corporations. These are the forces that drive the global economy at the moment. According to international economic organizations, after a long period of slow growth the global economy is bound to experience a surge in the coming years.

This will be accompanied by an increasing energy demand. Today, consumers have a wide array of energy sources at their disposal, be it oil, coal, nuclear, natural gas, or renewables.

When choosing the destination fuel for the energy development strategy, one has to evaluate energy sources from the standpoints of, first and foremost, energy efficiency, amount of reserves, reliability of supply, availability, and, of course, environmental footprint. Many countries, especially in Europe, shift their attention to “green” energy. On the face of it, that would really help in mitigating environmental impacts. There is, however, a major drawback: renewables are not reliable. Depending on the weather, there can be too much energy or none at all. Add to that the fact that storing and transporting renewable energy is technologically difficult and extremely expensive.

Here in the Alps, in the beautiful Republic of Austria, as Mr. Schelling, Austria’s Federal Finance Minister, has told us today, the issue of whether energy was green enough was the last thing on anyone’s mind in the cold months of the past winter. Reliability of supplies was the primary concern. According to Austria’s Association of Gas- and District Heating Supply Companies, gas-fired power generation would have to exceed 40 per cent in the country’s energy mix to ensure reliable energy supplies on particularly chilly days. However, gas-fired electricity accounts for less than 10 per cent in Austria’s energy balance.

It is self-evident that continuity of supply is crucial for, say, the production and housing sectors. Furthermore, renewable energy is not cheap. Renewables require considerable subsidies from state budgets, imposing an additional burden on taxpayers. In 2016 alone, the population of Germany paid upward of EUR 20 billion to develop the renewable energy sector. It is noteworthy that 66 per cent of electricity bills for end consumers in Germany is made up of various taxes and fees. And, judging by recent polls, most Germans believe this so-called “energy transition” to be too costly. Further intensification of efforts to construct new capacities for renewables would require even more investment. Also, building transmission lines from Northern Europe with its fleets of offshore power plants to Southern Europe would take not just billions in investments, but a lot of time as well.

We have no doubt that natural gas meets every requirement for energy carriers in today’s economy. It means enormous reserves coupled with exceptional reliability and availability. It means considerable market development and sustainable trade models worldwide. Moreover, gas is the cleanest fossil fuel.

A key factor in the development of the gas industry is the global nature of gas. After all, one cannot transmit hydro-, solar or wind power across thousands of kilometers without significant losses, and it is very hard to do that using major transmission lines across seas. In contrast, natural gas is the most cost-efficient energy source in terms of transmission and storage. For decades, gas has been pumped through subsea pipelines and transported across continents in liquefied form. The gas-based power supply system rests on gas trunklines running for thousands of kilometers, liquefaction and regasification terminals, a well-developed UGS network, and gas-fired power plants, all of which took decades to build. When Gazprom’s consumers send us a request for gas offtake, they can be absolutely sure that they will receive that gas at the delivery point, right on time and in the amount agreed upon between the parties. With natural gas, the global economy has an entirely self-sufficient, reliable and integrated energy supply chain from the field to the end consumer.

Not surprisingly in this scheme of things, the world’s gas consumption is growing. Gazprom exported a record amount of 179.3 billion cubic meters of gas to the European market in 2016. This upward trend for Russian gas demand in Europe continues in the first half of 2017. Since early this year, we have already increased gas supplies compared to the corresponding period of 2016 by 13.2 per cent, which translates into 9 billion cubic meters of gas. This figure exceeds the annual gas consumption in the Republic of Austria.

The growth in Europe’s gas consumption is greatly facilitated by the comeback of the “blue fuel” in the power sector and the substitution of environmentally dirty coal by gas. The U.K. serves as a vivid example in this respect. In 2016, the share of its coal-fired power generation went down to 9 per cent from 23 per cent (which was a mere year before that), including through the introduction of a carbon tax. The U.K. plans to phase out coal-fired power plants altogether by 2025. Meanwhile, the members of the Eurelectric association of European electricity producers from 26 EU countries pledged not to commission new coal-fired power plants after 2020. All of this, without a doubt, offers great prospects for the gas industry.

However, its sustainable development is driven not only by the phase-out of competing energy sources in the power sector. The gas industry continues to open new market niches. Natural gas holds great potential for use as a vehicle fuel. One of the advantages of a gas-powered engine is its eco-friendliness. Nowadays, gas-driven technologies help cut down CO2 emissions from transportation by 25 per cent compared to conventional fuels. Moreover, natural gas can be used in onshore and offshore transportation, reducing not only pollutant emissions, but also fuel costs.

Intensive promotion of such an efficient fuel solution is on the current agenda of energy suppliers, vehicle manufacturers, and infrastructure developers, with the infrastructure actively expanding. Germany, for example, plans to double the number of its CNG filling stations within the next 2–3 years. Natural gas also has bright prospects as a bunker fuel. At present, a number of projects for LNG bunkering of river and sea vessels are being carried out under the auspices of the European Union. Gazprom, as a supplier, implements small-scale LNG projects in the Baltic Sea region.

Besides, natural gas is an advanced fuel. The petrochemical industry is developing rapidly, with new and unique solutions in production and transportation. This gives an impetus to the development of related industries and helps considerably improve GDP growth, employment, and R&D capacities.

From a technological and environmental standpoint, gas is perfectly positioned to become the destination fuel for the future in Europe and the world at large. Our task is to jointly address challenges beyond the business strategy. Despite the clear advantages of natural gas and the prospects for its use in virtually all economic sectors, there are still some difficulties with respect to the positioning of gas in political and regulatory circles.

Dear colleagues,

The economy has already made its choice in favor of gas. We have it in our power to prove to the governments of certain countries that natural gas can and must form the basis for the energy of the future. This requires the entire gas industry community to not only prepare a common response and propose solutions to challenges facing the industry, but also get those solutions across to the authorities, the business community, and the general public.

Dear colleagues, natural gas offers us an exceptional opportunity to develop the economy in a reliable, sustainable, effective and eco-friendly way. Natural gas is the fuel of the 21st century!

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