“This can cause certain problems for Gazprom,” he said.
The expert recalled that the supply of Russian gas to Europe slightly declined in 2014.
“However, more gas will be supplied to Europe this year than in 2014,” he said. “In the next five years, the gas supply volumes from Russia will be stable.”
"There is no reason for significant growth,” he said. “But there is no reason for the sharp decrease either. The possibilities of replacing the Russian gas are rather limited. And even if this occurs, the price of purchased gas will increase. And this is unfavorable for our European partners. Therefore, we expect the stabilization of the supply in the market."
“Azerbaijani gas will find its niche in the European market,” he said. “However, given that its volumes are not so big, the Azerbaijani gas will be unable to oust Russia’s gas from the European market.”
“As for the possibility of gas supplies from Turkmenistan and Iran to Europe, this remains a big question in the short and medium term,” he said.
“There are two key issues related to Turkmen gas supply,” said the expert, adding that the first issue is related to the way of supply and the second is about the availability of free gas in Turkmenistan.
The unresolved status of the Caspian Sea hinders the construction of Trans-Caspian gas pipeline which could supply gas from Turkmenistan to Azerbaijan, wherefrom it could be further transported via the Southern Gas Corridor’s infrastructure that is under construction, according to Kulagin.
He added that in this situation, it will be impossible to construct the pipeline without agreement of all the parties.
Turkmenistan has already signed agreements on very serious volumes of gas supply, especially, towards the east, said the expert, adding that it is necessary to fulfill these agreements.
“Therefore, many doubt that there will be free gas volumes to supply to Europe,” said Kulagin.
As for Iran, the expert said that this country has serious potential, but it will be able to play a very serious role in the gas market only after 2025.
However, Iran has no technologies to implement all the projects for gas production and given the country’s investment climate, the possibility of attracting foreign investors to this country remains in question, according to Kulagin.
“We don’t see prospects for delivering serious volumes of Iranian gas to the European market in the coming 10 years,” said the expert.
Meanwhile, considerable volumes of US liquefied natural gas can be supplied to the European market in coming years, he said, adding that to what extent it will be able to compete with Russian gas and in which countries, depends on its price.
Furthermore, Kulagin said Europe’s gas demand would stabilize in the near future.
“First, it is expected that the current price imbalance between gas and coal will be offset,” said the expert.
“This is already being observed now,” said the expert, adding that gas will take better positions in Europe’s electricity market than it had before.
Kulagin also said gas producers have high hopes for actions to limit emissions at large power plants, which will lead to an increase in gas demand.
“Meanwhile, domestic gas production in Europe will continue to shrink, although at a considerably slower pace than in the previous 10-15 years,” said the expert. “At the same time, given the growing competition in the European gas market and the appearance of new players there, Europe is unlikely to need extra Russian gas.”
Therefore, Kulagin said, if the gas transit through Ukraine doesn’t stop in 2019, as planned earlier, there won’t be a need to construct new facilities, such as the ‘Turkish Stream’ gas pipeline.
“However, if there is a risk related to transit, deliveries on other routes will be needed, since quite large volumes of gas are being delivered through Ukraine,” said the expert.
Kulagin added that currently there is no obvious answer, whether it is possible to load the ‘Turkish Stream’ by 66 billion cubic meters - as it was originally planned –if the pipeline is constructed.
He said that here the matter rests not even in Ukraine, but in that so far Europe has no an infrastructure that would deliver the gas from the EU’s border deeper into the region.
“For this reason, Gazprom decided that only one branch of the Turkish Stream, rather than four planned branches, will be built in the initial phase,” the expert said.
It is basically designed for Turkish consumption, rather than supplies to Europe. The next branches will depend on the demand and infrastructure in Europe.
"The remaining three branches is the issue of further negotiations and decisions to be taken given the analysis of the market and the agreements with the European countries that will be or will not be achieved," Kulagin said.
The expert said that the construction of one branch is not very profitable from an economic point of view, because more lowers the cost per unit of delivered product.
“That means, if the project was considered from scratch, there would be a big question whether it is worth building a single branch,” said Kulagin. “Now, however, in a situation where the infrastructure on the Russian territory has already been created, pipes bought, a lot of work done and a lot of money spent, construction of at least one branch can be a definite solution for the situation, which will allow not to lose these investment funds.”
“So it is most likely that one branch will still be built, and the decision regarding the remaining branches will be made depending on the situation in the coming years,” he said.
Regarding the possibility of abandoning the Russian gas transit through Ukraine, it is unlikely to happen by 2019, despite the desire of the Russian side, according to the expert. He said that it will be possible to give up gas transit through Ukraine by 2019 only given a decrease in the supply of Russian gas to Europe as a result of low demand for gas in the region and establishing of alternative sources of supply.
“In this situation, it will be possible to nullify the capacities of Ukrainian pipes if all the other capacities are fully loaded,” said Kulagin. “But if the demand is at the expected normal level, Russia has no chance to refuse the transit through Ukraine without additional transportation capacities.”
“The most probable situation is when by 2019 there will be hardly any substituent capacities left, and all the existing ones will be fully loaded,” Kulagin said. “The need for Ukrainian transit will remain, but it will be quite little. It will be 5-6 times less than the volumes observed just a few years ago and today. Ukrainian pipes will be mostly empty.”
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