December 4, 2012, the interview was taken by Miriam Schroeder and Juergen Flauger
Published in Handelsblatt Magazine Issue 235

Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee, Director General of Gazprom export answers questions posed by the Handelsblatt Magazine.

Mr Medvedev, the world’s largest gas company is expanding in Germany and will overtake 100 per cent of the gas trader Wingas. You explained this today to Wingas staff. How was your welcome?

Good. But understandably, people want to know where we are going with them. I told them that we still see great potential in the German market – and that they will all have the possibility to show their talents.

Are there no reservations vis-a-vis a Russian owner?

No, why? We have worked together for twenty years, we began with a participation of 25 per cent, then went up to 35 and 50 per cent and have now taken over the remaining 50 per cent. The staff therefore knows very well what they can find in us. Gazprom is an international company. There are 900 people from 37 countries working in the office of our subsidiary Gazprom Marketing & Trading in London. Wingas itself is present in eight countries. We should therefore not speak of nations and cultures, but of a business culture that we have developed together.

But the German general public still has reservations because of Gazprom’s growing power.

Oh really? Wingas market shares in Germany are at 15 to 20 per cent. We have worked hard for that and invested a lot.

Well, you also supply other traders. A third of the gas in Germany comes from Russia. And now, in addition, you also want to gain full control over on e of the largest gas traders. Can you not understand people’s fear?

When do you begin to be dependent? At six per cent? At sixteen? At 30? Is there a limit for dependency? Then I could simply say, in reverse, that we depend on the money from Western Europe. We need it to pay our taxes and to do our business. Should we therefore reduce our business with Western Europe? I don’t even think of it. We are after all just as dependent on Western Europe as Western Europe is on us.

But you cannot deny that there are reservations.

I do not feel such reservations among our business partners. In the population that may be the case. But that is why we sponsor, for example, Schalke 04. We have to communicate with people and explain what we do.

Gazprom does not always find that easy. There are still repercussions from faltering supplies in winter 2009, because the state-owned enterprise Gazprom had a problem with Ukraine.

That is a good example of how misunderstandings develop. Many things were misrepresented in the media back then. It was Ukraine that stopped transport of Russian gas to Europe. But the media presented it as if Russia had cut off Ukraine from the gas. I was personally involved and hardly slept for 21 days to put things right again.

Well, but the European Commission also mistrusts Gazprom. It had business premises searched and started a competition case. What do you reply to these accusations?

We were really surprised by these accusations. Gazprom is after all a pioneer of market liberalisation and should in fact be honoured for that. Take a look at Germany. When we founded Wingas together with BASF twenty years ago, German gas trading was still governed by one monopolist...

... Ruhrgas...

... In any case, no one gave us anything for free, but still we continually gained market shares. That has nothing to do with unfair practices, but only with Gazprom’s and BASF’s professional work. Just ask which governments placed high taxes on gas, making gas more expensive for clients in Western Europe. It certainly is not the Russian government.

Even president Putin has got involved in the case. Does this have more to do with politics than with economical matters?

Energy supply is a question of national security everywhere, so it is absolutely normal that politicians get involved. It is only problematic when the political agenda turns into political games. President Putin, Gazprom and Russia have only one topic on their agenda: to sell as much gas as our neighbours need. There is after all only a limited number of countries producing gas.

But isn’t it understandable that the West does not want to become too dependent on Russia?

I always ask my interlocutors: What does your ideal partner look like? Is it a company like Enron whose crash makes hundreds of thousands of people suffer? Next to Gazprom and a few Western partners I don’t see anyone investing in pipelines. We do it because it’s our business: producing, transporting and distributing gas.

Why do you give up the joint venture with BASF to take over Wingas entirely?

Together with BASF, we have invested a lot – in pipelines, storageand staff. Now our partner is no longer interested in wholesale of gas, so we go on alone. Wingas is a success story that we will now continue on our own.

And the partnership with BASF is loosened?

No, our cooperation only gets to the next level. We concentrate on the joint gas extractionin Siberia and on the transport – especially the big pipelines Nord Stream and South Stream. There is enough to do for us together.

What are you planning for Wingas?

The company is now a 100 per cent subsidiary and will be completely integrated in our strategy for Europe.

Gazprom now wants to open up further European markets with Wingas?

First of all we will look for potential in German gas trading and want to extend our market share. Germany remains our most important market in Europe. Turkey is second, but of course we want to play an important role in most European states. At the same time, we want to widen our offer. Gazprom does not only offer gas, but also oil – and electricity. Where there are synergies, we want to use them.

And do you want to market your gas under the name “Gazprom”?

I like the brand Wingas, but maybe you should let the Germans decide which name they prefer.

Gas trading is in a difficult phase. In the past years, demand was low due to the economic crisis and prices were under pressure. Is that not the real reason why you want to take up wholesale yourself?

It is not Europe’s first economic crisis. And when it was cold last winter, demand went up again considerably.

The old business model with long supply contracts and the price link to oil is under pressure. Many of your clients want to loosen the oil price link. How long can Gazprom resist against this?

We should not give up the old system carelessly and only orient ourselves towards the spot market. That would not function as well with gas as it does with oil. The market is by far not as liquid and investments in the transport infrastructure are much higher. In the past years, prices in the spot market may have been low, but in the past they were generally higher than with oil-linked contracts.

Is the oil indexation indispensable?

It would be a big experiment to orient the gas price only towards the spot market. And who would pay if the experiment were to fail? The clients, of course. Oil price indexed contracts, by contrast, are calculable, and well manageable.

So Gazprom is not ready to make concessions to clients?

We are, and we have already done so with many wholesalers. The question is not if one links the gas price to the oil price, but how. Our clients want to able to react more flexibly to the development of the market. For us, in turn, it is important that prices remain calculable. Only then, we can make long-term investments. The need for investments is, after all, high. Our oldest fields in West Siberia are on the decline; we must get the gas from further East and also make offshore investments.

You have reached an agreement with E.ON on new conditions, but not with RWE. You still stand before an international arbitration court. When do you expect a decision?

So far, we have reached agreements with all other importers but RWE. But we are optimistic. It is always better to reach an agreement out of court. Only recently we met with RWE CEO Peter Terium, and these days, an RWE team is again in Moscow.

What do you as general manager of a gas company think of the energy transition to wind and solar?

It is a nice dream that all Europe should go green. But even if one is optimistic, the percentage of renewable in Europe will not be more than 25 by 2030.

Why are you so pessimistic?

The transition will not be as easy for other countries as for Germany. Money is simply lacking for that. Many countries have serious budget problems, not only Greece. And who should bear the costs then? It would have to be the consumers. Renewable energies can in the end only be promoted if the money is collected from the consumers. That is why prices are already rising – and that is only possible within limits.

And yet Gazprom could profit from the energy transition. Gas power stations are seen as the ideal complement to wind and solar energy?

Renewables should indeed not be played out against gas. Gas should rather be part of the solution. We could already reach half of the European Commission’s goals of reducing CO₂ emissions by 20 per cent by 2020 if we were to replace only 50 per cent of existing coal plants in Europe with gas. And that would be 500 billion cheaper than doing it only with renewables. But unfortunately, old coal plants are re-launched with dirty coal instead and the cleanest fossil fuel – gas – gets stuck in its track.

Winter is beginning. Will Gazprom reliably provide German clients with gas?

There is no reason to worry about that. Since the last argument in 2009, we have a valid contract for provision and transit that Ukraine can only be happy with. And there have been no problems for nearly four years now.

Last winter Gazprom itself had supply problems. In February, less gas arrived in the West than was ordered. Do we have to worry again?

You see, that again is of these cases related in a distorted way in the West. During the cold spell in February, Gazprom was the only producer to raise its supplies. In total, we supplied Europe with more gas than in six years. Demand was so high, however, that we could not fully satisfy it, we also had other countries, such as Greece and Turkey, to supply with surprisingly high amounts.

In Southern Germany in particular, less gas than usual arrived.

But it was all within the agreed frame of flexibility. And Germany could have reacted itself. But neither was its own production raised, nor was more fuel procured from other countries. Only Gazprom was made responsible for that.

Mr Medvedev, we thank you for this discussion.