Nov. 10 (Bloomberg) -- OAO Gazprom, the world’s biggest natural-gas producer, expects demand for the fuel to rise in the next two or three years, narrowing the oversupply caused by the recession and new production projects.

“We are in a long-term business,” Deputy Chief Executive Officer Alexander Medvedev said today in a Bloomberg Television interview in Washington. “In two, maximum three years, we will be back on track with demand for gas because we see the first signs of economic recovery.”

Gazprom’s sales volumes to Europe and other export markets fell 24 percent in the first half from a year earlier as the economic slowdown eroded demand, the Moscow-based producer said yesterday. European demand for Russian gas has now recovered to pre-crisis levels, boosting sales, according to the company.

“Nowadays we see that demand is high not only compared with last year but also with 2007, which was the last year of economic prosperity,” Medvedev said. “The winter will be cooler than average and that will also influence demand.”

Russia supplies a quarter of Europe’s gas, most of which is sent via Ukraine. The two countries signed a 10-year supply and transit contract in January after Gazprom cut shipments to its neighbor for almost two weeks amid a pricing dispute. Under the new contract, Ukraine must pay for gas on a monthly basis.

Ukraine Payments

“Ukraine is paying in due time all outstanding amounts,” Medvedev said in the interview. “What we’re looking for is that they will continue to do so.”

Gazprom hasn’t levied penalty charges against Ukraine after the country took less gas than contracted because the company “took into account the very difficult economic situation in Ukraine and the liquidity problems” of state utility NAK Naftogaz Ukrainy, he said.

The long-term agreement should avert future disruptions as long as Ukraine observes “transit and offtake obligations,” Medvedev said, adding that “we hope the political fight during the presidential campaign will not negatively influence contractual relations.”

Ukraine’s leaders, including the president, prime minister and parliamentary speaker, are competing in elections scheduled for Jan. 17. The nation may delay payments for Russian gas imports that month if the International Monetary Fund is late with the next round of funds for the country, Deputy Prime Minister Hryhoriy Nemyria said today.

Asian, U.S. Markets

Gazprom exports most of its gas by pipeline. This year it started shipping liquefied natural gas by tanker from Russia’s Far East, targeting primarily Japanese customers, and has plans to send LNG from its Arctic Shtokman field to the U.S. starting in 2014.

The company, which opened its U.S. trading unit this year, will ship as much as 90 percent of Shtokman’s LNG to North America by 2018, John Hattenberger, head of the unit in Houston, said last month. Gazprom targets as much as 10 percent of the U.S. gas market by 2020, Medvedev said in June.

The company may face competition from domestic producers, some of whom have boosted output by extracting gas from so- called unconventional deposits such as shale rock and coal seams.

“There is a silent revolution taking place in the U.S.,” International Energy Agency Chief Economist Fatih Birol said today at a press conference in London. Birol was speaking after the IEA said the world may have an “acute glut” of gas in the next few years because global production of unconventional fuel is set to rise 71 percent between 2007 and 2030.

Unconventional Gas

Companies such as Chesapeake Energy Corp., BP Plc, Royal Dutch Shell Plc and Statoil ASA are investing in such gas resources, which were inaccessible until producers developed new drilling techniques in the 1990s.

“We are not afraid of competition, we are used to it,” Medvedev said. The U.S. needs LNG as well as other sources of gas, he said, adding that Gazprom is “carefully analyzing” the development of shale gas extraction in the country.

“The question is not who will replace whom, but how it will be combined.”

U.S. LNG imports may rise 33 percent this year to about 470 billion cubic feet, the Energy Department said today in its Short-Term Energy Outlook. Last month the government estimated 2009 imports would climb 34 percent.

Shale Acquisition

Gazprom said Oct. 20 that it may consider acquiring a U.S. shale-gas producer to gain the know-how to exploit similar fuel deposits at home. Shale rock is fractured and injected with substances such as water and sand to make gas flow.

“An acquisition of a shale-producing company could make a lot of sense,” Hattenberger said. “Russia has huge shale reserves.”

Gazprom is also seeking to send further supplies east, and has begun talks with China on pricing, volumes and routes, the company said in a Nov. 2 statement after Medvedev held talks with China National Petroleum Corp. in Shanghai.

“They have big demand for additional gas,” Medvedev said today. “Gas from Russia, possibly in the form of pipeline gas and LNG, will be in demand in China. We are targeting to have an agreement ready at the beginning of next year.”

Pressure Suppliers

The IEA today forecast a “big increase” in spare gas- transport capacity, saying LNG producers are more likely to offer supplies to spot markets at whatever price is needed to find buyers.

Lower spot prices may pressure suppliers to modify oil- indexed gas sales contracts, the IEA said.

Gazprom has said it plans to keep its long-term contract structures unchanged, maintaining the take-or-pay clauses that require consumers to buy minimum volumes even when demand is low.

Global oil and gas prices have diverged as industrial demand for gas falls and the Organization of Petroleum Exporting Countries cuts crude supplies to prop up prices. Oil futures have advanced 77 percent in New York this year, while gas futures have dropped 20 percent.

“We should carefully analyze how to take into account new trends and not to destroy what we’ve constructed in the past, because security of supply is very important,” Medvedev said. The gas-market structure allows traders to “mitigate mutual risks and to share the benefits.”

To contact the reporters on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net; Hans Nichols in Washington at hnichols2@bloomberg.net.

Last Updated: November 10, 2009 13:27 EST