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Putin Dismisses Concern Gazprom ‘Slept Through’ Shale Gas Boom

Russian President Vladimir Putin dismissed concerns that OAO Gazprom (GAZP), the world’s biggest natural gas producer, will lose in a shale-gas revolution as global energy companies develop unconventional reserves.

“I don’t think we overslept anything, but we should monitor it with utmost care,” Putin said in a televised live phone-in conference today. “Whether Gazprom slept through the shale revolution or not, it’s a difficult question. There is no answer to it yet.”

Gazprom, Russia’s gas export monopoly, has concentrated on traditional fields from western Siberia to the Pacific coast, shipping the fuel to Europe through pipelines. That focus allowed the U.S. to overtake Russia as the No. 1 gas producer in 2009 as advances in technology made shale drilling economically feasible in North America.

Europe, which depends on Gazprom for a quarter of its gas, has increased its use of cheaper imported coal, damping prices and demand for Gazprom’s supplies. At the same time, the U.S. is preparing to start export gas. As much as 10 percent of U.S. output is likely to be sold abroad as LNG by 2016, according to estimates from Goldman Sachs Group Inc.

Russia has sufficient conventional reserves while shale-gas production costs are “much higher” and developments pose “huge” environmental risks, Putin said today. “It doesn’t mean that we rejected shale gas, even international experts who are studying this issue, say that Russia has big prospects for shale gas production.”

Shale Challenge

Putin urged Russia’s energy companies in April 2012 to “rise to the challenge” of shale.

While the Russian gas exporter is monitoring global developments, production of shale gas doesn’t make sense now, Gazprom said in October, giving the same reasons as Putin did today. Gazprom Chief Executive Officer Alexey Miller has continually brushed aside the threat that the shale-gas boom may pose to its business, saying back in 2010 that he wanted to smash “myths” about “shale fever.”

Gazprom’s 28 trillion cubic meters of booked gas reserves are sufficient to meet domestic and export obligations for “decades,” Igor Yusufov, a board member, said today in an interview with Vesti FM radio, according to a transcript published on the company’s website. Shale gas, while being “a trendy topic,” is a loss-making business, he said.

Russia may hold as much as 680 trillion cubic meters of unconventional resources, which include gas from shale, sandstone and coal beds, Viktor Skorobogatov, director of the gas resources center at Gazprom’s VNIIGAZ research unit, said on Dec. 24 in an interview in the company’s corporate magazine.

Meanwhile, OAO Rosneft (ROSN), Russia’s biggest oil producer, is considering tapping unconventional gas reserves if the economics allow, Vlada Rusakova, vice president for gas strategy, said on April 23. Rosneft plans to more than double its gas output by 2020, and similarly increase its share of the domestic market.

To contact the reporters on this story: Stepan Kravchenko in Moscow at skravchenko@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net; Balazs Penz at bpenz@bloomberg.net

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