Strong German ties may help end impasse

Novy Urengoi, Russia: A shortage of gas and sub-zero temperatures for their German customers were far from the minds of Gazprom workers in a concert hall in Siberia in November, receiving medals and flowers for outstanding work.

With a bear-hug for Juergen Hambrecht, chairman of the board of chemicals group BASF, Gazprom chief executive Alexei Miller the next day inaugurated a new project in a joint venture between the Russian group and one of its biggest customers.

"Gazprom is tied to Germany through long and trusting relationships," Miller said, as company songs played in the background.

By the start of this month, Germany, which receives more than 40 per cent of its gas from Russia, had seen temperatures at their lowest levels in almost 30 years and reduced gas flows on routes through Ukraine, in dispute with Russia for the fourth winter.

Europe receives a quarter of its gas from Russia and companies, including big German gas users, depend on long-term supply contracts which in some cases run into the 2040s.

Germany's Economy Minister Michael Glos told the Frankfurter Allgemeine newspaper on Tuesday the annual row must stop: "There is no less to lose than Russia's reputation as a reliable shipper and Ukraine's reputation as a safe transit country."

A November A.T. Kearney study showed Europe's annual import demand in 2020 will rise to 510 bcm - double the 2005 volume. Domestic output will continue to fall but demand will rise, especially for power generation.

Executives at both ends of the gas supply route talk readily about their mutual dependence, and the risk to economic growth of supply disruptions.

"It is very important that Russia continues to send its gas to German distributors," said Oliver Wiegand, managing director of Bavarian glass manufacturer Wiegand-Glas.

The company buys more than 700 million kilowatt-hours of gas per year.