gazpromEuropean energy consumers face further big rises in gas prices in the coming years because of acute shortages of Russian supplies and growing tensions between the Kremlin and EU, senior economists and a former Russian premier said Wednesday.

Eric Berglof, chief economist at the European Bank for Reconstruction and Development, told MEPs and senior EU officials that Gazprom, the Russian gas group majority-owned by the state, would struggle to offset declines in output, but demand from Europe and ex-Soviet Union countries would grow at 2-3% a year, The Guardian reported.

Berglof told the European Enterprise Institute that 70% of production at Gazprom, the world’s third-largest energy group, came from fields whose gas was running out, while the Russian energy sector needed a $700bn investment over the next 20 years — much of it from foreign interests so far denied access to the Russian pipeline network. Berglof, founder of a Moscow economic think-tank, warned that without serious reforms of both Gazprom and Russia’s energy sector, prices for domestic use and export could double by 2010.

Christian Cleutinx, head of EU-Russian energy dialogue at the European commission, said the EU would be 80% dependent on gas imports by 2030 as demand rose by 60%. But, he said, Russia planned to export only an extra 50 million tons of gas to all countries, not just the EU, by 2020, leaving Europe 150 million tons short and forcing it to use other countries. To raise Russian output by 50 million tons would need investment of up to $200 billion.

The warnings came as prospects for a breakthrough in talks on a proposed energy security pact at July’s G8 summit in St Petersburg, hosted by President Vladimir Putin, all but collapsed. Separate talks on an EU-Russia energy charter have also run into the sand. Mikhail Kasyanov, Russian premier from 2000 to 2004 and presidential hopeful in 2008, said: “These problems [on mutual access to pipelines, foreign investment and price] are destroying the whole mood of our relationship, with mistakes on both sides.”

The architect of the original EU-Russia energy dialogue, he warned that the EU’s search for diversified supplies was viewed in Russia as a drive to freeze it out and Russia needed at least observer status at talks to form a common European energy policy and single market.

Berglof added: “We won’t see progress at the G8 and, after that, further deterioration coming from fundamental trends in Russia and its economic and political system. But there is pressure for greater energy efficiency, investment in renewables and reform of the power market there.”

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