Novatek sees higher domestic gas price

By Dmitry Zhdannikov and Tanya Mosolova

MOSCOW (Reuters) - Russian domestic gas prices could easily exceed the government's forecast because of high oil prices and growing demand for gas in Europe and Russia, a top gas executive told Reuters.

Mark Gyetvay, Chief Financial Officer of Russia's second- largest gas producer Novatek reiterated the company's ambitious long-term production target, saying higher prices would make the goal even more realistic.

The government expects gas prices to rise to $110 per 1,000 cubic meters by 2011 from the current $45. But prices could climb up to $180, Gyetvay said at the Reuters Russia Investment Summit.

He also said gas export monopoly Gazprom (GAZP.MM: Quote, Profile, Research, Stock Buzz) was not holding talks with Novatek's (NVTK.MM: Quote, Profile, Research, Stock Buzz) owners about raising its stake in the firm from 19.4 percent.

Russia plans to gradually liberalize gas and power prices and fully free them by 2011 to introduce competition and encourage energy efficiency.

Gazprom, the world's top gas producer and supplier of a quarter of Europe's gas, will remain Russia's gas export monopoly but independent firms will enjoy higher local prices.

"Russian gas demand is expected to grow 2.0-2.5 percent per annum and European demand is estimated to grow by 2 percent per annum. Given flat production profile for Gazprom it opens up opportunities for independent producers," said Gyetvay.

He said he did not believe high gas prices would harm Russia's economy.

"We should see some conservation of energy demand... Some industries get artificially subsidized by the state... I think we may see the price of $110 before (2011)," he said.

"We have not seen any detrimental impact on Ukraine as the result of doubling the price, and the Russian economy is much stronger today, companies are much stronger than those in Ukraine," he said.

He added higher price would force Russian firms to invest in energy efficiency and help Russia to cease being one of the world's most energy inefficient countries.

GAZPROM HELPS

Gyetvay said the 19.4 percent stake in Novatek acquired by Gazprom last year gives the smaller gas firm confidence that it will be able to meet all its ambitious goals, including doubling gas output to 65 billion cubic meters a year by 2015.

"Gazprom has two members on (Novatek's) board of directors. They participated in formulating of our new strategy, which theoretically was approved by them," Gyetvay said.

Novatek had to cut its gas output forecast for this year to 28.7 bcm from the previously expected 30 bcm due to a mild winter.  Continued...