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Lukoil to raise gas output, expecting a shortfall in Russia

Lukoil, Russia's biggest oil producer, expects a shortfall in Russian natural-gas supplies and plans to expand its gas business, as domestic demand grows and exports to Europe increase.

OAO Lukoil plans to spend as much as $112 billion by 2016 to almost double crude oil and gas production, to as much as 4 million barrels a day. Gas output will rise to 33% of the company's output from 6% now, the company said October 18. „We do believe in natural gas in Russia, because gas prices have been severely depressed for a long time, due to heavy regulation of that sector,” Andrei Gaidamaka, Lukoil's vice president of strategy, said in an interview yesterday in New York. „Yet, right now there is a developing shortage of gas, a deficit of gas on the domestic market.” Russia, the world's biggest producer of gas, expects domestic use of the fuel to grow faster than output over the next three years, raising concern the company won't be able to meet demand for exports. OAO Gazprom, the state-run gas monopoly, supplies about a quarter of gas consumed in Europe. Gas use may grow by 26 billion to 27 billion cubic meters in 2007 through 2009. Output in the same period will grow by 21 billion cubic meters, Economy Minister German Gref said August 17. Moscow-based Lukoil expects domestic gas prices to rise to more than $100 per 1,000 cubic meters in the next five to 10 years, from $23 at the well-head now, according to Gaidamaka. „We are well positioned to capture” gas-price growth, he said. „We have one of the largest gas-reserve bases in Russia” outside of Gazprom. Gazprom holds about 16% of the global gas reserves and pumps about 90% of Russia's fuel. (Bloomberg)