DEAUVILLE, France Russia's Gazprom, the supplier of a quarter of Europe's natural gas, expects the price of crude oil to almost double within 18 months and to take gas prices higher with it.
"We think it will reach $250 a barrel in the foreseeable future," Chief Executive Alexei Miller told reporters at a presentation in France, adding high demand rather than speculation was the primary factor for high hydrocarbon prices.
A spokesman said the company, which is also one of Russia's largest crude producers, expected the price to hit the $250/barrel level sometime in 2009.
Gazprom exports gas to Europe at prices linked to oil products. Miller said the current gas price was $410 per 1,000 cubic metres and Alexander Medvedev, Miller's deputy, said prices were likely to rise to reflect the higher cost of crude.
Analysts said that using the $250/barrel forecast and the conversion factors cited by Medvedev at the presentation, one would arrive at a gas price of $1,500 per 1,000 cubic metres.
"It's crazy ... maybe they know something we don't," said one analyst, who bemoaned the lack of analysis to back up the forecast.
"Usually one give a lot of analysis to back up that kind of forecast," he said.
The comments came as the oil price sat at around $134 a barrel, a few dollars short of last week's record level.
State-controlled Gazprom plans to double oil production by 2020. This goal could be reached sooner through the acquisition of a stake in TNK-BP, Russia's third-largest oil producer, and industry sources said Gazprom was interested.
Medvedev said Gazprom will only consider investing in TNK-BP after its shareholders have settled a dispute over control of the company.
TNK-BP is half owned by oil major BP and half owned a group of Russian billionaires who have criticised management at the company.
DIVERSIFICATION IS USELESS
Miller criticised European efforts to reduce reliance on Russia, which analysts expect to provide a third of EU gas in the years ahead, and slammed attempts to limit Gazprom's ability to buy gas distribution assets in the bloc.
Miller said it was Gazprom's strategy to be vertically integrated with operations from the well-head to the consumer in Europe and other continents.
Some European politicians have expressed concern about Gazprom buying up downstream assets in the EU saying the Kremlin could use these assets to exert political influence in the future but Medvedev said the investments were commercial.
"Why should we invest money to create the possibility to shut off the gas supply?" he said at the presentation in the resort town of Deauville in northern France.
Miller said attempts to improve security of EU energy supplies by diversifying energy suppliers would be counterproductive and Medvedev added that Russia could also follow the principle of diversification, potentially steering supplies away from Europe.
"If you diversify suppliers, it will not solve the problem," Medvedev said.
Gazprom, already the world's largest gas producer with a stock market value of over $330 billion (169 billion pounds), expects to triple in size to become a $1 trillion company within seven to 10 years, Miller said.
It will be investing heavily to achieve this, with total investments estimated at $30 billion for 2008 and set to rise in the years after that, company officials said.
Earlier, Miller told Le Figaro newspaper that by 2020, Gazprom sees about half of its gas production coming from new fields in arctic seas, Yamal peninsula in Western Siberia and the Far East.
Miller said Gazprom did "not exclude" making major acquisitions in France but organic growth was the priority for now.