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Expert: Gazprom IS the Gas OPEC

Today International Oil Daily has published an interview with Michael Moore, an energy expert from the University of Calgary, who says quite directly that given Gazprom’s pattern of acquisitions and coordination abroad, they are in effect already operating with cartel-like, anti-competitive tactics to make Europe and China dependent on just one company. Moore’s comments underscore a point I have made repeatedly – that when talking about Gazprom and using loaded terms like “OPEC” and “cartel,” really it just becomes a debate over semantics. Looking at their actions and those of the current Russian government in regards to energy, you can see that it is already happening.

Gazprom is Gas Opec, Says Academic (Copyright © 2007 Energy Intelligence Group, Inc.) Russia doesn’t need to form a gas cartel to exercise control over its natural gas export markets, according to Michael Moore, senior fellow at the Institute for Sustainable Energy, Environment and Economy at the University of Calgary in Canada. “I think [Russia is] a gas Opec,” the academic said this week at the Canadian Energy Institute’s natural gas conference in Calgary. Through Gazprom, the country’s state gas monopoly, Russia has already created a cartel-like entity that has worked to embed gas-burning infrastructure, such as power stations, in its client countries. The overall goal is to make both Europe and China depend on the natural gas giant, Moore said. Through its extensive natural gas pipeline system Russia has already made Europe “a captive audience,” Moore argued. Gazprom also wants to become a major player in LNG, but the tremendous investment it has made in both existing and planned pipelines to the West means the company is likely to stick with them for the bulk of its exports, he said. Gazprom does share certain characteristics with those of a private company, such as public shareholders and financial instruments. Unlike other semipublic companies, however, Gazprom doesn’t operate on a market-driven basis, he stressed. The company is part of Russia’s new state-controlled oligopoly that also includes Sibneft and the government itself as it takes over previously privatized entities. The state gas company also has no regulatory oversight by an independent agency, as monopolies in many other countries do. Consequently, Russian President Vladimir Putin and Gazprom can increase rents and squeeze private capital investors as they choose, Moore noted. Although Russia holds the world’s largest natural gas reserves and is the world’s second-largest oil producer, the country is not competing for worldwide energy supremacy with Saudi Arabia or other Mideast countries. The battle is with China, though the two countries have adopted different strategies, Moore said. Moore gave the Sakhalin-2 oil production and LNG export project as an example. Royal Dutch Shell was the majority owner and operator, but Gazprom is now in charge. “There is a race to acquire global energy capital — China through external investments, Russia through internal expansion,” he said. The Sakhalin-2 episode also demonstrates that Russia will do whatever is necessary to gain more leverage over the market, he said. Gazprom apparently isn’t ruling out external investments. The Russian company also has told Petro-Canada, the prospective offtaker of LNG from the proposed Baltic project, that it wants a stake in the Canadian LNG receiving terminal planned at Gros Cacouna, Quebec (OD Feb.17,’06,p5). Petro-Canada and partner TransCanada have proposed a 500 million cubic feet per day import terminal at the site on the St. Lawrence River, about 235 kilometers (145 miles) east of Quebec City. Russia’s relations with its customer nations demonstrate the need for better regulatory policies between countries to prevent a recurrence of last winter’s cutoff of gas deliveries to Ukraine and the threats toward Belarus this year. “This is critical to the stability of the market,” said Moore, citing the relationship between the US and Canada as good example of the kind of policies needed. By Barbara Shook, Calgary