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Gazprom’s Stranglehold

gazprom_tank.jpg From the Lex Column of the Financial Times:

Gazprom’s stranglehold Gazprom has long been the bogeyman of European energy. Whenever a rival gas supplier announces a discovery or a rise in output, it fosters hopes that the Russian group’s chokehold may be on the point of loosening. But the reality is that Gazprom’s position is not that fragile.

It is true that flatlining yields from existing fields, delays on new projects, and chronic capital underinvestment in the 1990s have put the company in a relatively tight spot. Critics point out that over the next few years, Gazprom’s ability to supply its customers during peak months is likely to be severely tested.Gazprom currently controls about two-fifths of the European Union’s imported gas supplies, according to the trade body, Eurogas. As several long-term supply contracts approach expiry, the theory goes, other companies such as Norway’s StatoilHydro and Sonatrach of Algeria are poised to capture market share, particularly in central and eastern Europe.The trouble is that Gazprom has some strong cards to play. It has jacked up prices in its domestic market to give it more muscle internationally. It is reinforcing capital spending – up 43 per cent in 2008 – that is at last beginning to be in the same range as the international energy majors, in absolute terms at least.Buying up more gas from independent local producers such as Novatek, or from Turkmenistan or Kazakhstan, could help bridge internal supply shortfalls. More mild winters like 2006-07 could also crimp demand. Some market share slippage for Gazprom is still likely: increased imports to western Europe of liquified natural gas will see to that. But this is a short-term problem. A new generation of fields producing from 2010 onwards should alleviate the pressure. Much as western politicians would like to see a long-lasting reduction in Europe’s energy debt to Russia, that still looks like a fantasy.