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Nord Stream as a “Wasteful White Elephant”

Anders Åslund has a good article published in the Moscow Times on Gazprom and the energy curse.

In sum, Gazprom may have far too much gas in the medium term because of likely energy savings both at home and abroad, whereas the prices that Russian gas can fetch abroad are likely to stay low and decouple from oil prices. Even if domestic gas prices in Russia rise, Gazprom’s finances are likely to be squeezed.

Gazprom’s management — that is, the Russian government — does not seem to understand the severity of these challenges. After a long time in denial, it has reacted ad hoc. It is trying to maintain the old European demand while ceding new markets and cutting its supplies. It has reduced purchases from Central Asia and postponed the development of the giant fields Yamal and Shtokman.

Gazprom is moving to a new defensive strategy, but strangely it isstill intent on building the two new huge European pipelines, NordStream and South Stream, for which neither new demand nor new gassupply is available. If actually built, these two pipelines mightbecome wasteful white elephants, as it is far cheaper to use theexisting pipelines through Ukraine.

Less demand, less production, lower prices and excessive capitalinvestment will render Gazprom smaller, less profitable and lessvaluable. But the advantage is that Gazprom will cease to be a statewithin the state, and Russia could become a more normal and opensociety. The current crisis offers an excellent opportunity forlong-desired reform. The crucial insight is that what is good forGazprom’s management is bad for Russia since Gazprom is the essence ofthe country’s energy curse.