The End of Gazprom?

There’s an interesting article in today’s Washington Post which debates the fate of Gazprom.  The company is crucial to the Russian economy, accounting for 12% of its total exports and employing almost half a million people.  As an indication of how closely tied it is to the Kremlin, the company’s last three heads have been appointed by Vladimir Putin, making Gazprom ‘the chief means of rewarding Putin’s inner circle’; and the President ‘calls on Gazprom‘, says the article, when he needs funding for social development projects and political campaigns alike.

But Will Englund and Kathy Lally present evidence to indicate that the Russian behemoth’s lack of creativity in the face of slumping prices and demand may mean that it is on the way out as the leading instrument of the energy industry.  The evidence includes the sale of Gazprom’s subsidiaries to competitors, and a new ‘favoritism’ towards domestic competitor Novatek, which may be the one to break Gazprom’s exporting monopoly.

Gazprom’s production has been stagnant for years. A huge new $20 billion gas-extraction project in the Barents Sea was put in mothballs this month after Gazprom’s foreign partners — who alone had the expertise to pursue it — dropped out.

Gazprom has spent a decade trying to negotiate a huge deal with China, but with no results so far. The two sides are about 1,000 miles apart on the routing of a new pipeline.

The advent of shale gas in the United States has increased supplies and driven down spot prices worldwide, and Europe can now buy liquefied natural gas from the Middle East at a relatively attractive price. It is also exploring its own shale-gas potential. Customers have been renegotiating contracts, as the Russian giant comes under more pressure. Unlike oil, natural gas until recently was difficult to ship except in pipelines; this gave Gazprom a guaranteed, if partial, monopoly as a gas supplier to Europe.  But that era is passing.

Read the full article here.