Russia’ state-controlled gas company Gazprom is being squeezed from all sides. Its cash-cow, a monopoly over Russia’s gas exports, is threatened by the global shale revolution that is driving down natural gas prices worldwide — and divorcing them from the oil prices to which Gazprom ties its long-term gas sales contracts to eastern and western Europe. At home, rivals are sniping away at its domestic market and its control over its pipeline distribution network. Meanwhile, Rosneft, Russia’s state-controlled oil company, looms ever larger as an energy industry rival.
Collectively these are long-term threats to a giant company that enjoys political privilege in a Russia where President Vladimir Putin considers the country’s state-controlled oil-and-gas companies to be important aspects of Russia’s projection of its diplomatic and commercial power — as well as nice little earners for the Kremlin. Gazprom is still the world’s largest natural gas producer, accounting for 17% of global production. With sales of $143 billion, it is one of the world’s 50 most valuable publicly listed companies. Yet every day the wheel gets turned a fraction more.
Rosneft’s latest move, to buy the 49% of Itera it doesn’t already own for $3 billion, will further crimp Gazprom’s domestic market share. Older Russians may remember Itera as the main gas supplier to the old republics of the Soviet Union. After a torrid time following the break up of the Soviet Union, Itera now competes with independents who have collectively reduced Gazprom’s share of the domestic gas market to 73% from 80% five years ago.
Rosneft took a controlling stake in Itera last year after Igor Sechin, a former deputy chief of staff of Russian president Vladimir Putin, moved from government to take over the running of Rosneft with an eye to turning it into a global energy player. Its $55 billion buyout of BP from the TNK-BP joint venture was a statement of that intent.
International revenues account for 76% of Gazprom’s total sales, and those to Europe alone 57%. Gazprom has good reason to worry about its vulnerability. The European Union launched an anti-trust case against Gazprom last year, accusing it of abusing its monopoly pricing in E.U. member countries amidst a general feeling that the company was getting too tight a grip on gas distribution within the continent. Isvestia, of all publications, created this map peeling back some of Gazprom’s notorious lack of price transparency. Brussels might have a case.
Gazprom is looking to boost its exports of liquefied natural gas (LNG) to Asia to lessen its reliance on pipeline gas exports to Europe. Even there it is finding Rosneft and Novatek, one of the rising privately owned independents, lobbying for the right to export LNG. That would break Gazprom’s gas export monopoly both de jure and de facto. Customers around the world could get Russian gas delivered by ship and no longer have to rely on it arriving through Gazprom’s pipelines. Gazprom’s counter argument is that more competition among Russian gas producers in foreign markets would result in lower prices and thus less income for the Kremlin.
Energy ministry officials are at work trying to square that circle. One mooted compromise is that Gazprom’s Russian rivals would leave it unchallenged in Europe in return for being allowed to export to Asia’s growing market — although that seems a more alluring prospect for Rosneft and Novatek than Gazprom. It could come down to who has the more friends in high places, and the Kremlin’s appetite for picking fights with the E.U. and China. New policy guidelines could come as soon as this fall.