Just over 18 months ago, Russia was predicting a bright future for Gazprom, the
country's gas monopoly, stating that its capitalization would exceed US$1
trillion by 2015 and its shares would be trading on the New York Stock
Exchange.
Today, the story is very different. The company's net profits fell by nearly
half in the first two quarters of 2009, and several factors seriously challenge
Gazprom's continuing reign.
Russian President Dmitry Medvedev, in his annual address to the Federal
Assembly in November, called for an end to the economy's heavily reliance on
hydrocarbon sales. Given that the
Russian economy has contracted by 10 percent, Medvedev is urging Russia to
shift away from raw materials to smaller, sleeker, more technologically
efficient sectors.
Paralleling the president's address was the release of the International Energy
Agency's annual report. The agency concluded that global gas supplies are
rising faster than demand, pushing down the price for the next decade. By 2015,
there could even be underutilized gas pipelines and liquefied natural gas (LNG)
terminals.
Most worrisome for Russia is the future of European demand. Russia's largest
customer is experiencing declining demand, spurred by the recession and a
mandatory shift to using 20% renewable energy by 2020.
And Gazprom has been harmed by the Kremlin's political miscalculation to cut
off gas to Europe last winter. Just as Gazprom plans two new pipelines to
Europe carrying over 110 billion cubic meters (bcm), Europe is seeking
alternatives from the Caspian and the Middle East.
At the same time, Gazprom's ability to provide future gas is under question
because of inefficient management, leaking pipes, industrial inefficiency, lack
of technology and capital, and a monopolized domestic gas market. And Central
Asian countries, which are critical to meeting Russia's European gas contracts,
have redirected export volumes to China and Iran.
Meanwhile, Russia has plans to send gas to Asia. It has received loans from
China in exchange for providing a pipeline. However, China will not pay
European prices and the gas is set to come from unexplored fields in eastern
Siberia.
It is unclear how Russia intends to meet its energy-expansion agenda. Gazprom
has pledged billions for global energy projects and is even eyeing a share of
the US market. At the same time, the recently released 2030 Russian Energy
Strategy stipulates $2.1 trillion in investments at home to be paid primarily
by Russian companies.
The Russian authorities face a conundrum. Some in leadership positions have
realized that Gazprom cannot provide the engine for the country's future
economic growth. At the same time, the company provides the glue that keeps
Russia together, including the majority of state revenues and the less
transparent benefits for invested authorities.
Gazprom could thrive with the help of foreign funding and technology, but the
Russian investment climate remains unstable and littered with a recent history
of broken deals. Russia would also benefit from liberalizing the domestic gas
market, but that option is politically unpopular.
It appears that history may be repeating itself. The 2010s could be to Russia
what the 1970s were to the Soviet Union. The plundering of oil fields coupled
with a global energy crisis kept the Soviet economy running into the early
1980s, well beyond expectations. Today's promises of Gazprom expansion sound
familiar.
Stacy Closson is a fellow at the Woodrow Wilson Center in Washington, DC.
Her research assistant, Vladislav Prokopov, contributed to this commentary. The
views expressed here are the author's own and do not necessarily reflect those
of RFE/RL
Copyright (c) 2010, RFE/RL Inc. Reprinted with the permission of
Radio Free Europe/Radio Liberty, 1201 Connecticut Ave NW, Washington DC
20036
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
