Russia's bluest blue chip and foreign policy tool, Gazprom, is in a slow-motion crisis, beset by a rebellion amongst its customers in Europe who have demanded cheaper prices, while struggling to meet the long-term challenges as the nature of the global gas market changes fast.
President Vladimir Putin brought the problems into sharp relief on October 23 when he called on the gas behemoth to "respond to the development of the liquefied natural gas (LNG) and shale gas markets", and develop a new export policy.
The advent of shale gas has been a game changer, bringing new, cheaper sources of gas to Europe, Gazprom's traditional stomping ground, where profits were already falling this year due to weak demand.
French, German, Slovakian and Turkish companies have all managed to renegotiate their contracts for gas, which led to the company paying out a RUB78bn ($2.4bn) rebate in the first quarter of this year. Lithuania went further, filing a $1.9bn legal claim against Gazprom, while Polish gas monopoly PGNiG has launched an arbitration procedure over alleged price gouging. Added to this is the European Commission's decision to launch an antitrust investigation into Gazprom's long-term contracts, which could cost the company billions in fines.
Gazprom is also facing increasing competition at home where nimble independents, led by private gas producer Novatek, now make up a quarter of supplies. Gazprom attempted to slap down these upstarts in September by cancelling purchase contracts, but the Kremlin quickly stepped in and rescinded the decision. There is even speculation Novatek will be given the right to export gas, thus breaking Gazprom's lucrative monopoly.
Talks with China on building a big gas pipeline over the Siberian border could make a huge difference to Gazprom's bottom line, but they are going nowhere. And the other new export route of Nord Stream may be strategically important, but it will also cost Gazprom some $1.5bn in extra transit fees by 2015, say bankers.
Clearly the government is not happy with the way the company is run and is looking to tighten its control. The Ministry of Economic Development and Trade warned Gazprom recently of the "urgent need to improve the efficiency of investment, otherwise it may become uncompetitive both in foreign and domestic markets," specifically highlighting US gas exports to Europe that are expected to start in 2016. The ministry has suggested appointing two of its own to Gazprom's board, taking over the strategic and investment committees, while Deputy Minister of Economic Development Sergey Belyakov wants Gazprom's investment programme to require government approval.
Developing LNG provides the key to Gazprom's long-term future, which will make gas a true global commodity. Russia signed off on a deal with the Japanese to build a new $7bn plant that will double Russia's LNG production to about 20m tonnes a year. But Russia is still lagging behind the Middle East and Asia in terms of production, and it is unclear whether Gazprom is able to raise the tens of billions of investment needed to stay in the game.
Like most other sectors, Gazprom is in the process of drawing up a roadmap to protect Russia's energy security that is supposed to be approved in November, Putin said. Analysts say things are up in the air and the next six to 12 months could prove key to the long-term prospects for Russia's biggest company, which currently accounts for half of all federal income.
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