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Commentary

The End Of Gazprom's Reign?

New Gazprom pipes ready for installation in Russia's Krasnodar territory. That pipeline and others might see declining usage over the next decade.
New Gazprom pipes ready for installation in Russia's Krasnodar territory. That pipeline and others might see declining usage over the next decade.
By Stacy Closson
Just over 18 months ago, Russia was predicting a bright future for Gazprom, stating that its capitalization would exceed $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 percent 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 U.S. 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, D.C. 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
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by: Human from: Earth
January 06, 2010 15:45
Europe gas imports are expected to rise because the EU North Sea deposits are getting exosted. By 2020 EU will need to import over 55% of their needs as the current imports are about 40%, of which Russia supplies about 30%. This is assessment of the US National Intelligence Council, the illiterate author of the propaganda drivel the RFE posts obviously did not read.

Considering the fact that there are no viable alternative to the Russia supply (NABUCCO even if completely operational and supplied will deliver measly 5% of the EU import needs), the EU will need at least THREE NABUCCO to just supplement Russia gas delivery. And Russia deliveries are not cast in stone - Russia already diversified it's market away from Europe.

So what will happen in the nearest future is for EU to come hat in hand to beg GAZPROM for mercy, because Russia energy delivery is vital for the EU industrial competitiveness on the international market and China already eats them alive. With Russia shifting her good grace from Europe to Asia, the EU will wither and disintegrate in great embarrassment.

So the EU must be very careful what way they chose - to listen to the inept US-paid RFE propaganda and ultimately lose to the rising Asia economy superpower, or keep their noses clean and try to bult close relationships with Russia, what will make the RFE propaganda machine obsolete.

Poor RFE, heh, heh, heh :)

by: God from: Heaven
January 06, 2010 22:38
Human: You completely forgot that Russia is losing economic influence in Central Asia to China. Even if Europe comes begging to Gazprom for gas Russia will be unable to fulfill its contracts. Where China is the "Golden Dragon", Russia is the "Aging Dinosaur" on the brink of the abyss. Goodbye dinosaur, nice knowing you!

by: ZviadKavteli from: Ann Arbor, MI, USA
January 07, 2010 05:07
To Vladimir from Russia with a nickname of "Human from Earth"

I read all kinds of news and reports in 3 languages, including Russian.

Propaganda is on RT (Russian government-paid "news source" which repeats whatever Putin-Medvedev and KGB-FSB say.

RFE on the other hand presents different views of various sources. You may not see this for two reasons: because you want to hear and trust what Putin says or because you are paid to say whatever Putin says.

I agree with you that Europe is very dependent on Russia's energy supplies. For that reason and because countries like France and Germany are less principled than "pragmatic", Europe overall has been quite timid in relations with Russia. However this European "pragmatism" cannot help Russia for very long.

Russia's main risks are not EU and USA or Ukraine and Georgia. Russia's major risks come from within Russia: declining demographics, scary public health, rising radical Islam, decaying infrastructure, lack of modern economy, and current political leadership which is good at starting wars or oppressing own people, but inadequate at nation-building.

Invading some neighbors and threatening others with nuclear strikes are not signs of strength, but weakness, not wisdom, but foolishness, not nation-building, but nation-destruction. The current Russian leadership will cause more problems for Russia than anything else. I am afraid that Russians will realize this when it is too late and when the damage to Russia is irreversible.



by: Human from: Earth
January 07, 2010 22:23
Obviously my citation of the US National Intelligence Council assessment of the inevitable increase of gas dependency on Russia is driving the rusophobes mad and whiny, what makes me very happy. Especially considering the fact that the US NIC advises the US Presidents.

ZviadKavteli (aka Suckassvilli) for instance keep chewing his sobered necktie and talk stupid about Russia invasion, when even the EU already concluded the fact the Gruzia initiated and lost war against independent S Ossetia and Abkhazia. If Gruzia were not such genocidal maniacs, they could had some chance to negotiate settlement with S Ossetia and Abkhazia, but they lost that privilege forever.

Russia OWNS 34% of ALL KNOWN Earth natural resources. This fact drive even war criminals like Mad Halfbright crazy, and led to her jealousy diatribe, that no country on the Earth should have that much wealth.

Russia is REAL RICH and as the current economy downturn demonstrate, unlike the BROKE US, Russia did not needed any begging form China to stabilize it's economy.

Russia holds the key to the success and demise of any producer nation. Germany and France recognize their fact, hence their pragmatism. The rest of the EU are either irrelevant or in process of cleaning their noses ready to suck it to Moskow.

Sorry rusophobes, you lost again, and no amount of inept RFE propaganda changes the fact that in Geoploitic turn Russia makes you look like the monkeys you are, heh, heh, heh :)

by: God from: Heaven
January 08, 2010 08:46
Human: Obviously, if Russia has 34% of all worlds natural resources, then why can't it develop them on its own? Russian economy is still 2% of the worlds economy, (USA is 20%, EU is another 20%). Why are Russian scientists lamenting the fact that education in Russia is so dismal compared to the West? University students can now buy their degrees without attending any classes or knowing anything! If USA is broke, so is Russia, that's why it has an army of poor conscripts from the country who couldn't fight their way out of a wet paper bag! That's why its infrastructure is crumbling (hydro-dams, train derailments, poor roads, etc.). Russian spending this year is set to surpass its own earnings from natural resources. In debt, just like USA. Russia is a criminal state and a stagnant society, which is why it will disappear if it cannot change to new geopolitical realities. Keep laughing Human, while we watch the WLCE (World's Last Colonial Empire) disappear into the dust of history.

by: b1102 from: Europe
January 08, 2010 19:57
RFE, behave themselves like small kids. Maybe they try to discuss things that they don’t understand, maybe it‘s a propaganda for not very clever people. Eu and Russia understand that the consummation of gas in Eu will only rising because all human history demonstrates us that people wasting resources more and more. Gas is on of the cleanest type of energy, but european own gas deposits are really getting exhausted.
In my opinion Eu won’t “come hat in hand to beg GAZPROM for mercy”, because I agree that Eu won’t survive without Russian gas. But Russia won’t survive without european contracts.

by: john smith from: tbilisi
January 09, 2010 00:31
Let us compare: The Oil-Dependent 3rd World Russia vs Real-Economy EU, USA, China, Japan.... I guess Russia has no chance at all, except, of course, in the minds of the eternally self-delusioning wishful-thinking Ivans. Go on dreaming, it will make your country's death less painful for you. Then we'll get back what you have stolen from us. Without a single shot.

by: Irina from: usa
January 11, 2010 02:24
People you have got stuck in the past of years on 15-20, to you it is pleasant judging by tone of comments that in Russia all so is bad, but all has changed, that demography about which you speak is fixed in 2005, following the results of 2009 the increase in population and death rate decrease is observed, life expectancy is increased to 69, poverty level has decreased to 13 %, falling of rates of manufacture following the results of 4 quarters 2009 is not present, at least there is a chance to avoid recession, yes in comparison with the USA and the West Europe economy more low, but also time after communistic development of only 20 years has passed.

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