Gazprom's Trifecta Of Woes A Potential Boon To Europe, Caspian Sea

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Gazprom, the largest natural gas company in the world, is experiencing a moment of truth. And so, by extension, is Russia, which has relied on the behemoth for a large part of its tax revenue, and as a spearpoint of its foreign policy. The main ramifications are a shakeup in security presumptions in Europe and on the Caspian Sea, both of which until recently have seemed to be under Gazprom’s thumb.

The reasons are these: Gazprom’s main market – Europe – is under threat from cheap competition from the Middle East; one of its expected future markets – the United States – is sated by new indigenous gas supplies; and the reliability of its key underpinning – political backing from Russia’s leadership – now seems a bit less full-throated. This blog has been discussing the reason for the first two problems – the motherlode of natural gas that is suddenly being drilled from U.S. shale formations; at once the U.S., and not Russia, is producing the largest volume of gas in the world. In Europe – where Gazprom has seemed impregnable – liquid natural gas from Qatar is undercutting the Russian company’s price; barrel-chested Gazprom has had to make unaccustomed concessions to conciliate its European customers. And in the U.S., where Gazprom has boasted that it will control 10% of the market within a decade through the sale of LNG, mainly from Russia’s Shtokman gas field, its braggadocio is ringing hollow. Because the U.S. shale gas has created a glutted market, Shtokman is on ice, and Gazprom’s Houston trading office – opened with fanfare only in October – looks to have more limited potential.

Closing out this list of challenges, Gazprom now must share what was one of its most reliable current sources of supply – the captive gas fields of Turkmenistan, almost all of whose pipelines until recently ran only to Russia; in December, China opened a 2,900-mile-long natural gas pipeline connecting itself to Turkmenistan. All in all, on all these fronts, the assumptions underlying Gazprom’s business model no longer exist. Catherine Belton and Isabel Gorst provide a very good primer on Gazprom’s overall challenge in a long story last Friday in the Financial Times.

This set of challenges weakens the argument that Gazprom poses a security threat to Europe and greater Caspian Sea countries like Azerbaijan, Georgia, Kazakhstan and Turkmenistan. If LNG keeps flowing into Europe in larger and larger volumes – and especially if shale gas is developed in Hungary, Poland and elsewhere on the continent – Gazprom and its supply dominance seem less menacing. Likewise, the Chinese pipeline has severed Gazprom’s monopoly on Central Asian gas exports.

EDIT

http://www.energybulletin.net/node/52202