Gazprom Drilling Deeper into Europe

The Wall Street Journal has a piece today on Gazprom’s aggressive moves into retail natural-gas markets in Europe (with plans to sell gas and power directly to consumers), part of the WSJ’s diligent reporting on the decline of Big Oil in favor of state-owned companies with access to huge, home-grown reserves, and the technology-laden oil service companies that can help them get at it efficiently.  As the article notes:

“…Vitaly Vasiliev, head of Gazprom Marketing and Trading, the Russian giant’s U.K. arm, predicts Gazprom will have 14% of Britain’s commercial and industrial market in gas within three years, up from 1.5% today. “Gazprom wants to be an energy company, not just a supplier of gas,” he says in an interview. “We want to participate in the whole value chain.”

…But there is concern about state-controlled energy giants like Gazprom taking advantage of market liberalization. Gazprom embodies everything the EU is trying to change — a vertically integrated national champion with a monopoly on exports and that owns gas fields and pipelines. In a pre-emptive move against Gazprom, the EU is mulling a plan to stop such companies from controlling EU distribution networks….

[Expanding Gas Giant]

…Addressing fears that the expansion will increase Europe’s over-reliance on Russian gas, Mr. Vasiliev counters that most of the gas it sells doesn’t come from Russia. Of the 16 billion cubic meters of gas GM&T traded in Western Europe last year, 10 billion was acquired on the basis of long-term “swap” agreements with other European groups such as DONG Energy A/S of Denmark, or from third parties.

Such deals slashed transportation costs. “Our Siberian fields are 7,000 kilometers [about 4,300 miles] away from our customers in the U.K.,” Mr. Vasiliev says. “If you physically move this gas to Britain it takes seven days.”

GM&T is moving into the French market. Mr. Vasiliev says it sold 500 million cubic meters directly to industrial consumers last year, and wants to increase that to 2.5 billion to three billion cubic meters by 2011. It also wants to expand into supplying small businesses, as in the U.K.

…Breaking into Germany’s downstream sector also has been difficult. Gazprom has signed asset-swap agreements with Wintershall, the gas division of German chemicals giant BASF AG, and energy giant E.On AG that give both companies a stake in its huge Yuzhno-Russkoye gas field in Siberia in exchange for stakes in their downstream operations. But Gazprom and E.On have so far failed to agree on terms for the swap….”

This entry was posted on Monday, January 28th, 2008 at 1:04 pm and is filed under Gazprom, Russia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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