Gazprom, Russia’s International Energy Leverage, and a Predetermined Gas War

An excellent overview of Gazprom via The Independent, focusing primarily on Russia’s use of Gazprom as a means of projecting political power throughout the region. While the piece, by Anne Penketh, concludes that Gazprom – due to internal inefficiency and corruption – may ultimately end up being a paper tiger, she does point out that – given the combination of Gazprom’s management failures and its abiding need for continued profits from Europe – it will likely end up having to give someone the short end of the stick — one of its former Soviet brothers.

As she notes:

“…The company, which owns 17 per cent of the world’s known gas reserves, is locked in an embrace with President Vladimir Putin’s government. The state holds a stake of just over 50 per cent, and the Gazprom chairman is a deputy prime minister, Dmitry Medvedev, tipped as a possible successor to Putin when the President steps down next year. The board, and its chief executive Alexei Miller, one of Putin’s former associates from St Petersburg, is totally loyal to Putin. Not for them the fate of the businessman Mikhail Khodorkovsky, the oligarch who paid for his independence by losing his company – Yukos, once the largest oil firm in the country – and ending up in a Siberian jail serving a nine-year sentence on charges of tax evasion and fraud.

Baev explains: “It’s not a gas monopoly in the usual sense, because it can’t fix prices and can’t think strategically. Political expediency dictates its policy – its investment programme is revised more than once every year. This makes it very difficult for foreign partners.”

….Now, the order of the day is making Russia count in world affairs. And the Kremlin’s instrument for doing so is Gazprom. In January 2006, just a month after Ukraine’s “orange revolution”, which ousted the pro-Russian leadership in favour of pro-Western reformers under President Viktor Yushchenko, the former Soviet republic suddenly found its gas supply had been switched off by Moscow, which raised prices fourfold overnight.

Far from its monster image, because of a combination of inefficiency and a chronic lack of investment, gas production is stagnating while domestic demand is growing, and Gazprom is obliged to meet its profitable export commitments to the West. The company is already having to branch out to the central Asian republic of Turkmenistan to help it meet demand, but that country too is suffering from under-investment problems. At the same time, Gazprom is subsidising prices to Russian consumers, meaning that it can barely cover its costs domestically. It has been ordered to hit its home users with a 15 per cent price rise….”
Gazprom: how it all adds up

In 2006, Gazprom employed 432,000

Its annual earnings last year were 1,633bn roubles (£31.55bn)

With a current market value of more than $300bn (£150bn), Gazprom is the world’s third-largest corporation, after Exxon Mobil and General Electric Gazprom’s chairman estimates that the company’s market value will quadruple in the next 10 years, making it the world’s most valuable company

Gazprom began in 1989, when the USSR’s Ministry of the Gas Industry was reorganised into a gas concern called Gazprom

Gazprom is the world’s biggest extractor of natural gas

Gazprom accounts for 92% of Russian gas production, and controls 17% of the world’s gas reserves

The European Union receives 25% of its natural gas from Gazprom

The Russian Federation owns 50.002% of the shares in Gazprom

Gazprom is the sole gas supplier to Estonia, Finland, Bosnia-Herzegovina, Macedonia, Moldova, Latvia, Lithuania and Slovakia

Gazprom has a private army

Gazprom is in the process of engineering a 558-milegas pipeline to carry 30 billion cubic metres of gas a year to southern Europe.

This entry was posted on Friday, September 14th, 2007 at 6:27 am 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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