Facing tensions in Europe and increased competition in Russia, the country’s gas monopoly Gazprom is struggling to maintain its dominance on the global energy market.
With the Russian economy facing recession, lower oil prices and Western sanctions over Ukraine, Gazprom is expected to produce 414 billion cubic metres of gas this year, an all-time low for the public company sitting atop some of the world’s largest natural gas reserves, according to Russia’s Economy Ministry.
Gazprom has seen demand for its natural gas drop to the lowest level in its post-Soviet history.
Overall, Russia still supplies Europe with about a third of its natural gas. But after the gas crises in 2006 and 2009 that coincided with moments of geopolitical tension, the European Union has been increasing efforts to diversify its gas supplies.
Energy Union, spearheaded by European Commission Vice President Maros Sefcovic, foresees building interconnectors between the European states.
Moreover, Gazprom must decide by September whether to contest an antitrust case brought by Brussels that could force it to give up its tough stance against Europe for good. Now there are signs of conciliation from Gazprom’s leaders.
Justin Urquhart Stewart, director at Seven Investment Management, told New Europe on August 18 that the only sanctions that will have any impact on Russia would be corporate sanctions. He said that Russian oil giant Rosneft and Gazprom find it increasingly difficult to finance themselves in the international markets.
“They already turned to the Central Bank but some say they’re going to have to try and reach to the western markets to see if they can actually finance themselves and this is where the pressure will come on [Russian President Vladimir] Putin from these companies and their oligarchs and then we will find out just how much strength this ex-KGB Colonel actually has,” Urquhart Stewart said.
“Do these corporates actually have enough strength to put leaders on him to say: ‘Look you got to change the stance, we need to finance ourselves, we can’t do it domestically, we should compromise or at least start that process. We’re not there yet but the sort of movements from Gazprom may be the first signs of such a thaw of realism coming forward,’” the London-based analyst said.
Gazprom Chairman Alexei Miller said in June that Putin had asked him to hold talks to keep pumping gas to Europe through Ukraine.
Urquhart Stewart said the threat of another gas crisis affecting European supplies has not gone away. “It has merely been delayed for awhile but if Gazprom is showing signs of realism and that is translated into realism on Ukraine as well, and maybe realism that actually there should be some proper negotiations on it, then this could be an opportunity to maybe start seeing some change with regard to Gazprom and the whole Ukrainian issue. It’s not going to solve it but it maybe it just shinning one or two shafts of light that the now corporates maybe the ones able to start breaking this ice block,” he said.
Pressure keeps piling on the Russian gas company. With the Iran nuclear deal likely to send more oil and gas to Europe, Gazprom may soon lose even more leverage.
At the same time, the shale gas boom has unlocked vast new stores of natural gas in the United States, further increasing global supplies.
Meanwhile, despite the initial excitement when Gazprom announced a huge $400 billion, 30-year export deal to China in May 2014, the agreement is now coming under extreme pressure on numerous fronts.
Morgan Stanley analysts on August 17 suggested that construction of the necessary pipeline would be delayed by at least six months, taking the initial exports to mid-2019 at the earliest. The initial deal had talked about beginning supplies as early as 2018.
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