Should Gazprom 'Step on it' or 'Pull the Brakes'?
From government offices in Moscow it looks like a conspiracy against Russian interests.
Even as Gazprom managers keep assuring the Russian political leadership that the nation needs plenty of new pipelines to deliver natural gas to energy-thirsty Europe, the Europeans do everything they can to cut down gas consumption—especially if that gas comes from the east.
Gazprom Chairman Alexey Miller told Vladimir Putin in September 2011: ‘As we are planning, within ten years demand of Russian gas in Europe can grow by another 200 billion cubic meters.’ Key managers of the company have been repeating this optimistic forecast on many occasions.
In reality, Gazprom’s deliveries of gas to ‘far abroad’ do not demonstrate great vitality. They fell from 120.5 bcm in 2009 to 107.4 bcm in 2010 before recovering slightly to 117.2 bcm in 2011 and falling again to 112.7 bcm last rear. This is the volume of gas that actually crossed the national border, as Bank of Russia reports quoting data from the customs. The company itself publishes larger figures that include resale of non-Russian producers’ gas by international trading subsidiaries of Gazprom.
News from the EU can hardly offer consolation to the Russia gas monopoly. In January-June Turkey decreased its purchases from Gazprom by 7.9%. Austria bought 20.8% less Russian gas that a year earlier; and the Czech Republic posted a 19.8% decline.
When Gazprom joyfully announced that West Europeans increased their demand for Russian gas by 15.6% during the first seven months, it is open to guesses how much of this commodity came from third parties…
Since profits of Gazprom-owned foreign resellers are not included in the monopoly’s statistics (they prefer to keep their earnings away from the eyes of Russian tax collectors), it is worth noticing that net profit of Gazprom in January-June fell 35%, year-on-year.
Instead of boosting the capacity of gas-fed generation after the decision to scrap nuclear energy, German companies are switching to coal and terminating gas power stations. RWE alone has shut down one-fifth of Germany’s gas power capacity. Italy's Edison declares intention to replace Russian gas with LNG from the United States. ‘Utilities across Europe have been hit by high gas prices and low power contracts, which have squeezed their profit margins,’ Reuters reports. ‘Companies from Dublin to Berlin and Stockholm to Lisbon have announced plans to divest or mothball power plants that are underperforming.’
For a few years, Russian gas deliveries to the EU may grow because the market of LNG supply is expected to be somewhat tight before new liquefaction plants are commissioned worldwide. After this short break, Gazprom will eventually face the buyer’s market in the traditional zone of its business.
Mikhail Krutikhin
Published with the kind permission of RusEnergy. Mikhail Krutikhin is with RusEnergy, an independent privately-run company established in 2000 by a group of Russian experts with a long experience in consulting and publishing business. Based in Moscow, it specializes in monitoring, analysis and consulting on oil and gas industry of Russia, Central Asia, Azerbaijan and Ukraine.