September 5th, 2012

Putin has lost his natural gas gamble

Gazprom's CEO Alexei Miller listens attentively to his real boss

Gazprom announced the freeze of its Shtokman project, shortly after Total and Statoil withdrew from the joint venture with the Russian natural gas monopoly.

The de facto cancelation of the ambitious Shtokman project means that in the next twenty years investments will flow into liquefied natural gas (LNG) terminals and shale gas development projects in North America and Europe, not into Russian Arctic natural gas fields. For example, Israel, which just recently discovered a vast natural gas reserves, already on the way to bring them to the market.

Considering Gazprom’s export monopoly and company’s exclusive access to the Russian gigantic natural gas reserves, the company’s top-management (and in fact Vladimir Putin, personally nurturing his favorite “national champion”) bears all the responsibility for the industry’s stagnation in the recent years. In 2000s, Gazprom underestimated the new technologies prospects, namely LNG and shale gas, and put all bets on building pipelines to its traditional European customers. As a result, a natural gas giant is loosing its share of the European market and failed to make any sizeable deals with China, the largest natural gas importer.

A competition of several global companies within Russian energy sector would have helped to avoid strategic oversight. Many natural gas fields could have been brought into operation during the Putin’s decade. Market competition would have provided reliable information about costs and prices in the natural gas sector. The income of a narrow group of shadow beneficiaries of the Russian energy sector might have been lower, but the sector’s output, employment and contribution to the country’s GDP could have been much higher than they are now.

Reuters

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