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Financial Times: Gazprom

Financial Times Gazprom

By Carola Hoyos
Published: March 11 2007 19:05 | Last updated: March 11 2007 19:05

No other company has kept Europe, and now increasingly Asia, on tenterhooks more intensely in the past two years than Gazprom, the Russian natural gas giant that controls all of the country’s pipelines and export routes.

As Gazprom has become a tool of the Kremlin, it has found itself used in foreign policy (the January 2006 gas dispute with Ukraine, the debate with Japan and China over competing export pipelines from Siberia, the idea of a gas cartel) and domestic policy (the grab of Royal Dutch Shell’s majority stake in Sakhalin II, the $20bn liquefied natural gas project, the acquisition of independent media outlets).

Meanwhile, Gazprom has increased its influence with upstream deals in central Asia, including Iran. Downstream, its aggressive push into the European market has set off protectionist government moves to limit its access and helped those who argue in favour of mega-mergers to create national energy champions.

“Russia was supposed to be the next great hydrocarbon frontier for the international oil companies, but that hasn’t happened because of the rise of Gazprom and others,” says Saad Rahim, who heads the national oil company practice at PFC Energy, the Washington-based consulting group.

But as IOCs have either been barred entry or pushed out of the way, fears have grown that Gazprom, for all its power, will not be able to meet the future requirements of Europe, which today relies on Russia for more than 30 per cent of its gas needs.

Last year, Claude Mandil, executive director of the International Energy Agency, sounded the alarm bells in an FT opinion article, writing: “It is unlikely that Gazprom lacks adequate capital to make the necessary investments, but it currently appears that investment flows are directed at mega-projects and acquisitions in its customers’ markets or overseas. New gas production and transport infrastructure is required to avoid a possible supply gap, but the lack of such investments is already creating supply tensions. This could result in even higher prices to consumers and possible shortages or worse unless action starts now.”

Just stopping the leaks and the gas that is burnt into the atmosphere along Gazprom’s transport system would represent a big step towards mitigating the potential lack of supply that will only get worse as Russia’s domestic consumption grows, leaving less gas to export.

Much will depend on Gazprom’s decisions, but also on the outcome of the country’s impending presidential race.

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