Published June 14th, 2009
Declining gas prices leave Gazprom caught in its own trap
As energy markets shrink, the same tactics that Russia used to build Gazprom into a fearsome economic and political power that could restore the country’s standing in the world are now backfiring, sharply eroding the energy giant’s earnings and influence.
Throughout his eight years as president of Russia, Vladimir V. Putin pursued the strategic goal of dominating natural gas supplies to Europe and the pipelines that deliver them. His success was underscored in January, when for the second time in three years a pricing dispute with Ukraine disrupted the flow of natural gas, leaving hundreds of thousands in Eastern Europe shivering in the deep winter cold.
But in his zeal to monopolize gas supplies, Mr. Putin, who is now the Russian prime minister, committed Gazprom to long-term contract with Central Asian countries for gas at a cost far in excess of current world prices. Now that the world economic crisis has sharply curtailed the demand for gas, Gazprom is saddled with a glut of expensive Central Asian supplies that it is forced to sell at a loss. (more…)
