The future of Gazprom - and Putin

The shale gas revolution threatens the future of  both  Gazprom and Vladimir  Putin

Ahmed Mehdi, a Reserach Fellow at the NATO Parliamentary Assembly, has written an interesting article about the problems facing Russia´s energy giant Gazprom: 

Just four years ago, the Western press commonly touted Russia's state-owned natural gas giant Gazprom as Vladimir Putin's premier instrument of power. Indeed, the $160 billion firm controls several mighty subsidiaries, including oil and power companies and groups that run Russia's export pipelines. It has the ability to leave millions in Europe in the cold, as it demonstrated when it turned off the taps to Ukraine in 2006 and 2009. And it even owns several media outlets, including NTV, a popular television station that was once a vehement critic of Moscow but is now a (somewhat reluctant) advocate of Putin's domestic agenda. In total, Gazprom's profits constitute about ten percent of Russia's GDP. Perhaps that is why the company -- which even has its own anthem -- is considered a bellwether of Russian power. 

Yet, as Vladimir Putin is sworn in this week for another six-year term as president, the energy giant is not what it used to be. Despite the Kremlin's best efforts, the Russian gas market has recently started to liberalize. In the coming years, Gazprom will not be able to rely on high profit margins to stay at the top of the energy business. And for his part, Putin will not be able to rely on Gazprom as a source of power. 

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Although things look bad for Gazprom, it is inconceivable that the company will simply disappear; it is just too big and owns too many subsidiaries. It is likely, however, that the Kremlin will start allowing more independent companies to play on the gas scene. For his part, Putin will probably favor letting Gazprom keep its prominent position, but even that will depend on his political strength. Between 2000 and 2008, the Russian leader's defining characteristic was an ability to dictate what the Russian state should look like. And a large portion of that picture rested on Gazprom's national champion status. The company got economically ludicrous tax breaks, received favored access to licences, and secured a monopoly over the pipelines. Yet, now the two-tiered gas market is eating into Gazprom's status -- slowly but surely. And as Gazprom gets crowded out of the market, Putin will have to find some other basis for his power, or else be slowly edged out as well.

Read the entire article here


The problem with Mr Mehdi´s analysis is that he does not at all discuss the impact of the American led shale gas revolution on Gazprom´s future. Putin is probably in a position to prop up Gazprom within Russia, but he is unable to do anything about shale gas. That is the real reason why he will be "slowly edged out". 


(image by wikipedia)