Rus­sian energy gi­ant Gazprom faces chal­lenges as out­put slumps

The Pak Banker - - BUSINESS -

Fac­ing a cold shoul­der from Europe and in­creased com­pe­ti­tion at home, Rus­sia s Gazprom has strug­gled to as­sert dom­i­nance on the global energy mar­ket, prompt­ing spec­u­la­tion the energy gi­ant could have no choice but to splin­ter.

With the Rus­sian econ­omy slip­ping into re­ces­sion on the back of lower oil prices and Western sanc­tions over Ukraine, the econ­omy min­istry pre­dicted Gazprom would pro­duce 414 bil­lion cu­bic me­tres of gas this year, an all-time low for the public com­pany sit­ting atop some of the world s largest nat­u­ral gas re­serves.

Gazprom s mar­ket cap­i­tal­i­sa­tion has plum­meted in re­cent years. Prior to the 2008 fi­nan­cial cri­sis, the com­pany was worth more than $300 bil­lion. Its value now hovers around $50 bil­lion, trail­ing far be­hind the world s other ma­jor energy com­pa­nies. "Gazprom is con­fronted with the great­est chal­lenge in its history," Chris Weafer, a part­ner at the Macro Ad­vi­sory con­sul­tancy firm, told AFP. "What re­mains to be seen is whether Gazprom be­comes an ap­pendage of the for­eign min­istry or evolves into a global energy com­pany."

The de­cline in Gazprom s value and gas pro­duc­tion co­in­cides with mount­ing ten­sions with the Euro­pean Union, which has ac­cused it of cater­ing to Moscow s geopo­lit­i­cal in­ter­ests in­stead of op­er­at­ing ac­cord­ing to busi­ness prin­ci­ples.

Gazprom is now grap­pling with a se­ries of is­sues, in­clud­ing its re­cent loss of the Ukrainian mar­ket, Europe s energy diver­si­fi­ca­tion ef­forts and in­creased com­pe­ti­tion on the do­mes­tic mar­ket, which jeop­ar­dise its sta­tus as a gas gi­ant.

The gas gi­ant struck a $400 bil­lion nat­u­ral-gas deal with China last year, an agree­ment that was her­alded as the sym­bol of Rus­sia s pivot to Asia. Moscow and Bei­jing have since agreed on Rus­sia sup­ply­ing nat­u­ral gas to western China. But Western sanc­tions im­posed on Moscow over the Ukraine cri­sis have un­der­mined Gazprom s at­tempts to turn away from Europe, its tra­di­tional mar- ket. Washington s ban on tech­nol­ogy trans­fers to Rus­sia for cer­tain energy projects, in­clud­ing Gazprom s Yuzh­noye Kirin­skoye field in the far eastern Okhotsk Sea, is sti­fling Moscow s am­bi­tions on the Asian mar­ket.

Gazprom was set to use the field to de­velop its liq­ue­fied nat­u­ral gas (LNG) pro­duc­tion ca­pac­ity and, ac­cord­ing to some re­ports, ex­change as­sets with An­glo-Dutch com­pany Shell. With­out US tech­nol­ogy, ex­perts fear that Rus­sia will not be able to ex­ploit the field s re­sources. "This is bad news for Rus­sia be­cause the pro­duc­tion of LNG is a strate­gic ob­jec­tive in the re­gion," said Valery Nes­terov, an an­a­lyst at Sber­bank In­vest­ment CIB.

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