And to think it had visions of being the world’s first trillion dollar companyby John Lough / January 28, 2016 / Leave a comment
Gone are the days of Gazprom’s powerful swagger and threats to diversify its business away from Europe to Asia. The world’s biggest gas producer is now a diminished figure, struggling to adapt to dramatic changes in global gas markets and a breakdown in relations between Europe and Russia.
Displacement of LNG from Asia to Europe spurred by the dramatic development of shale gas production in the US is creating new supply options for several European countries. This is affecting Gazprom’s traditional business model in Europe based on long-term contracts that underpin its upstream investments.
For Gazprom, these new pressures have coincided with a determined effort by the EU to develop competition in energy markets by ensuring the better flow of electricity and gas. The EU has introduced legislation that prevents energy suppliers from owning transportation infrastructure and excluding non-owners from using it. These “unbundling” measures have forced Gazprom to abandon its long-standing attempts to minimise commercial risks by buying distribution assets in EU markets.
The regulators’ pressure has gone further: in 2012, EU competition authorities launched an anti-trust investigation into Gazprom’s business in several EU countries. It has formally accused Gazprom of several violations of EU law related to anti-competitive behaviour. Gazprom has proposed an out of court settlement. It has every reason to avoid a fine that would open the door to other companies pursuing their own claims against Gazprom.
After Russia’s annexation of Crimea in 2014, the EU has finally started to think geopolitically about the security of energy supplies and the challenge of managing its high level of dependency on Russian gas. Around a third of the gas consumed in Europe comes from Russia. The erosion of trust between European countries and Moscow after Russia’s decision to tear up the defence and security arrangements agreed at the end of the Cold War has accelerated the EU’s efforts to diversify gas supplies.
Eight member states are still fully or predominantly dependent on Russian…