Gazprom Blues

Putin’s Piggy Bank Empties Out

Putin and Miller-AP-CHANGED
President Putin needs his buddy, Gazprom CEO Alexei Miller.
  • Why it matters

    Why it matters

    President Vladimir Putin has been able to forge his own path, without relying on the West, due to Russia’s vast natural resources, but the global energy and economic landscape is changing to its detriment.

  • Facts


    • The shale-gas revolution will change the global relationship between energy supply and demand for decades to come.
    • In Europe, renewable energies are taking market shares away from Gazprom.
    • Poland is building a central hub for gas trade in the region.
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On the stock market, economics always takes precedence over politics. Take the case of Gazprom, the Russian natural gas giant.

Today the company’s stock is worth only half what it was three years ago. But the fundamental reason for its drop in value is not President Vladimir Putin’s audacious actions in Ukraine. The military confrontation only caused a few more short-term dips in what has been a long, steady decline. Hard economic facts remain a much more decisive factor in the market’s evaluation of Russia’s largest energy company.

Those economic facts do not bode well for Gazprom’s future. The shale-gas revolution in the United States and elsewhere will change the global relationship between supply and demand for decades to come. In Europe, renewable energies are taking market share away from Gazprom. And the company can only meet the growing demand for natural gas in China if it first invests billions in new pipelines. In addition to which, the lucrative link between the benchmark prices for natural gas and crude oil is no longer possible.

Added to these purely economic factors are the long-term consequences of Mr. Putin’s politics. Over the next two decades, all of Central and Eastern Europe can be expected to free itself step by step from dependence on Russia.

Poland is in the vanguard here as it builds a central hub for gas trade in the region. A terminal for liquefied natural gas is scheduled for completion in 2015. A new Eastern European pipeline network is also being built in parallel. An expanded transit point at the border to Germany has already been in operation since April, which should soon allow for the reversal of energy flows: Natural gas will no longer be transferred solely from east to west, but also from west to east.

The British and Norwegians stand to profit from this development as their reserves become more and more valuable for Europe. The stock price of the Norwegian gas company Statoil has risen by one third in the last year.

In the mid to long term, the winners also include other exporters of liquefied natural gas, such as Qatar on the Arab peninsula. Last week’s visit to Berlin by the emir of Qatar should also been seen in this context.  Germany might even finally get a liquefied natural gas terminal in Wilhelmshaven on the North Sea, a project that has been talked about for decades. On the other hand, would German companies today still choose to participate in a project such as Nordstream, the Russian pipeline through the Baltic? The answer is an unambiguous “no.”

Over the next three years, Gazprom can be expected to suffer from this tangle of negative factors even more severely than in the past. This is bad news for company’s stockholders, but also for the Russian economy in general. Up to now, Gazprom served Mr. Putin as a sort of piggy bank, to finance future investment and future consumption. Now it is being emptied at a rapid pace.

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