Financial Times published an article by a renowned American economist Anders Aslund, entitled "Gazprom crisis casts shadow over Putin". The newspaper points out:
"Gazprom, the natural gas company controlled by the Russian state, is in crisis. It is likely to fall victim to the shale gas revolution that is under way across the US. The shale gas revolution will probably have telling consequences for Russian state capitalism and Vladimir Putin's power.
This crisis erupted suddenly. With its surge in shale gas production the US has become self-sufficient in natural gas. It has overtaken Russia as the biggest natural gas producer. Crucially, US natural gas is cheap. Domestic US natural gas prices are only a quarter of Gazprom's oil-linked eastern European prices. Such large price differentials cannot possibly last for long.
Many countries had prepared to produce liquefied natural gas for export to the US. Now these large volumes of LNG are being diverted to Europe, where spot prices have fallen to half of Gazprom's prices.
In Germany, Gazprom has been forced to accept large price cuts, but it insists on maintaining high contracted prices in eastern Europe, although oil and gas prices have delinked on the market.
A second big blow to Gazprom came on September 4 when the European Commission opened formal proceedings against the company for anti-competitive practices in eight central and eastern European countries. The European Commission is investigating Gazprom for having "divided gas markets by hindering the free flow of gas across member states", "prevented the diversification of supply of gas" and "imposed unfair prices on its customers by linking the price of gas to oil prices".
Given that the European Commission won its far less convincing cases against Microsoft and Intel, its victory over Gazprom looks close to assured.
As a consequence, Gazprom would have to give up its price policies, perhaps halving European prices, which would devastate its revenues and eliminate its profits.
Curiously, in 2011 Gazprom was formally the most profitable company in the world with purported net profits of $ 46bn, but these profits were hardly real. Investment analysts opined that no less than $ 40bn disappeared through inefficiency or corruption.
For years, many analysts have said that Russia will reform only when the oil price falls because Gazprom seems to be the Kremlin's main slush fund, which is now being drastically reduced. The Kremlin will have little choice but to forsake its mega-projects. It has already abandoned the mastodon Arctic Shtokman field, as well as the planned gigantic sky-rise headquarters in St Petersburg. But that will hardly suffice.
Gazprom's demise looks likely. With its demise, Russia's revenues would dwindle.
Putin‘s model of state capitalism would suffer a devastating blow from Gazprom's fall. In his first comments on the European Commission case against Gazprom in Vladivostok on September 9, Putin revealed the level of his incomprehension of market economics. He said the "EU subsidizes the economies of eastern European countries. Now it seems that someone in the EU has decided to shift part of the burden, some of the subsidies, to us".
Contrary to the evidence, he said Gazprom's prices were market-oriented, and that no one ever questioned these principles.
Well, the European Commission does question them. The longer Putin denies reality, the deeper Gazprom's crisis will grow".
Department of Monitoring
Kavkaz Center
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