Gazprom Slow to Adapt and Unable to Influence

Florence School of Regulation Energy; Policy Briefs; 2016/05

Posted: 26 Jun 2016

See all articles by Andrei V. Belyi

Andrei V. Belyi

University of Dundee - Centre for Energy, Petroleum and Mineral Law & Policy (CEPMLP); University of Eastern Finland - Department of Law

Date Written: June 22, 2016

Abstract

Highlights:

• Changing market realities in natural gas engender significant challenges for Gazprom in both Europe and Russia alike. The trend consists in a growing number of suppliers domestically, with a boost of independent gas production, and internationally, with a more liquid gas and LNG trade.

• Transition towards a new market model in the EU affects existing pricing mechanisms and contracts. For the Russian gas export monopolist a separation between pipeline capacity and commodity markets also generates risks of capacity-supply mismatch and constitutes barriers to new pipeline projects.

• In Russia itself, Gazprom faces competition from fast-evolving gas producers such as Rosneft and Novatek. The two companies are striving for the gas export de-monopolisation, which already occurred for Russia’s LNG.

• Current low price context reverts the situation in Gazprom’s favour. In particular, Gazprom’s production competitiveness improves, oil-indexation regains a rationale, while natural gas demand growth rates somewhat restarted, whereas domestic competitors experience severe difficulties.

• However, main political barriers, conflicts surrounding Ukraine and diversification strategies subsist. A more positive market context stems from exogenous factors rather than from Gazprom’s own strategies.

• It may become essential to use the positive market.

Suggested Citation

Belyi, Andrei V., Gazprom Slow to Adapt and Unable to Influence (June 22, 2016). Florence School of Regulation Energy; Policy Briefs; 2016/05. Available at SSRN: https://ssrn.com/abstract=2799133

Andrei V. Belyi (Contact Author)

University of Dundee - Centre for Energy, Petroleum and Mineral Law & Policy (CEPMLP) ( email )

Nethergate
Dundee, Scotland DD1 4HN
United Kingdom

University of Eastern Finland - Department of Law ( email )

Joensuu
Finland

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