Gazprom Slow to Adapt and Unable to Influence
Florence School of Regulation Energy; Policy Briefs; 2016/05
Posted: 26 Jun 2016
Date Written: June 22, 2016
• 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.
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