Back in July 2008, the government of the Czech Republic signed an agreement with Washington allowing the construction of a U.S. radar station on Czech territory, part of then-President George W. Bush's missile-defense plans. The very next day, the Russian energy giant Gazprom cut off natural gas supplies to the Czechs, who depend on Russia for 84 percent of their gas. The Kremlin had already stated its opposition to U.S. anti-missile installations in Central and Eastern Europe in no uncertain terms, but Gazprom's move put economic bite behind the bark.
It's stories like this one that have made many in the West wary of Gazprom, the so-called "national champion" of Russia's natural gas sector. Ever since the collapse of the Soviet Union, the Kremlin has increasingly relied on energy as a card in its foreign-policy hand. You can hardly blame it -- especially when it comes to gas. Russia owns 25.2 percent of the world's proven reserves, and virtually all of those resources are concentrated under the aegis of Gazprom, making it the world's largest producer of natural gas. Although private shareholders own big chunks of the company, the Russian state holds a controlling stake of just over half the shares, and no one has ever doubted that Gazprom's managers are happy to follow government orders. No less than Prime Minister Vladimir Putin argued in his dissertation that state control of natural-resource companies (if not necessarily outright ownership) could be used to "restore [Russia's] former might." When Gazprom execs declare, as they've been known to do, that "what's good for Gazprom is good for Russia," they aren't just blowing smoke. Gazprom is the country's biggest taxpayer, accounting for a quarter of Russia's national budget.
COMMENTS (1)
More...
Western worries about Gazprom's political power have been, ahem, fueled by the fact that the corporation not only supplies the lion's share of Europe's natural gas, but also controls the all-important pipelines that bring the strategic commodity to consumers. When Gazprom turns off the spigot, entire countries go dark. That happened to hapless Bulgaria, for example, during one of Gazprom's recent pricing disputes with Ukraine. (Bulgaria is 99 percent dependent on Russia for natural gas, and inordinately dependent on natural gas for home heating. When the conflict between Kiev and Moscow shut down the east-west pipeline to punish Ukraine, Bulgarians ended up freezing.)
And that was only logical, says Harvard University professor and long-time Russia-watcher Marshall Goldman: "Gas is not as fungible as oil. With gas you're limited to the pipeline. And the owner of the pipeline has a monopoly along the route." In Central and Eastern Europe, more often than not, the owner is Gazprom. The company boasts a network of 95,000 miles of pipelines -- enough to circle the globe four times -- that it runs from a huge control room in its headquarters in southwest Moscow.
Small wonder that, during the years of high energy prices, Gazprom became a world-beater. In 2008, its market capitalization ballooned to $300 billion, making it the third-largest company on the planet, bigger than Shell, Microsoft, or General Electric. Gazprom used its economic muscle and its control of Eastern European pipeline networks to embark on a shopping spree, snapping up chunks of energy companies around Europe. Former German Chancellor Gerhard Schroeder signed up to run a Gazprom-affiliated company soon after leaving office. And Gazprom execs touted grandiose plans to push into far-away markets in the Americas and Southeast Asia.
What a difference a year makes. The global economic downturn has hit Gazprom shockingly hard. Not only did the worldwide demand for energy crater, but doubts about market turbulence in Russia also spooked investors. The two trends have put the gazmeny in a bind. Whereas more diversified energy corporations have managed to weather the storm, Gazprom's market valuation dropped to just $90 billion, and its global rank in terms of size dropped from third to somewhere in the low 30s. Some analysts compare its slide to the popping of the dot-com bubble at the turn of the century.
SUBJECTS:
(1)
HIDE COMMENTS LOGIN OR REGISTER REPORT ABUSE