Changes in Gazprom (and Russia): is it possible?... is it - - PowerPoint PPT Presentation

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Changes in Gazprom (and Russia): is it possible?... is it - - PowerPoint PPT Presentation

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Changes in Gazprom (and Russia): is it possible?... is it possible?... Vladimir Milov Democratic Choice / Institute of Energy Policy Palanga, September 26 th , 2013 Gazprom: remember 2008 In 2008, Gazprom had hit record highs in gas

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Changes in Gazprom (and Russia): is it possible?...

Vladimir Milov

is it possible?...

Democratic Choice / Institute of Energy Policy

Palanga, September 26th, 2013

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Gazprom: remember 2008…

  • In 2008, Gazprom had hit record highs in gas

exports to Europe – supplies had exceeded 150 bcm per year

  • Forecasts were that Gazprom would soon supply

200-220 bcm to Europe, and then – only sky is the limit

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But something went wrong

158,8 138,8 Europe Supplies of Russian pipeline gas to Europe and former USSR, bcm 78,6 64,4 2008 2012 Former USSR

Source: Gazprom quarterly FSFR reports

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Don’t blame it on the crisis: at the same time, Russia’s competitors have gained

94,2 109,7 Qatar Supplies of gas from Qatar and Norway to Europe (including Turkey), bcm 7,9 31,1 2008 2012 Qatar Norway

Source: BP Statistical Review of World Energy

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Most countries had reduced purchases of Russian gas

Purchases of Russian gas 2012 vs. 2008, %

  • 1,1%
  • 3,6%
  • 4,3%
  • 7,8%
  • 10,3%
  • 11,6%
  • 12,8%

Estonia Belarus Czech Republic Germany Austria Greece Switzerland

Source: Gazprom quarterly FSFR reports

  • 12,8%
  • 22,8%
  • 23,1%
  • 27,3%
  • 30,3%
  • 31,8%
  • 32,8%
  • 39,3%
  • 40,6%
  • 46,7%
  • 62,8%

Switzerland France Finland Bulgaria Ukraine Slovakia Italy Romania Hungary Netherlands Former Yugoslavia

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…with just a few exceptions, which do not change the overall picture

Purchases of Russian gas 2012 vs. 2008, % 50,3%

Latvia

Source: Gazprom quarterly FSFR reports

29,1% 25,5% 13,4% 13,3% 7,4%

UK Poland Moldova Turkey Lithuania

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Ukraine: the biggest market, the most catastrophic market loss

Purchases of Russian gas by Ukraine, 2008-2012, bcm 54,3 47,2 37,8 36,5 40,0

Source: Gazprom

36,5 32,7 9,7 2007 2008 2009 2010 2011 2012 6m 2013

Source: Gazprom quarterly FSFR reports

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How diversification works: Ukrainian case

40,9% 35,6% 30,4% 35,6% Natural gas Shares of natural gas and coal in Ukrainian primary energy mix 2008-2012, % 30,4% 2008 2012 Natural gas Coal

Source: BP Statistical Review of World Energy

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Why?...

  • Holding on to outdated long-term contract system and

pricing formulas in rapidly changing competitive environment proved to be a grave mistake

  • In case of Ukraine, price wars waged in 2006 and 2009

and the subsequent price hikes have paid back

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Who had overslept this and why?

  • At Gazprom, decision making is dominated by inertia:
  • Inertia inherited by this never reformed company from the Soviet

centralized system (it’s basically a former Soviet Ministry)

  • Additional inertia brought in by Putin’s “vertical strengthening”

(meaning – further monopolization) policies

  • That’s why Gazprom had been fiercely defending the
  • utdated contract and pricing system in changing

competitive conditions, despite severe loss of market…

  • …inertia continues to be at work
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China?

  • In March 2006, agreements

were signed in Beijing on massive supplies of Russian gas to China

  • Almost eight years down the

road, Western corridor project (Altai) is dead, there are price disagreements which prevent disagreements which prevent contracts re. Eastern corridor from being signed

  • Meanwhile, gas pipeline from

Turkmenistan to China is up and running since 2009

Too early to drink champagne just yet.

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Why China so tough on gas import prices?

Chinese primary energy mix, % Chinese gas production and consumption, bcm

100 120 140 160

Gas consumption Indigenous gas production

4,7%

20 40 60 80

2004 2005 2006 2007 2008 2009 2010 2011 2012

China is not strongly dependent on imported gas.

Source: BP Statistical Review of World Energy

95,3%

Natural gas Other

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What conclusions for Baltic states?

Russian gas in Baltic countries total primary energy supply, % (source: IEA) 37,3% 29,5% 9,0%

Estonia Latvia Lithuania

Learn from countries who diversify energy

  • imports. Encourage competition.

62,7%

Russian gas Other

91,0 %

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Gazprom competitive reform: potentially a “win-win-win” case

Russian economy wins

  • Russian economy becomes more competitive

through containing growth of domestic gas prices

  • Ineffective investment and corruption greatly

reduced

Russian gas industry wins Europe wins

  • Russia stops losing international market after

shrugging off Gazprom’s outdated pricing and contract policies

  • Europe receives competitive gas supplies from the

East under fair prices without further political and monopoly pressure

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Can Gazprom be changed?

  • Reforming Gazprom into open and competitive gas

industry was key element of economic reform plan back in 2000

  • However, Putin had toughly opposed that
  • Gazprom was a central element to Putin’s philosophy
  • f monopolization and centralization
  • As long as Putin stays in power, Gazprom will most

likely not be reformed