This is a reprint of an earlier article I published in February 2015.
Gazprom’s monopoly could stifle its expansion and progress, whilst a monopoly is beneficial in the short term – allowing you to set prices capture a larger market share, and gain bigger revenues – in the long term it can be damaging and cause the market to diversify away from your product.
In the third quarter report of 2014, Gazprom sold 6bcm less than in the same quarter of 2013. Whilst some of this is to do with weather or show only small differences (e.g. a decline of 3% for France), others show a different picture. Gas sales to Romania went down by 93%. This wasn’t just small states though, as Germany – Gazprom’s largest customer – bought 15% less. Much of this is to do with a fear of Gazprom as a commercial giant, wielded by the Russian state, and as an energy weapon. With smaller companies, there would be less of a target for Russophobia. Additionally, debt owed to Gazprom by unreliable transit states such as Ukraine would be less politicised and there would be market solutions to these disputes rather than state intervention.
Gazprom’s position in the market has much of its capital has been appropriated for political means – buying news media and selling cheap gas domestically (heating an apartment in Russia’s North through the winter has personally cost me around 160 rubles a month – around £1.50). At the same time, Gazprom pays a special rate of customs tax on its exports which is considerably higher than non-Gazprom producers.
At the same time, other players have emerged in the domestic Russian market and could deliver the competition Gazprom needs to innovate. Novatek, a private gas firm, and Rosneft, a state-owned firm, are keen to take on projects that Gazprom won’t work on and take on increasingly larger market shares both in Russia and abroad.
Novatek wants to break Gazprom’s export monopoly, and is in the process of developing a huge gas field in Russia’s high North – the Yamal Peninsula. Financed by the Chinese NOC, CNPC, and the French IOC, Total, it’s posed to be Russia’s big entrance into the NSR and LNG exports. Whilst this was seen as a big risk by Gazprom (and even Total itself), it’s these kind of risks that need to be made to keep profits high and investors happy.