Wednesday, September 30, 2009

Putin Reaffirms Gazprom as Sole Exporter of Russian Gas –“For years to come”

by Roman Kupchinsky

Speaking at the forum "Russia Calls" organized by Russia’s VTB Bank on September 29, Prime Minister Vladimir Putin told the audience that Gazprom, the state-owned gas monopoly, will continue to be the sole exporter of Russian gas for years to come.

According to western analysts, "VTB Capital can expect to be informally crowned Russia’s investment banking state champion by Prime Minister Vladimir Putin at its inaugural investor forum starting tomorrow in Moscow. It will be the first time the Russian leader has appeared at a brokerage event, underlining the rise of VTB Capital, which has become pivotal in managing the state’s interests since its launch a little over a year ago. Its parent, VTB Bank, is 77% owned by the Russian Government."

The unexpected pronouncement came a day prior to an important meeting of Gazprom’s Board of Directors during which the chairman of Gazprom Export, Alexander Medvedev, is due to discuss the future pricing mechanism for Russian gas – will it remain tied to the price of oil or will it adopt a new model, closer to the Henry Hub supply and demand system used in the United States.

Medvedev will also address the possibility of adjusting the upper and lower limits of gas procurement called for in the existing long term “take or pay” contracts with European consumers. As was reported recently on this blog, most European energy companies are unhappy with the current arrangement and are refusing to pay for gas which they contracted for but did not take in 2009.

The significance of Putin’s projection however, is that it is a sign of his continued role as the curator of Gazprom and that a great deal of his political power has been built above all by ensuring that Gazprom and its subsidiary company Gazprom Export maintain a monopoly on exporting Russian gas abroad.

By maintaining Gazprom as the sole exporter, Putin is able to dictate prices and not be bothered with competition from other Russian exporters. The monopoly on exports also insures that Gazprom will remain a loyal tool used by Putin in his policy of “gas diplomacy” towards the EU, a policy which is meant to remain in place for the indefinite future.

The continuance of this export monopoly is certain to displease Russian oil companies who produce vast quantities of associated gas and are forced to sell this to Gazprom –which also maintains a monopoly on all gas pipelines inside Russia – which then resells their gas to foreign buyers at a much higher price.

And while Putin noted in his talk at the VTB forum that the pipelines should be accessible to all gas producers since this increases gas production, he failed to satisfy the basic demand of the Russian oil industry that they be fully compensated for the gas they are forced to sell to Gazprom.

Last but not least is the recent surge of activity by Putin in gas related events. His recent meeting with Western energy company directors welcoming them to take part in the development of the giant Yamal gas fields –under certain conditions- is a case in point.

Some Russian experts however, believe that this latest round of activity has more to do with Putin reasserting his control over Gazprom prior to the 2012 presidential elections in order to prevent President Dmitri Medvedev from wresting control of Gazprom away from Putin and his hard core siloviki.

Both Putin and Medvedev believe that Gazprom should remain the export monopoly, the real fight is over who will control Gazprom.

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