The future of Russia’s natural gas power Gazprom, which saw a 15% drop in profits last year, seems uncertain since President Vladimir Putin has gone ‘all-in’ on foreign exports. The President promised to transform Russia into an “energy superpower,” but in doing so, has inadvertently rendered the country incapable of adapting to the emergence of new energy markets across the globe.
Over the last ten years, one-third of Europe’s gas imports originated from Russia. Some countries, like Bulgaria, depend solely upon Gazprom. Millions of people suffered through grueling winters in 2006, 2008, and again in 2009 when the company severed service to the Ukraine, Belarus, Georgia, and Moldova, in order to teach a lesson to overly-ambitious executives who’d pushed the Kremlin for a legislative overhaul.
What’s worse, Gazprom purchases natural gas from the Caspian region and re-sells it to their European neighbors at a 25% markup. In order to maintain these types of margins, CEO Alexey Miller has fought, and defeated, plans for alternative pipelines constructed by Western companies.
Think of Gazprom as the bully at recess running amok through the school yard, shaking kids down for their milk money because he only wants them to drink from ‘his’ water fountain, which costs a quarter per sip.
This stronghold undercuts energy legislation passed down by the European Union. For example, the Third Energy Package is intended to stimulate Europe’s internal energy market. One of the central components of the package entails separating companies’ supply and distribution networks from one another. Meaning – if you control the water fountain, you can’t control who drinks from it, or how.
Over the past several years, however, reduced prices and new energy producers have allowed consumers to break free from Gazprom. There’s no longer a global demand for their product. Competition from Turkmenistan, Uzbekistan, and Kazakhstan, late entries into the game, have presented Central Asia with affordable alternatives. As a result, European consumers can now negotiate their price-point with Gazprom. Last year, the company accepted a 10-year deal with Bulgaria at a 20% discount!
The United States is expected to export an unheralded quantity of liquefied natural gas to Europe this coming year. Natural gas has already replaced coal as the fuel of choice for most of North America and the European Union, and with shale operations on the rise, Gazprom’s future looks bleak.
Because crude oil is a thing of the past. So is coal. These resources are too environmentally-unfriendly to carry us into the 21st Century. NRGLab has developed a more efficient means of converting natural gas to fuel. Natural gas, though with its pitfalls, offers a cleaner answer to Europe’s current situation. For more information on NRGLab’s energy strategies and upcoming projects, visit www.nrglab.asia.