Gazprom lays hard facts on the line as it assures shareholders of rosy future

Implications: The International Herald Tribune, reported in the issue of June 28-29 that Alexei Miller, head of Gazprom, said that the company’s ties to the Russian government, allowed huge growth potential. The company is in a better position to compete government links Growing competition means companies with state participation have a strategic advantage in international markets. Gazprom will establish a chain of filling stations across Europe to service cars powered by natural gas which will require partnerships with European companies. E.ON of Germany is Gazprom’s largest shareholder.  As Gazprom’s natural gas production has declined, the company  seeks new reserves in Vietnam, India, Libya, Uzbekistan and other nations. The company has adequate potential for increasing oil and natural gas reserves. Gazprom natural gas exports will total 163 billion cubic meters at an average price of $401/cubic meter. In 2007, the company sold 150 billion cubic meters at an average price of $273/cubic meter.

Analysis:  If anyone in the world had any doubts whatsoever about the future of Gazprom and its relationship to the Russian government as well as the rest of the world, Alexei Miller has revealed all that needs to be known. His bold statement about his company’s intentions to establish compressed natural gas delivery stations across Europe is clearly a message to Exxon Mobil. The background is this. Hungary will be pivotal in the emerging guerre du gaz naturel. MOL, the Hungarian National Oil Company, like Gazprom, is state sponsored with private ownership. Recently both companies announced creation of a joint venture to develop non-conventional hydrocarbon resources (mainly natural gas) in the Mako Trough located in the southeast of the country. Gazprom is a MOL shareholder. Gazprom is also a shareholder in OMV, the Austrian national oil and gas company. OMV, a MOL minority shareholder seeks to merge with it. Negotiations are hostile. While the ongoing contretemps between OMV and MOL is an engaging sideshow, its consequences as regards the larger European natural gas market are of little significance. What is significant is that all of the major European oil and gas companies, Royal Dutch Shell, BP, Total, Statoil, GDF/Suez, BASF, ENI (Italy) and E.ON plus all of the electric utility generators are awakening to the huge potential of marginal shale gas in a European market inexorably driven away from crude oil based to natural gas based products. What we are witnessing on a global scale is the increasing cooperation of certain state sponsored companies with nearly all of the international majors including the important American companies. While it is too early to make long-range predictions about the outcome of this new energy realignment, it is clear that Gazprom will occupy a cental and dominant position. By extension, it seems safe to say that international companies that cooperate with Gazprom will also proper. Transformation of the international natural gas market is moving much faster than anyone visualized even as late as 2000. While natural gas resources, like crude oil resources are finite, the limits of economically producible reserves are yet to be determined. An important derivative segment of this market is liquefied natural gas (LNG). Its growth, like that of the entire market, has been and will continue to be astonishing. In the final analysis, Gazprom has established a command position that cannot be challenged and must be respected.