Gazprom set to become the world’s largest major international energy company

Implications: Andrew E. Kramer in Moscow reported in the May 12 issue of the International Herald Tribune that last February, Gazprom celebrated the 15th anniversary of the formation of the company. Also celebrated  was the choice of Dmitri Medvedev to become the next president of Russia. Having its former CEO in the Kremlin bodes well for the future. Medvedev was sworn in last Wednesday. The line separating business and government in Russia has just about vanished. Last year Gazprom took in $91 billion and its taxes accounted for 20% of the government budget. As the major supplier of natural gas to Europe and the fast-growing Asian markets by 2014, if present price trends continue, Gazprom will be bigger than Exxon Mobil. Under Putin, Medvedev used Gazprom’s power to fight internal political enemies of the state. Today Russia seeks to reclaim lost authority over former Soviet areas. Gazprom is developing the 800 billion cubic meter Yuzhno-Russkoye gas field in Siberia to provide future supplies.

Analysis:  Quite a contrast between Russia’s plan to strengthen Gazprom and the U.S. government’s intention to weaken American major oil companies by imposition of an excess profits tax. Russia plans to force its consumers to pay the international price for natural gas. In the U.S. politicians seek to lower prices of gasoline for consumers. The difficulty in this effort is that the American oil companies can fight back. Much of the gasoline consumed in the U.S. is imported by the oil companies from their foreign refining subsidiaries. Should their taxes become too high, that gasoline will be sold in other markets, notably Asian. Russia is blessed with having a relatively small population (141 million)and one that appears to be shrinking slightly. The U.S has a large and growing population (301 million) of people with declining net worth. Poor people vote for wealth redistribution and this is clearly a political reality today in the U.S. In Russia, while the government wants a complacent, prosperous citizenry, it never hesitates to put down serious threats with whatever force is required. Russia seems to be interested in improving its own lot. The U.S. government gives the impression that it wants to improve the lot of far off nations at the expense of the American common man. Some skilled U.S. workers are already upset by the trend to outsource good jobs to Asia. It could become a significant issue in the elections later this year. Russia is delighted to have a long list of oil and gas fields in Siberia that require lots of workers who jump at the chance to get the high-paying jobs, even at the risk of occasional frostbite. President Medvedev has indicated he has plenty of other projects that will employ his people. Out of all this confusion over energy prices, one fact is becoming dominant. Russia is winning the oil and gas battle. As both OPEC and non-OPEC supplies ebb, as they are sure to do, even the U.S. will have to purchase supplies from Russia ( some comes in now). Will Russia subsidize gasoline, diesel and natural gas prices for American consumers? Not likely. Another facet of this growing problem for American consumers is that while the U.S. dollar loses value, Russia is taking steps to strengthen the ruble. All of this suggests that trouble lies ahead for the economies of the entire world. And it will not be long coming.