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Gazprom Bracing For Record Low Output

Energy exports can be an effective geopolitical tool, especially when your adversary depends on your supplies to meet the lion’s share of his demand, as is the case for Russia and Ukraine. But the flip side of shutting off gas flows, as Russia did with Ukraine following a dispute over price and past-due bills, is the loss of a customer. That dynamic has analysts forecasting an all-time record low in annual production for Gazprom this year, as Reuters reports:

Gazprom chief Alexei Miller told President Vladimir Putin on Wednesday that he expected production this year to be 463 billion cubic metres (bcm), a 6.7 percent decrease from the 496.4 bcm announced by Gazprom at a May presentation and down from 487.4 bcm produced last year.

[A]nalysts said the crisis in Ukraine and the Kremlin-controlled company’s decision in June to cut gas supplies to its second-largest market after Germany were taking their toll. Miller’s forecast is slightly above Gazprom’s record low hit in 2009 during the global financial crisis, but the analysts expect actual 2014 production to be significantly lower than this.

We’ve said it before: Putin’s energy weapon cuts both ways. Gazprom’s move to halt exports to Ukraine could rankle further when temperatures plummet this winter and demand for natural gas spikes. But Europe has been stocking up on gas over the summer (currently at 91 percent of capacity), and countries like Slovakia and Poland are reversing flows from Russia back into Ukraine.

The assumption has been that, as this conflict drags on into the colder months, Ukraine and Europe would feel increasing pressure from Russia. But Moscow relies heavily on the sale of oil and gas to balance its budget, and with the price of oil falling below Russia’s breakeven price, news of plummeting gas production will be very unwelcome for Putin.

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  • Duperray

    Walter, Pr Reagan succeeded to break USSR economic backbone only by convincing Saudis to accept a long duration oil price cut (about two thirds) jointly with an ambitious Star Wars program. It worked well.
    Is it realistic to duplicate this now?
    Oil prices moved about 10-15% only, gas volume by barely 7% with China coming to ensure the future.
    Russia is not embarked in any expensive super advanced defence program.
    As you can see, this noisy paper enthusiasm is not realistic because US lacks the key point:
    You no longer have a Reagan on board.

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