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Gazproblems
Will Gazprom Start a New Price War?

Russia’s state-owned natural gas company Gazprom for some time enjoyed the benefits of having a reliable market to its west. For years, Europe has depended heavily on overland imports from Gazprom, and Moscow has used that dependence as geopolitical and economic leverage, forcing its European customers to sign long-term take-or-pay contracts tied to the price of oil, and threatening (and in some occasions following through on such threats) to cut off supplies when its contract demands weren’t met.

What a difference a couple of years can make. The global gas market now seems as flooded as the oversupplied oil market, and with U.S. LNG exports now in play, Gazprom may have to start discounting its European supplies if it wants to keep its share of its most important market. The FT reports:

[Cutting prices] may be economically rational for Gazprom: already-low prices in the European gas market mean it could relatively easily push prices to a level at which it would be unprofitable to ship LNG from the US — and in doing so defend its market share in a region which accounts for the bulk of its profits.

The FT goes on to note that cutting prices could spark a “fully-fledged price war” that could hurt U.S. LNG.

But for its part, the timing of this couldn’t be worse for Moscow. Like the rest of the world’s petrostates, Russia derives a large chunk of its budget revenues from the sales of oil and gas. With oil prices down below $35 per barrel, the Kremlin is having to slash the national budget. And remember those long-term contracts Gazprom signed with its European customers, the ones linked to oil prices? That linkage is now proving a double-edged sword, thanks to the crude collapse.

Gazprom’s grip on Europe has been loosened considerably in the wake of Russia’s invasion of Crimea, in large part because that aggression incentivized a number of the Continent’s leaders to look actively for ways to reduce their reliance on Russian energy supplies. Now, with U.S. LNG making its debut and Australia and Qatar both continuing to keep the global LNG market well-supplied, it seems Gazprom might have start cutting prices to keep its customers happy. How the tables have turned. . .

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  • GS

    russian gas comes with so heavy an admixture of russity that it should not be bought at any price at all, not even accepted as a gift if offered.

  • Jacksonian_Libertarian

    Modern Civilization is built on replacing muscles with all the various forms of energy. Therefore when the price of energy falls, it is good for Civilization. The reverse is also true, those things like OPEC, the Environmentalists, Government taxes and regulations, etc… that drive up the cost of energy, are BAD for Civilization.

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