The American Interest
Analysis by Walter Russell Mead & Staff
Gazprom Choking as Energy Revolution Gathers Steam

We’ve written before how Russia is likely to be among the biggest losers of the Energy Revolution now firmly underway. An article in the Washington Post about the Russian giant Gazprom shows just how it is losing:

Neither at home nor abroad does the company appear to have a competitive answer to the dramatic decline in gas prices worldwide—sparked by the rapid development of American shale gas. Gazprom, the world’s largest producer of natural gas, has grown somnolent, its critics say, failing to invest in research and development and ignoring the changes transforming the industry.

[...]

Gazprom still has plenty of money—its reported profit was $44 billion last year. But profits are down more than 23 percent in 2012, and the deputy minister of economic development, Andrei Klepach, said the company could run into serious problems as early as 2014 because of competition stemming from cheap shale gas.

At Putin’s behest, nonetheless, it is continuing to pursue hugely overpriced projects for political ends that are unlikely ever to pay for themselves. Foremost among them are two ambitious undersea pipelines to Europe, justified neither by demand nor by supply.

In many ways, it’s the classic tale of an industry giant caught unprepared for technological disruption in its sector. In Gazprom’s case, the fecklessness is magnified by the Putin regime using the firm as an instrument for maintaining its legitimacy, treating it more as a cash machine than as a business requiring investments to stay relevant in the future.

Read the whole thing. The Energy Revolution will have a profound impact on how the world works in the future, and watching how countries like Russia are (or are not) coping with the changes will tell us a lot about where those countries will be years from now.

Published on September 24, 2012 9:35 am