The Russian energy firm Gazprom is increasingly off its stride in Europe, its largest export market. Bulgaria has managed to negotiate a 20 percent price cut in its new ten-year contract with the gas giant, an unprecedented reversal of fortune from only a short time ago. Gazprom had cut off gas to the Ukraine in 2006 and 2009 during contract negotiations, which left Bulgaria freezing for several days as they were on the same pipeline. Bulgarians are probably relishing their success now with no small amount of schadenfreude.
The cause of the turnaround, the Wall Street Journal reports, should come as no surprise: the shale gas boom in the United States. The US has begun exporting gas to Europe, and has also ramped up coal exports by more than 250 percent since 2005. The net result has been to knock Gazprom back on its heels. The WSJ reports that the negotiations with Bulgaria were heated, with Gazprom’s negotiators shouting in frustration on several occasions.
In public statements, however, the Russian company remains defiant (and perhaps in a state of denial) about the implications of the shale gas boom:
Speaking on state television on March 30, Gazprom Chief Executive Alexei Miller minimized the impact of gas from U.S. shale fields, extracted using hydraulic-fracturing techniques. He predicted that it was a “bubble that will burst very soon. We are skeptical about shale gas. We don’t see any risks [to us] at all.”
Gazprom spokesman Sergei Kupriyanov acknowledged that shale-gas development “does have an impact” on contract negotiations. “But we don’t see any tragedy here….Our main competitive advantage is that we can guarantee volumes for a long time.”
Maybe, maybe not. But the immediate impact on Russia should not be underestimated. Vladimir Putin’s plans for reclaiming Great Power status for Russia are predicated on the country’s continuing strong economic performance, and the energy sector is key. Gazprom accounts for more than 10 percent of the country’s exports, and hits to its bottom line this year, the WSJ speculates, will cause Russia to miss Putin’s target of 5 percent annual growth.
Putin’s hardball tactics in his near-abroad when Russia was energy top dog were instrumental in confirming him as an authoritarian bully in the minds of many Westerners. These tactics also inadvertently made Russia more vulnerable to shifts in the global energy market, with many of its main customers desperately seeking out alternative suppliers so that they would never find themselves backed into a corner again. So it’s easy to join the Bulgarians in gloating over this reversal.
But everything in moderation. As we’ve said before, a cagey, resentful and frustrated Russia facing economic decline and increasing powerlessness on the world stage is good for no one at all.
[Vladimir Putin image courtesy of Getty Images]