The American Interest
Analysis by Walter Russell Mead & Staff
Russia's Gazprom "Spectacularly Mismanaged"

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Russia already has the world’s largest reserves of conventional natural gas and is the world’s largest gas exporter. So more could hardly be a bad thing for Moscow, right? According to the EIA, Russia has the ninth-largest technically recoverable shale gas reserves in the world. But Russia has serious fracking problems, of which the biggest by far is the fecklessness of its state-owned gas company, Gazprom.

Gazprom generates 20 percent of Russia’s government revenues. If it struggles, so too does Russia. Profits were down 10 percent last year, and there’s little reason to expect a turnaround. Anders Åslund, a senior fellow at the Peterson Institute for International Economics, calls the state-owned firm the most “spectacularly mismanaged” large company in the world. He details Gazprom’s failings in a thorough opinion piece for Bloomberg:

At the heart of Gazprom’s mismanagement lies extreme inertia; reluctance to absorb new information; corruption and outlandish arrogance. Its managers are used to exercising Soviet-style monopoly over consumers, not having realized that the market has taken over. The company has traditionally varied prices by countries for opaque reasons. For example, Lithuania pays 15 percent more for Gazprom gas than neighboring Latvia. [...]

The Gazprom business model is as simple as old: to produce conventional gas from giant fields in West Siberia and pump it through pipelines to Europe. In the last decade, the company has missed three big revolutions in the industry: the shale-gas expansion in the U.S., the global liquefied-natural-gas boom, and the rise of Chinese demand.

There are a host of reasons to be pessimistic about Gazprom’s future.

The country and its frequently bare-chested leader both like to remind the world that they’re still relevant—take, for example, the recent announcement that Russia would consider offering asylum to the now-infamous NSA whistleblower Edward Snowden. If Gazprom can’t turn things around, the Russian government is going to have a hard time paying its bills. If that happens, expect these diplomatic chest-thumpings to get a lot more dangerous. Gazproblems could beget Kremlinstability.

[Putin photo courtesy of Getty Images]

Published on June 12, 2013 8:00 am
  • rheddles

    Finally a good news story.

  • Corlyss

    It was only a matter of time . . .
    http://www.hoover.org/publications/policy-review/article/5821
    A woman in the street was interviewed back when Gorbachev announced Perestroika and the loosening of controls. Her remark was it was a futile gesture at reform because “they killed all the smart ones,” meaning the average Russians with any kind of entrepreneurial instincts.