Putin's Pain
It’s Not Just Oil: Russia Has Gazproblems, Too

Russia is battening down the hatches as it prepares for a dismal winter sales season in Europe. Its struggles with cheap oil, a resource on which it relies for much of its budgetary revenue, have been apparent as state-run oil companies have slashed expenditures while the Kremlin has run deep into the red. But oil isn’t the only hydrocarbon Russia sells en masse, and it’s not even the only one whose price has been affected by the more than 50 percent plunge in the global oil market since June of last year.

Gazprom has long tied the price of its long-term take-or-pay natural gas contracts in Europe to the price of oil. When prices were high, the Russian company was raking it in and its customers were agitating for a decoupling. But oh, what a difference 15 months can make, because now those same contracts are linked to sub-$50 per barrel crude, as compared to $100+ of last summer. As Bloomberg reports, that has Gazprom—and by extension the Russian government, whose budget depends heavily on oil and gas sales—expecting a fairly dismal winter:

The state-run exporter is drafting its budget for 2016 with preliminary estimates for gas prices outside the former Soviet Union of about $200 per 1,000 cubic meters ($5.45 a million British thermal units), said two people with direct knowledge of the matter who asked not to be identified because the information is private. That compares with the company’s estimate of an average price for the region, which covers Turkey and Europe outside the Baltic States, in 2015 of about $238 per 1,000 cubic meters and $349 last year.

Between Western sanctions, a bearish crude market, and now an inability to fetch a robust price for its natural gas heading into a seasonal spike in demand, Russia’s economy is being besieged on all sides. Europe won’t mind: Putin’s loss is the continent’s gain.

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