Fresh off the news this week that Gazprom’s Nord Stream 2 pipeline secured 50 percent of its funding through loans from five European companies, the CEO of the Russian state-owned natural gas firm was positively glowing. “Today, in 2017, we are beating our 2016 record highs by around 10 percent. So we can expect new records this year and Gazprom’s European market share is poised to rise,” Alexei Miller said in an interview with Reuters. “A decrease in the North Sea gas production, as well as in other EU countries, is becoming a very important factor… Given that, Russia’s market share will be rising,” he added.
Miller has a point here. However much Europe has agitated for diversifying away from Russian natural gas supplies, the continent has in fact increased its reliance on Gazprom since the annexation of Crimea. That shift has come about because of economics more than geopolitics—Gazprom’s natural gas contracts are linked to the price of oil, and the collapse in crude prices has suddenly made Russian supplies very attractive to buyers.
As Reuters reports, Miller tried to spin the over-dependence angle as a mutual thing:
“I don’t think it is fair to talk about dependence,” said Miller. “Our dependence is mutual: when we invest in developing fields and building pipelines, Gazprom relies on future demand and de facto depends on the European market as much as Europe depends on Russian gas.”
This is true: just as Europe needs Russia as a supplier, so too does Russia rely on Europe as a buyer. But Gazprom holds the trump card in this relationship, as it has shown both the capability and the willingness to shut off supplies mid-winter in order to express its displeasure with its customers. Europe’s best recourse has been to build out liquified natural gas import infrastructure so that it too might snub this relationship by looking elsewhere for natural gas, but those LNG supplies remain relatively expensive and are as yet having a hard time supplanting Gazprom.
“Pipeline gas is winning against LNG and is set to continue doing so in the future,” Miller boasted. It’s hard to argue with this for now, but times they are a-changing. As we’ve noted elsewhere, the U.S. fracking boom is driving global gas prices down at a remarkable rate, making pricy pipeline bets less of a sure thing. We’ll see how this one look in a few years’ time.