Russian energy group with the power to plunge Europe into darkness
Pastor Dale Morgan
Russian energy group with the power to plunge Europe into darkness*
Gazprom has so much natural gas under the tundra of Siberia that its
energy resources are equivalent to all the oil and gas fields owned by
western energy companies put together
* Dan Roberts
* The Guardian, Monday 11 January 2010
Russian energy group Gazprom is among top international companies that
will shape the world in the coming decade. Photograph: Peter Steffen/DPA/PA
The next cold war may well take place in a room that looks oddly like a
scene from the last one. Along one wall of a spartan control centre in
Moscow, a large map of Europe is projected on computer screens. Visitors
have to pass through five rings of security to reach this spot, but the
few outsiders who make it through are proudly shown a display of raw
power. From underground facilities deep inside Siberia, a series of
trajectories are plotted on the computer screens – aiming west toward
Europe's largest conurbations. An engineer explains how easy it would be
to turn out the lights in a foreign city with the click of a button on
his desk.
Fortunately, this is not missile command but the control room of
Gazprom, the world's largest gas producer and a flagship of Russian
capitalism. The plotted lines show the route of major pipelines –
coloured green because they are full of natural gas flowing at more than
30km an hour. Yet the threat of plunging neighbouring states into
nuclear winter remains a real one. This time last year, actions taken in
this room threw much of Europe into panic. A dispute between Gazprom and
Ukraine over unpaid gas bills culminated in a decision to turn off
transit pipelines that also feed much of central and eastern Europe –
shutting down heating and electricity generation for millions during one
of the worst cold snaps for years.
Now, with the continent again in the deep freeze and running low on gas,
the power of Russian energy companies is once more in the spotlight.
Russia has already sparred with Belarus over oil supplies this winter in
a dispute that also threatened to disrupt energy exports to Europe.
Gazprom and the Ukrainian government are hoping to avoid a repeat of
their 2009 pipeline brinkmanship for now, but critics claim Moscow is
never far away from using its energy might to exert political influence
over its neighbours.
Even Britain received a taste of how fragile Europe's gas supply
infrastructure can be last week when a drop in pipeline pressure from
Norway forced authorities to suspend supply to certain designated
industrial users to protect homes and offices. Our reliance on imported
gas is set to rise rapidly as UK reserves near depletion in less than
eight years at current extraction rates.
Increasingly, one company dominates not just existing European supply
but, more importantly, its future sources. Gazprom has so much natural
gas under the tundra of Siberia that its energy resources are equivalent
to all the oil and gas fields owned by western energy companies put
together. At 33.1tn cubic metres, its gas reserves are 55 times greater
than Britain's North Sea alone. In fact, only the Saudis, with their
huge desert oilfields, can match Gazprom's total energy reserves. Even
then, oil exports from Russia recently overtook those of Saudi Arabia.
The geopolitics of energy are well rehearsed but relatively little is
known about key corporate players such as Gazprom, which rarely grants
access to foreign media. Today's Guardian interview is the first in a
five-part series published this week, which looks at some of the key
international companies likely to shape world affairs over the coming
decade. Some, like Gazprom or the mining giant BHP Billiton, control the
dwindling raw materials most likely to prove strategic flashpoints.
Tomorrow we turn to China Mobile, straddling the two most powerful
global trends: the rise of China and digital communications, while
General Electric and Wal-Mart are examples of how powerful multinational
corporations have survived the financial crisis to retain their global
influence.
Not all are in good shape. 2009 was a torrid time for businesses
everywhere. Gazprom has had a particularly bad year as its reputation
for reliability plummeted after the Ukrainian shutdown and the recession
caused Europeans to consume far less gas.
But as energy prices bounce back fast (oil, which acts as a benchmark
for gas, has jumped swiftly to $80 a barrel again) Moscow is recovering
the swagger of a city swimming in easy money.
A few miles south of its glitzy boutiques, the headquarters of Russia's
largest company is more forbidding: a chilly blue neo-Stalinist
skyscraper known as "The Candle" houses a bureaucracy that serves as a
constant reminder of Gazprom's Soviet past. Still 50.1% owned by the
Russian state, its managers are nonetheless at pains to stress its
independence from government foreign policy. "We don't do politics,"
insists Vladimir Mikheev, an executive from the export arm who complains
of the west's "Gazpromophobia".
But his boss, Gazprom's official public representative, Sergei
Kupriyanov, is blunt about why the state keeps such an iron grip: "Most
of the territory of the Russian Federation lies in rather uncomfortable
climatic conditions – much of the year it is freezing, which means any
rupture of the gas supplies will immediately lead to catastrophe."
Russia knows about energy's strategic importance better than most. Its
citizens rely on heavily subsidised gas from Gazprom's monopoly and
months of sub-zero temperatures make energy security a matter of life
and death.
As last year's clash with Ukraine showed, it also makes for an unusually
powerful form of economic weapon. Opinion remains divided over who was
really to blame for shutdown, but the show of strength appears to have
worked: five years after Ukraine's so-called Orange revolution, both
candidates standing for election in next weekend's presidential election
are now broadly pro-Moscow.
Gazprom is more than just strategically useful, contributing 20% of
Russia's total state budget in taxes, and Kupriyanov stresses its
benefits to other shareholders too: "We also have private investors who
are expecting returns and that means we have to be transparent".
Unfortunately, market rules do not always apply as evenly to foreign
investors in Russia, who remain scarred by a series of assets
confiscations and forced disposals. Only the vast riches at stake keep
overseas money flowing to invest in vital new projects such as the Yamal
development scheme in Siberia or Nord Stream pipeline to Germany. Chief
executives from two western energy firms who agreed to speak off the
record about Gazprom conceded that they faced little choice but to
continue dealing with Russia despite misgivings about the reliability of
its contract law.
Gazprom's emphasis on "shareholder transparency" does little to clear up
questions about its ownership either. Rumours persist that senior
government figures have sizeable indirect holdings. "We haven't seen any
traces," says Kupriyanov when asked whether Vladimir Putin has a
personal economic interest in the company.
To Gazprom's foreign shareholders, close links with the Kremlin are a
mixed blessing: protecting their asset but holding back true reform.
"The government is only interested in two things: political power and
cheap domestic gas," says one Moscow-based fund manager. "There is no
incentive to make the business more efficient and profitable so they
just take more for themselves."
For the economy as a whole, energy may be too much of a good thing.
Roland Nash, head of research at Moscow investment bank Renaissance
Capital, warns that over-reliance on booming energy prices may hold back
Russia's otherwise strong prospects.: "The economic crisis was just the
wrong length of time: long enough to undermine small companies and the
emerging middle class but too short to force government into reform.
Russia needs to diversify away from oil and gas."
For now though, Gazprom is in the vanguard of Russia's new energy
imperialism. British consumers too may see more of "the big G". Gazprom
Marketing and Trading, its overseas arm, sells gas to commercial clients
such as Chelsea football club and has a target of expanding its UK
market share from 2% to 10%. Kupriyanov also reveals ambitions to sell
to residential customers one day. "Yes, definitely," he says. "The
British market offers ample opportunities of developing downstream
operations – we appreciate the fact that it's a liberalised market and
all of the infrastructure is in place."
Last time Gazprom made moves on the residential market – by exploring a
takeover of Centrica – it prompted intense political suspicion and even
the threat of a UK government veto. Now it hopes its softly-softly
approach with commercial customers will ease fears. "You all thought
there would be bear scratches on the gas pipes but the headlines cried
wolf," says Kupriyanov. "Our entry to the UK market was exemplary."
A bigger factor in containing Europe's "Gazpromophobia" is likely to be
whether the company cuts off any more pipelines. Will there be another
crisis this winter? "We have good reason to believe crisis can be
averted but it is never easy to give a 100% guarantee," concludes the
man from Gazprom.