Gazprom eclipsed by rival Rosneft
RUSSIAN national gas giant Gazprom has fallen from grace in the wake of Rosneft’s US$61 billion acquisition of its oil rival TNK-BP.
In May 2008, at the peak of its glory, it was valued at US$365 billion, and it was aiming for an even US$1,000 billion by 2014. That would have been twice the size of ExxonMobil, the world’s largest company.
Those glory days are coming to an end. Gazprom is being eclipsed by the rising star of state-controlled oil giant Rosneft, whose TNK-BP deal is the largest global mergers and acquisitions transaction since 2010 and the biggest oil industry deal in a decade.
And the main fault lies with Gazprom itself. Following a decade of flat output, it is currently valued at no more than US$112 billion, just over a quarter of ExxonMobil at US$408 billion.
The reasons go beyond the company’s failure to boost production. Potentially more serious is its failure to adjust to changing market circumstances.
Gazprom has stubbornly retained its traditional focus on pumping natural gas to markets via pipelines.
In doing so, it has grossly neglected the challenges entailed in developing liquefied natural gas (LNG) and in the ‘shale gas revolution’ that has transformed the United States into the world’s largest gas producer.
Spot market prices in Europe are presently about half of what Gazprom charges under contracts for piped natural gas, and those in the US are in turn half of those in Europe.
Its troubles on the European market are exacerbated by its resistance to European Union regulatory calls for adjustments to the body’s competition policy.
In addition to insisting on oil-linked long-term contracts for piped gas, Gazprom has also consistently refused to heed calls for ‘unbundling’ that would require the separation of pipeline ownership from production assets.
The EU has stepped up its pressure. On September 4, 2012, an investigation was launched into alleged anti-competitive practices – including price-fixing and unfair competition – in gas markets in eight countries.
If it is found in breach of EU competition rules, Gazprom could face a penalty of up to 10 per cent of its estimated annual revenue.
The company has been offered protection by President Vladimir Putin, in the form of a decree that prohibits state-controlled firms from giving information to foreign authorities without permission.
But even if it survives the probe, Gazprom will have to face the fact that it has overstayed its welcome, and that independent Russian gas producers will probably be allowed to begin invading its territory.