Gazprom is biggest loser as shale gas upends markets
Share with others:
The natural-gas boom reshaping America is rocking Russia, where state producer OAO Gazprom has been slow to react and is at risk of becoming the world's biggest loser from the new technology to drill shale rock.
The U.S. no longer needs Russia's gas, leaving President Vladimir Putin fighting to salvage Gazprom's $20 billion Shtokman project in the Arctic. China, the biggest energy consumer, is exploring its own shale reserves and hesitating to accept a pipeline from Russia. Gazprom's shipments fell about 14 percent so far in 2012, and the stock has lost 9.6 percent.
Russia, with about $13 trillion of gas deposits, has the most at stake in the energy revolution that's blasting shale from Pennsylvania to China in rocks impossible to drill just a decade ago. While Gazprom remains the biggest gas producer, the export monopoly is set for its toughest market since the Soviet Union's fall in 1991 after letting rivals like Exxon Mobil Corp. take the lead in a technology that's eroding its sales.
"Gazprom is taking what seems to be a 'head in the sands' position on shale gas," said Andy Flower, a former BP Plc executive who's now a consultant on the global gas market based in Surrey, England.
Mr. Putin in April urged Russia's energy companies to "rise to the challenge" of shale.
Gazprom "will take some pain to adjust" to the shale-gas revolution, said Ben Montalbano, a senior research analyst at the Energy Policy Research Foundation in Washington. "It hits production growth prospects, pricing power and revenues."
Gazprom downplays the threat from shale on global gas markets, saying European demand will hold up and the collapse in U.S. prices caused by a glut is temporary.
"Shale gas is a gift for the entire gas industry, because it effectively removed a question of potential depletion of reserves," Sergei Komlev, head of pricing at Gazprom's export unit, said in an email. "But a common view that shale gas is cheap is wrong."
Forged from the Soviet Union's gas ministry after the collapse of the communist regime in 1991, Gazprom has been accused of carrying out government policy in using its supplies to assert Russian power. Shipments to neighboring Ukraine were repeatedly halted since 2006 in disputes over energy prices. Russia holds the world's biggest reserves, equal to 21 percent of all known deposits.
Shale production allowed the U.S. to overtake Russia as the largest gas-producing nation in 2009 after explorers began employing hydraulic fracturing, a technique using pressurized water with chemicals and sand to open cracks in rock for freeing gas.
The subsequent collapse in prices, which touched a 10-year low in New York in April, killed the U.S. as an export market. The U.S. will even become a gas exporter as early as 2015.
Nations dependent on Russian gas, such as Ukraine and Poland, are starting to assess their own shale gas potential.
Shale gas output in China and the U.S., and to a lesser extent Europe, "creates strategic challenges for existing gas exporters," the International Energy Agency said in a report on May 29. The share of Russian and Middle Eastern producers in the international gas trade may decline to 35 percent in 2035 from about 45 percent in 2010, the IEA said in a report on unconventional gas.
While Russia is expected to maintain its role as the "Saudi Arabia of gas," the country will increasingly have to compete with the U.S., according to Maria van der Hoeven, executive director of the IEA.
"It's not only shale gas itself, but shale gas technology," she said. "Several countries that are import-dependent have recognized their unconventional gas potential and promising developments are taking place in China and Poland."
First Published July 5, 2012 12:00 am