Thursday 17 December 2009

Gazprom, Contracting

The Gazprom contracts saga rumbles on: and we know they’ve reached a sticky point when their main man Medvedev (no relation) has to ask the Grauniad to carry an op-ed PR puff, promoting the status quo. He is often a bit less measured in his pronouncements on the matter elsewhere: but the game is up unless the big European buyers let him off the hook for political reasons.

If we cast our minds back a year, Gazprom was trumpeting its new ‘Troika’ comprising Russia, Qatar and Iran, to drive ‘GasPEC’, sorry, the Gas Exporting Countries Forum. So, in its first year, did the Troika manage to ‘increase the level of cooperation’, a.k.a. keep gas prices up ? Did it hell: as predicted they have halved.

We always said that GasPEC would fail because Russia would never accept committee decisions. Now, it’s clear, there’s another reason: the Qataris (or more specifically, the companies producing gas in Qatar), who clearly understand the concept of sunk costs, have cheerfully trashed the market, increasing their sales in Europe by 66%, substantially at the expense of Gazprom. So much for producer discipline.

Russia, however, has not given up hope on this front and has manoeuvered to get one of its men as the new head of the Forum. With uncharacteristic subtlety they have installed not an aggressive Gazprom apparatchik from central casting, but a solid engineer from Stroytransgas, one Leonid Bokhanovsky. Subtle appointments and Grauniad articles ! They must have engaged a new firm of lobbyists.

Stroytransgas is the biggest pipeline construction company in Russia (that’s Big), and having done business with both companies I’d say the difference between it and Gazprom is a bit more than academic – though obviously Bokhanovsky is there to do Putin’s business.

Let’s see him rein the Qataris in. Last I heard, the Gulf states needed all the revenues they could get …



It Will Come to Me said...

As an economic illiterate I'd like to understand how OPEC manages to keep oil prices high and GasPEC can't.

Sebastian Weetabix said...

OPEC is able to maintain a relative shortage of oil whereas GasPEC is not, especially after massive improvements in gas extraction technology. It must be very upsetting for Putin.

Anonymous said...

its the last part of the first paragraph where it matters. I have little hope (based on these excellent series of updates) that the bods in Europe will hang em high, but will as you suggest, let 'em off the hook. Bugger!

Nick Drew said...

Thanks anon. Hope springs eternal and I am hopeful that the strains on Continental Europe's large gas players are so great right now, they will have to Do The Right Thing

Nicely summarised, SW

Oil = dominated by players that are not market-oriented

Coal = NOT dominated by such players

Gas = somewhere in between

As we've noted before, Food is in the first category and so - surprise, surprise, we have grotesquely distorted markets, inefficiencies and artificial shortages in both