BusinessWeek: Europe's Price Vengeance on Gazprom
From the Baltics to the Mediterranean, Russia’s Gazprom (GAZP) has long been the dominant supplier of natural gas to heat homes, run factories, and generate electricity. Even if its European customers grumbled about high prices, they didn’t do it too loudly: Gazprom could cut them off, as Ukraine learned during its price disputes with the company between 2005 and 2010.
A global production boom led by U.S. shale gas has turned the tables. While the U.S. is now awash in cheap gas, Gazprom’s European customers pay about three times the U.S. price. European utilities are demanding—and winning—price concessions that are clobbering Gazprom’s bottom line. On Nov. 2, the company reported second-quarter profits down 50 percent, as discounts to clients reached $4.25 billion so far this year.
As recently as a decade ago, Gazprom accounted for almost half of Europe’s gas imports. That figure has since fallen to about 33 percent, as customers switched to Norwegian or Algerian gas—and, more recently, to imported American coal, which has become plentiful because U.S. utilities are burning cheap gas instead. Even Vladimir Putin has acknowledged something has to change. Gazprom, he said at an energy meeting near Moscow on Oct. 23, must “find new, mutually acceptable forms of cooperation to be closer to the end users.”