The Houston Chronicle reported last week that Gazprom Deputy Chairman Alexander Medvedev has accused the Paris-based International Energy Agency of organizing European governments against buying Russian gas. This is the second time in recent months that Gazprom has warned the European Union and EU regulators not to hinder its ambition to purchase assets "downstream" in the energy supply chain.
Gazprom map depicting European gas distribution
Gazprom's strategy should be viewed in light of global energy markets today, where the biggest profits are had selling "retail" rather than "wholesale". Refined gasoline, jet fuel, diesel and so-called "boutique blends" sell for a lot more than raw crude, especially while refining capacity in North America, Australia, India and China is very tight. Rather than just selling natural gas to Ruhrgas and other European utilities as the Soviet Union did, Gazprom wants to get as close to the consumer as possible, to be a true partner and competitor for Western energy companies.
The controversy over whether state owned "national champions" should be allowed to buy infrastructure in the West is not unique to Russia and Europe: witness Congress' last year scuttling a Chinese bid for Unocal, then engaging in bipartisan Arab-baiting over UAE-based Dubai Ports World's proposal to run several U.S. ports.
Natural gas processing facility in Russia
Given the challenge of raising billions of dollars in capital for new pipelines to tap remote Siberian regions, and the unpopularity of liquefied natural gas (LNG) terminals in the U.S outside the western Gulf of Mexico, Gazprom may opt to use gas-to-liquids (GTL) technology to convert fresh natural gas finds into liquid fuels for easier tanker and rail transport to markets. Gazprom executives have made no secret of the fact that if their traditional Western European customers continue to balk at a full partnership, they will go ahead and sell their gas to the Chinese, Indians and Americans.
Czechoslovak postage stamp depicting the Soviet "Friendship" pipeline, 1984
Unlike in the 1980s, when European governments quietly cooperated with the Reagan Administration's strategy to deny the Soviets capital they desperately needed to build new gas pipelines, today the EU is losing its leverage over Russia. Only a new round of growth in the European marketplace will make the EU as attractive to Russians for downstream investment as the booming U.S., Indian and Chinese economies.
Reference to Alexander Medvedev as wearing two hats is inaccurate. The Vice Premier is Dmitrij Medvedev. Alexander Medvedev is an economist and formerly involved in foreign trade banking (in 1989-91 he was head of Vienna-based Soviet Donau Bank, e.g.) and various oil industry positions.
Thanks for the correction.