Here's Why Gazprom Is Getting Whupped In Asia

Gazprom natural gasWorker at a Gazprom gas plant

Photo: Gazprom

Gazprom may hold a near-monopoly status in Europe, but the company is struggling to gain a foothold in Asia.Bloomberg reports that the company had hoped to supply liquefied natural gas to India, but plans are falling apart after India found cheaper supplies from the US. Other plans in China have also failed.

So, what’s the problem? For one thing, the company just isn’t used to competition, and sets its prices way too high.

Jonathan Stern, chairman and senior research fellow at the Oxford Institute for Energy Studies, tells Bloomberg that “Gazprom has a major problem of having a fixed view on what the price of gas should be, irrespective of market conditions.”

Craig Pirrong, aka the Streetwise Professor, has an even harsher judgement:

Gazprom is a hidebound organisation, grotesquely inefficient, notoriously corrupt, and unused to and arguably incapable of operating in truly competitive conditions.  It has a guaranteed monopsony at the upstream end (being the only company permitted to export Russian gas) and has traditionally sold in markets downstream where there is little, and often no, competition from other sellers. 

Its disconnect from commercial reality grows with every widening of the difference between gas and oil prices.  It can insist on its self-serving formula, but as the US becomes a major exporter of gas-as fundamentals imply that it should be-its insistence will make it an also ran in the LNG market.

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