Europe and Russia heavily dependent on smooth flow of gas

Jun 04, 2001 02:00 AM

When the Russian government sacked Rem Vyakhirev, it finally began the task of wiping out corruption at the vast gas monopoly Gazprom. With its own security services, media, banks and politicians, Russia's gas giant was effectively a state within a state, the property of a small clique of managers, equipped with a large group of lobbyists in government circles... .
Gazprom was accused of deep corruption and asset stripping at the most senior of levels. But part of the reason why Gazprom has escaped censure for so long is that both Europe and Russia are heavily dependent on a smooth flow of gas.
And a new man at the helm of the behemoth will have widespread implications for Europe as well as Russia. Meeting Europe's needs Gazprom is the biggest producer of natural gas in the world, accounting for 39 % of global gas trade and meeting 30 % of the needs of the EU.

European gas demand rose 26 % between 1989 and 1999 and continues to rise fast as countries like Portugal and Spain rapidly expand infrastructure connecting more towns to the mains. European imports of Russian gas (cm) Austria 5.3 bn Czech Rep 7.8 bn France 11.9 bn Germany 34.8 bn Hungary 7.4 bn Italy 19.1 bn Poland 7.3 bn Turkey 8.8 bn Europe's biggest economies -- France, Germany and Italy -- all rely heavily on Russian gas to meet their energy needs.
Germany, for example, consumed 80.1 bn cm of gas last year, with 34.8 bn cm of this coming from Russia. Germany's dependence on Russian gas is so critical to the country's energy supply, that its leading gas firm Ruhrgas acquired a 5 % stake in Gazprom in 1998, the largest single investment of any German company in Russia.
But the flow of Gazprom's gas is perhaps even more critical to the Russians themselves. A significant proportion of Russian industry is kept running through dirt cheap gas supplies from Gazprom.
Gazprom sells gas to the domestic market at around $ 15 for every 1000 cm compared to a European market value of between $ 100-110 for every 1000 cm. Many factories would grind to a halt if they were forced to pay this market value of gas.

Half of Russia's electricity, for example, is generated from this cheap source of gas. "Cheap gas is one way to keep people alive, the consequences of removing this supply would be very severe," said John Gawthrop, editor of Former Soviet Union Energy magazine. Huge government sway Gazprom also brings in a colossal amount of hard currency for the state, accounting for about 8 % of the country's GDP.
The government doesn't want to jeopardize its own budget revenues and its social support scheme John Gawthrop, editor of Former Soviet Union Energy Its size means that it has huge sway with the government since it accounts for 25 % of the country's federal revenues.
Gas aside, it takes on a quasi-state role in financing schools, health spas and sports clubs. It holds a stake in a number of financial institutions, led by Gazprombank and recently added Russia's largest independent television station to its media network. With 300,000 employees, there are many top people who can exert a powerful economic and political influence.
It is against this backdrop that the numerous corruption allegations have been allowed to drift on. "The government doesn't want to jeopardize its own budget revenues and its social support scheme," explained Mr Gawthrop. In other circumstances, the senior management could have been arrested a long time ago.

History of Russian gas:
1935 first gas field discovered
1965 Ministry of USSR Gas Industry created
1966 First gas delivered to Europe
1973 First gas delivered to Germany
1992 Gazprom formed

Most recently, it is alleged that Vyakhirev and other top executives used shadow companies to transfer Gazprom assets to their families and friends at unfairly low prices.
And the senior management is also alleged to be using the Florida-based gas firm, Itera to build up a privately owned gas firm to line its own pockets. Minority shareholders claim that about $ 4 bn a year are leaking out of the company's coffers into the pockets of their friends and family. The government has long wanted to gain control over the company but has had to tread slowly and softly.
It's a hugely opaque organisation, with only three or four people really knowing what's going on James Henderson Renaissance Capital Indeed, many observers were surprised by the finality with which they ejected Mr Vyakhirev, expecting a more gracious, staggered exit.
Analysts say that the key reason for the appointment of Alexei Miller, a personal acquaintance of Vladimir Putin, is so that the government gets a better grip on what is happening inside the company before shaking it up. But the dependence on Gazprom's gas will stay at the forefront of everybody's mind as the restructuring gets underway.

Source: BBC News Online
Alexander's Commentary

Change of face - change of phase

In the period of July 20 till August 3, 2015, Alexander will be out of the office and the site will not or only irreg

read more ...
« September 2019 »
September
MoTuWeThFrSaSu
1
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30

Register to announce Your Event

View All Events