Special Report: Russian Gas Exports to Europe

Listen to this report:

 

Focus points

  • Russia is Europe’s biggest gas supplier.
  • Gazprom, Russia’s largest company, controls 18% of the world’s gas reserves.
  • Russian gas exports to Russia went up 16% in 2013.

Analysis

Russia, through Gazprom, is Europe’s biggest gas supplier. About twenty-five percent of Europe’s gas consumption comes from Russia. Norway comes in second place as Europe’s gas supplier, and Russia pulled ahead even further of Norway last year.

Gazprom is Russia’s largest company and dates back to the 1940s. Gazprom explores, processes, transports and markets gas, as well as operating Russia’s domestic pipelines. 

Gazprom holds roughly 18 percent of the world’s gas reserves. Tax revenues in Russia from Gazprom make up 25 percent of all of Russia’s tax income. 

One of Gazprom’s strategies has been centered on its pricing contracts. Russia has a much larger ability to produce gas and sell it to Europe than Norway. To keep prices high, Gazprom sets up long-term contracts with its European buyers. Some contracts last decades. Often, prices are linked to oil prices.  

Two years ago, Norway tried to sell extremely cheap gas to its European customers, a move that startled Russia. In response to that, Gazprom changed its pricing policy, and paid over four billion to customers in Europe as compensation for expensive gas prices. 

In many former Soviet countries, Russia has been the dominant (or sometimes only) supplier, but this could change. Gazprom ships much of its gas to Europe through a pipeline that runs through Ukraine. In Azerbaijan, state-owned energy company SOCAR has stopped exporting gas to Russia, news that was released by Gazprom on January 16. Apparently, the reason for stopping the sales was technical. 

However, it is unclear whether this move is related to a new deal in Armenia, where the Armenian government signed a contract on January 16 with Gazprom. The contract sells Armenia’s shares in ArmRosgazprom, a joint Armenian-Russian gas pipeline, to Gazprom. In exchange, Gazprom gets the position of being the only natural gas supplier to Armenia for the next 19 years.

Europe remains the strongest market, but Russia is diversifying. Russia wants to keep its strong position in Europe, but has recently diversified toward Asian markets, as growing demand in emerging markets has proliferated.  Gazprom has had other successes, as well. Its exports to Turkey also increased, which knocked Norway’s exports to Turkey down. 

Sources