For years the company’s fortunes soared, pushed up by rising oil and gas prices and Russia’s pipelines which are the only ones that allow Turkmenistan, Kazakhstan and Uzbekistan to get their own gas to market. At home the company also enjoys a near monopoly.
However, Gazprom failed to profit from its dominant position. Instead of investing in technology and innovation to improve its position, it tried to gain control over foreign energy sources even at the cost of high prices.
Gazprom has also suffered from deals it worked out last year with Kazakhstan, Turkmenistan, and Uzbekistan when the price of gas was rising. At the time Gazprom agreed to pay the three Central Asian states “European” prices for their gas as a way to head off moves by European Union countries to reach an agreement on a rival pipeline project that would have brought Central Asian gas by a route that avoided Russian territory. Now the “European” prices that were at one time approaching US$ 400 per 1,000 cubic meters of gas, have fallen to below US$ 300 and are expected to drop further.
Turkmenistan, for one, has insisted that Gazprom pay European prices as agreed, something Gazprom refuses to do because they are now too high and because its supplies meet Russia’s domestic needs.
Since Central Asian gas was always meant for Europe, current prices are no longer of interest to Gazprom. But for Turkmenistan the issue is more important since gas is its main source of government revenues.
However, Central Asian oil and gas producers have another card up their sleeve. In addition to Europe they are being courted by mainland China which is willing to pay good money for their energy.
Energy demands in Europe have also dropped in the first quarter of this year because of Gazprom’s inflexible pricing policy
According to the International Energy Agency (IEA) gas consumption in the European Union has in fact decreased by 2-3 per cent in the first quarter of 2009, whilst gas imports declined by about 12 per cent compared to the first quarter of 2008.
In the same period, Gazprom's supplies to Europe fell by 39 per cent (50 per cent in the case of Germany and Italy).
Gazprom is also facing another major problem: its aging pipeline network. Some of its sections date back to Soviet times when the network was built to ensure that gas and oil went through Russian territory. Now they are in a state of disrepair and prone to frequent breakdowns and explosions.
In the meantime other powers are making their presence felt in the region. China for instance is building an oil pipeline from Kazakhstan, and both Pakistan and India have expressed an interest in building gas pipelines from the Central Asian nation. At the same time the European Union wants to build pipelines that bypass Russia.
Ultimately Gazprom has lost credibility, creating enemies, when it got involved in the Russo-Ukrainian crisis of the beginning of this year, when it allowed itself to be used as a tool of blackmail.
Even in Russia Gazprom has lost some ground as a result of a ruling on 2 June by Russia’s antimonopoly authorities which forces the company to share its export pipelines with independent gas producers.
Some analysts point out that Russian leaders like current Prime Minister Vladimir Putin have never liked the company’s leadership position.