Russian gas: Vladimir Putin is on a sales binge. The Russian prime minister is eager to clinch long-term gas contracts with Russia’s neighbours east and west. But can he deliver?
Putin was in Beijing this week to try further advance the negotiations over a major gas deal. But the two sides still can’t agree on the key issues of pricing and sourcing – the Chinese are intent on locking up secure fields.
Europe is also in Putin’s sights, with two big western-bound pipeline projects: Nord Stream, a joint venture with the Germans; and South Stream, a partnership with the Italians. Putin has also invited France’s EDF, the state-owned electricity giant, to take up to 10 per cent of the South Stream project. And EDF’s competitor Suez-GDF intends to invest in Nord Stream.
Putin wants to persuade Europeans they don’t need Nabucco, their own proposed but problematic pipeline. Fears about the security of Russian gas supplies increased after the Georgia war last year, then the Russian dispute with Ukraine a few months later. Some Europeans think Russia is the risk. Putin replies that the risk is in the route – the current one, running through Ukraine. Hence his proposals to bypass the troubled neighbour.
But contracts and promises don’t put gas in pipelines. Production at Gazprom, the Russian state-controlled producer, has stagnated for several years and is now declining. The promising new fields in western Siberia can’t be exploited without the expertise of foreign companies – which Putin actually called on for help a few weeks ago.
Cash flow may also become another issue. The emergence of a spot market threaten to push gas revenues below what would be generated by the current practice of long-term contracts based on the price of oil. And new technology for extracting shale gas in the US and in Europe could provide unwanted competition.
Putin already may have promised the same gas to China and Europe. He’s also buying as much gas from Central Asia as he can get to reinforce Russia’s dominance of the market. But his need for massive western cooperation could be the sign that the gas balance of power is slowly shifting – not in Russia’s favour.