Catherine Locatelli

Gazprom's Export Strategies Under the Institutional Constraint of the Russian Gas Market

The strategy of the Russian gas company Gazprom is today at the centre of the debate surrounding the security of the European gas supply. The European gas market liberalisation is changing the industrial and commercial (that is to say, contractual) strategies of Gazprom in order to deal with the institutional changes in its main export market. In this context, to secure its market shares Gazprom try to acquire a presence downstream, which will give it access to final consumers. However, exports to Europe are affected by conditions in the Russian domestic market, not only in terms of supply and demand, but also in terms of prices. Russias internal market can hardly be viewed as a genuine market where supply and demand are regulated by price fluctuations.

Russian natural gas policy and its possible effects on European gas markets

Abstract There is a growing perception among Western European gas experts that Russia has developed a considerable gas surplus — the Russian gas bubble. Thus, the question clearly arises how much gas is available for export and how much gas, over the next 15 to 20 years, can the Russian quasi-monopolist Gazprom market in Western Europe. We consider that Gazproms export strategy mirrors the approach of Russias natural gas policy towards the Western European market. In this paper, we will focus on the characteristics of Gazproms export strategy, its underlying logic, and its impact on Western European gas markets. A quantitative approach to managing natural gas flows characterizes Russian natural gas policy towards domestic as well as foreign markets. The Russian governments way of managing and regulating Gazprom clearly has an influence on the companys export strategy, as indicated by the importance of gas exports for the Russian gas industrys, and indeed the whole countrys, financial situation. As a consequence of Gazproms export strategy, the Russian gas company faces today a price quantity dilemma. Gazproms problem is to place as much gas as possible in the growing Western European gas market, without destroying downstream gas prices. We argue that Gazprom has adopted a market share expansion and downstream vertical integration strategy, aimed at capturing a part of the downstream gas rent. Although this strategy appears to have initiated a form of gas to gas competition in a number of European consumer markets, this strategy is not based on an aggressive price policy. However, in order to live up to its ambitions, there is a chance that Gazprom will have to somewhat relax traditional contract clauses, such as contract length, indexation terms and take or pay conditions.

The obstacles in the way of stabilising the Russian oil model

This article deals with the current change of the institutional and organisational framework of the Russian oil industry. Regarding this evolution, the main characteristic is the increasing involvement of national oil companies in upstream activities. The aim is to explain this reorganisation by relying on the New Institutional Economics framework. These theoretical works highlight that institutional environment and governance structures complement each other. We argue that the current reorganisation is an attempt to increase the coherence of the institutional arrangements governing transactions between the Russian state and private oil companies.

The Russian oil industry restructuration: towards the emergence of western type enterprises?

Abstract The Russian oil industry has undergone fundamental changes since the collapse of the Soviet Empire and its bureaucratic administrative structure, dominated by its various Branch Ministries. The monopoly in the Soviet oil industry has now been replaced by a number of “oil companies”, some of which are very powerful, the best known of them being Lukoil. These “joint stock companies” are the product of a reform aimed essentially at implanting, out of all the numerous organisational arrangements developed in the West, the model of the vertically integrated private firm. Beyond the legal reforms in the Russian oil industry sector, however, the nature of the organisational model that has actually emerged in Russia begs several questions. Many entities, which are complex and highly diversified, are involved in this industry. There are, of course, the many privatised structures in which the banks sometimes carry a considerable amount of weight. There are also some vertically integrated organisations, but the degree of integration is variable and their method of centralisation is based on a specific form of economic logic. It should not be considered, however, that these “actors” are similar to capitalist-type private enterprises, whose behaviour is regulated by the demands of international competition. Reform of property rights has not been sufficient to create true private enterprise in Russia. This assertion is borne out by several elements, including the Russian economic situation itself. Financial-industrial groups in the oil industry have, first and foremost, to organise and adapt themselves to deal with the essentially non-monetary relationships such as barter, interentreprise credit and non-payment, which are becoming more and more dominant in the Russian economy today, as the recent financial crisis shows. Thus, beyond the change in formal organisation that the various methods of privatisation show, the way in which the industry behaves is still regulated to a significant extent by planned economic relationships and not by efficiency and profitability strategies based on reducing costs. On the other hand, the “survival” strategies are based on the willingness to maximise exports, this being based on a “quantitative production development” logic. They are written into the particular kind of compromise arrived at between the State, the banks, the regions, the workers and the oil joint stock companies, which could be summarised in the following equation: foreign currency in exchange for non-payments and for preserving jobs in the oil industrys holding companies. The financial crisis in Russia has clearly shown how fragile this system is, and has to some extent shattered the compromise already weakened by developments in international markets. The decrease in foreign currency revenue, brought about by the fall in international oil prices, has clearly shown the structural weaknesses in an oil industry that is still conspicuously beset by heavy production costs, costs that are proving a serious hindrance to its competitiveness. The future of the industry must be in serious doubt if, despite the reforms introduced, it does not continue along the path of major restructuring.

The Russian gas industry: challenges to the 'Gazprom model'?

The Russian gas sector is undergoing significant changes which are opening the way for an original reform. Because of the particular institutional and economic context of the country, this reorganisation is not taking place along the lines of the de-integrated model of the EU. It is characterised by increasingly significant competitive fringes. Gazprom remains the main actor in the Russian gas industry but the company is facing challenges on its main export market and increasing competition at home with the arrival of new gas firms, independents and Russian oil companies. For Gazprom, the aim is to develop more flexible strategies for export markets but also on its internal market. These internal changes will not be without consequences for the countrys export strategy and the implications for international markets could be considerable.

The entry of China to the gas market: constraints and opportunities

In the next 20 years, China will emerge as a major importer of gas and thus shape the energy exchanges and markets in Asia. But different constraints must be overcome. The increase of natural gas share in the Chinese energy balance will depend on the countrys capacity to create a unified gas market in place and instead of the fragmented exchanges. This implies several economic and institutional reforms (such as the energy price reform). One important element that will determine the growth of the Chinese gas industry concerns the role of international investors. The growth of the Chinese gas demand would lead to a radical change in the countrys energy policy, which up until now has been dominated by the search for self-sufficiency. From this point of view, the question of the choices of the main gas suppliers is essential concerning the Chinese energy security. Different countries are in competition. But the choices of the main suppliers are very linked with the way in which China perceives its integration at the international level and in the Asian region.

Gazprom and the complexity of the EU gas market: a strategy to define

Abstract Confronted with an increasingly competitive market in the European Union and the credible threat of a new entrant in the form of liquefied natural gas imports from the United States, Gazprom’s traditional export strategy is open to question. The company must decide whether it should launch a price war in order passively to adapt to impending competition and its role as a ‘residual supplier’ to the EU gas market, or whether it should take advantage of the current price uncertainty. This article explores the scope for long-term strategic action by Gazprom other than simply engaging in a price war. It is argued that Gazprom could forge a position as a key player in the EU gas market capable of playing the same role as Saudi Arabia does in the global oil market.

The Emerging Hydrocarbon Interdependence between Russia and China: Institutional and Systemic Implications

Abstract The different agreements on oil and natural gas signed by Russian and Chinese companies testify to the profound changes in the oil and gas policies of both Russia and China. We stress the importance of the contractual norms which structure the energy interdependency of the countries involved. As there is no international multilateral framework able to manage energy supply security, the way the countries involved construct their energy interdependence to an extent defines models of sectoral governance.

Les échanges gaziers entre la Russie et la Chine à l’aune de leur sécurité énergétique

Le developpement des echanges gaziers entre la Russie et la Chine s’inscrit dans un processus qui de part et d’autre vise une strategie de diversification afin de repondre a des preoccupations de securite energetique dans ses deux dimensions, offre et demande. Il s’agit pour la Chine de securiser son approvisionnement gazier par la diversification de ses fournisseurs et de ses routes d’importation (securite de l’offre). Il s’agit pour la Russie de diversifier ses marches d’exportation pour securiser la demande gaziere qui lui sera adressee. Au-dela de ces enjeux economiques, le developpement des echanges gaziers entre la Russie et la Chine s’inscrit dans un contexte institutionnel particulier. Ce dernier est marque par une relative proximite des modeles d’organisation de leurs industries gazieres respectives, ainsi que des modalites de leur regulation (regles, normes) et une forte opposition au modele concurrentiel de l’UE. Les modalites de gestion de la securite energetique en sont fortement impactees.

European Union energy security: The challenges of liberalisation in a risk-prone international environment

The liberalisation of European energy markets and their integration into a single market are under way. However, the energy environment of the European Union as well as its own internal situation have undergone profound changes. The energy security of member states is therefore an important issue that should be examined. The energy security of member states is therefore an important issue that should be examined. This security concerns gas markets with the problem of long-term contracts between suppliers and consumers and also electricity markets, because of the increasing use of natural gas to generate electricity. Lack of investment is also a problem. Energy market players have to manage security concerns in these two markets in order to supply socially and economically essential commodities. In this article, we examine two main topics. The first is related to the European Unions capacity to solve the problem of investment in transmission and peak power generation by finding internal solutions. The second concerns the upstream structure of the gas market, namely the problem of investing in transnational gas pipelines, and relations with gas suppliers outside the EU.