Business seen driving Europe’s use of Russian gas

Europe’s growing dependence on Russian natural gas since the 1990s was more a series of business decisions than geopolitical maneuvers, a Harvard Business School international management professor said. Future decisions in the region probably will be more commercial than political, Rawi E. Abdelal predicted during a Nov. 7 presentation at Johns Hopkins University’s School for Advanced International Studies.

Gazprom, E.ON, GDF Suez, and other gas companies historically have had more direct influence than the Russian, German, French and other governments, he said. Their roles in responding to the challenges of falling demand and potential supplies of LNG based on gas from unconventional reservoirs will be crucial, Abdelal maintained.

“It’s not that political decisions aren’t being made, but that these grand strategies are bubbling up from the firms,” he said. “Governments could play a role, but since they haven’t in the past, they probably won’t now, so the firms are more directly involved.”

Even in cases where a company is entirely government-owned, such as Russia’s Gazprom, its primary purpose still is to make money, Abdelal said. Support for Gazprom’s Nord Stream trans-Baltic gas pipelines between Russia and Europe came from companies that would be customers, several of which included current members of national governments.

“Now, we’re upending 40 years of business between Gazprom and its customers, and the outcome is uncertain,” Abdelal said. “Governments may believe Europe relies too heavily on Gazprom. The firms may believe there’s a problem, but they also have a history with each other that they feel shouldn’t be abandoned precipitously.”

Gazprom has evolved from threatening cutoffs to former Soviet republics and customers it continues to supply to trying to influence politics in other countries without brute power instead, he said. “The Russians are terrified that if Gazprom isn’t as profitable as it once was, the federal budget will collapse,” Abdelal said.

“Rosneft was created as an oil hedge against the threat of falling gas prices. It also has won the right to sell LNG outside Russia, which Gazprom previously held exclusively. Rosneft essentially is becoming another champion for Russia’s economic future, which depends heavily on its remaining the world-leading hydrocarbons supplier.”

Contact Nick Snow at nicks@pennwell.com

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