POLITICS OR PROFITS? GAZPROM, THE KREMLIN, AND RUSSIAN ENERGY POLICY
Swinn, Eric S.
Balzer, Harley D
This paper adds to the ongoing discussion of Gazprom's role in Russia by placing the debate around Gazprom within the broader contexts of both the increasing prevalence of national oil companies in the world and the changing natural gas landscape. It assesses how the interplay between politics and profits has affected the way Gazprom can adapt to a rapidly changing world natural gas environment and how both the Kremlin and Gazprom are adjusting--or failing to adjust--their strategies accordingly. It concludes that Gazprom and the Kremlin are both adjusting to changes in the world natural gas environment, but they are doing so in their own ways, but given the affects the actions of one has on the other, the pace of adaptation is slower than what we might see with an entirely independent firm.The paper begins with a discussion of the tradeoffs inherent in Gazprom's relationship with the Kremlin. It identifies various factors at work politically that prevent Gazprom from profiting in the domestic economy. Primary among these factors are entrenched rent-seeking interests and philosophies about natural resources, as well as geopolitical interests. The paper identifies the 2006 and 2009 gas disputes with Ukraine as evidence of Kremlin interference in Gazprom's commercial activities and concrete examples of the boundaries between these two entities as well as the seeming blurring of these boundaries.The paper then moves into a discussion of increased volatility and risk in Gazprom's primary export market, Europe. The systemic context of a discussion of Gazprom today must include factors such as increased supply options for Europe that make natural gas a more fungible commodity than in the past and new legislation aimed at promoting energy independence via the development of a competitive natural gas market. This new context threatens Gazprom's ability to mitigate price risk in its export market, which in turn makes providing for the domestic market through gas rents increasingly draining on the firm's bottom line.The paper concludes by asking how Gazprom and Russia are adapting to increased volatility in the European natural gas market and whether the new tactics reflect a change in the Kremlin's relationship to Gazprom. It identifies three means of adaptation: Russia's increasing diversification of supply in the domestic market; Gazprom's increasing pipelines to Europe; and Russia's pivot to the East. It determines that ultimately both the Kremlin and Gazprom are responding in ways that are reflexive and somewhat innovative, though their fundamental goals have not changed.