There, at probably Europe’s main source of energy, he assumed his new role of chief salesman, urging the companies to help Gazprom develop new gas fields in one of the world’s harshest climes.
“I can assure you that you have not made this long trip to the end of the Earth in vain,” he said.
It is a different tune from the one Mr Putin was singing during the boom years. But Russia is in a vastly different position today, as is state-run Gazprom, hit by a financial crisis that has affected Russia more harshly than most emerging markets.
Gazprom has cut its investment program for 2009 by 17 per cent, to Rbs761bn ($25.4bn).
Yamal was the first to be affected. The start-up of Bovanenkovo, a field estimated to hold 4,900bn cubic metres (bcm) of gas, was put off by one year, to late 2012. With that, Yamal’s gas fields – discovered and touted in Soviet times – saw their first launch further delayed. The company cited lower demand as the cause.
Inside Russia, the drop has been particularly severe. Industrial output declined 14 per cent in the first seven months of this year, compared with 2009, dropping again in August following a modest rise in June and July. The recovery is expected to be slower than in Europe, with officials saying the country will not reach pre-crisis levels of growth until at least 2012.
Russia has given hints that it will change its domestic gas policy accordingly. Independent gas producers, long largely denied access to the Gazprom monopoly’s infrastructure, may emerge the big winners.
“In the near future, we will try to liberalise the domestic market,” Mr Putin told an investment conference on September 29. “We will try to liberalise access to pipelines.”
Domestic gas sales account for most of Gazprom’s turnover but a paltry fraction of its revenues. Many analysts were sceptical of Russia’s plans to liberalise domestic gas prices by 2011 to reach parity with Europe when the plan was first announced.
The already politically difficult decision will be harder to pull off with Russian industry and consumers struggling under the weight of the crisis.
Valery Nesterov, energy analyst at Troika Dialog, says he expects the move will not be made until 2013-15.
The crisis has also prompted disputes with Central Asian nations such as Turkmenistan, which boost Gazprom’s supplies to customers in Russia and the CIS.
“Gazprom is basically ready to cede part of the domestic market to independent gas producers,” Mr Nesterov says. “Its traditional priority is export, since 80 per cent of its revenue comes from that.”
Concerns over European energy security resulting from Russia’s failure to invest in new fields were loud during the boom years, and have grown louder since the crisis hit.
“If the company cuts [its investment] too much, it may be harmful for them if demand surges. They will miss an opportunity,” says Fatih Birol, chief economist at the International Energy Agency. “It may give an impetus to European governments to look at other options,” he says, including renewables and nuclear energy.
Gazprom says it will keep investments down as long as European demand remains in a slump. “Why invest money in what is not in demand?” Gazprom deputy chief executive Alexander Ananenkov said when first floating the Bovanenkovo delay in June.
Gazprom’s production is expected to drop significantly. Mr Ananenkov says that whereas it produced 550 bcm in 2008, output would shrink to between 450 and 510 bcm this year and creep up to 523 bcm by 2012. The company says it expects European demand to begin to recover this year, and rise 11 per cent by 2020.
In the short term, that should have little effect on European supply, as demand remains low and work at the massive Bovanenkovo field is close to completion, says Jonathan Stern, director of gas research at the Oxford Institute of Energy Studies. The long-term is a different story, but one with a similar narrative to the main discussion pre-crisis.
“Europe is fundamentally confused,” he says. “It doesn’t know whether it wants more Russian gas because it can’t rely on other people, or less because it can’t rely on Russia.” That could lead to an increased push for alternative sources and liquefied natural gas, as well as the Nabucco pipeline to deliver central Asian gas to Europe.
Gazprom insists its priority projects, including the Nord Stream pipeline to Germany and the development of the Arctic Shtokman field, remain on track, although analysts have long called the projected timelines optimistic.
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