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Gazprom: Angel or Demon?

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Gazprom faces regular opprobrium for its bullying ways of using energy as a pressure and political tool. Seen by some, mostly Russians, as the symbol of a successful and strong Russia, others see it as a dominating juggernaut, economic right arm of the Kremlin implementing, or should we say, imposing its policies by using energy as a weapon.

Just like Louis XIV used to say "L'Etat c'est moi" (I am the State), Gazprom could say the same in light of its commercial power and the unconditional governmental backing it enjoys. However, just like Monsanto generates passionate debates with its genetically engineered seeds, Gazprom's activities cannot be simply labeled as right or wrong and subject to final judgments.

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Though far from being an angel, Gazprom is not necessarily a demon either. It is easy to point fingers and to forget that oil & gas is a merciless sector where every major is trying to position itself for the next 20 to 30 years and secure predictable supply and demand at home and abroad. After all, large Western energy companies were not born nice and proper. It took decades for codes of conduct, tacit or written, to be adopted and enforced. It is also easy to forget that all energy companies have in mind the interests of the country they come from.

Why would it be any different for Gazprom? And why should Gazprom take upon itself to act differently if it can get away with what it does and not be sanctioned by its own government?

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The main issue with Gazprom could be summarized by using the famous quote of U.S. Secretary of Defense Donald Rumsfeld who said about Iraq "there are known unknowns. That is to say, there are things that we now know we don't know. But there are also unknown unknowns. These are things we do not know we don't know." Because of all the things we do not know about Gazprom, sensitivity to what Gazprom does is greater because ultimately what it decides to do today and how it does it will impact energy supplies for years to come and how the game is played.

The lack of information on the personal relationships between the business and political world, on its exact ownership structure, on the exact identity and role of business intermediaries, on the flow of money through a labyrinthine network of offshore and shell companies, and on the overall exact modus operandi of Gazprom is what leads Gazprom to be subject to greater scrutiny and interrogations. It efforts to maintain an export monopoly for gas flowing to Europe and Asia at a huge cost, possibly over-committing dwindling resources at a time of lower energy prices and lower needs from consumers is another concern as would happen if Gazprom was to fail?

Gazprom: The Lord of the Rings

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Gazprom is a behemoth: it is Russia's largest company, state-controlled and the world's largest gas producer. Engaged in gas exploration, processing, and transportation, it operates an extensive pipeline network stretching thousands of kilometers across Central Asia and Europe. Gazprom ranks #22 in the 2009 annual ranking of the world largest corporations published by Fortune magazine and has 456,000 employees. With close ties to the Kremlin - President Dmitry Medvedev used to be chairman of Gazprom's board of directors - and accounting for about 25% of Russia's federal tax revenues according to pre-crisis data, Gazprom has a unique leverage and has no qualm about flexing its muscles.

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I have an interest in the financial markets, commodities and Geopolitics.

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