US shale gas to strike devastating blow on Russia's Gazprom

Russia will get its gas crisis in the coming years, as the fall in prices on natural gas is widely spread nowadays, experts say. What happens to the gas market, what are the prospects of the "shale revolution" in the United States, and what Russia should be careful about - these issues are becoming more important. International analysts are searching for answers to these questions.

The answers are directly dependent on the attitude to Russia. Senior research officer of the Peterson Institute for International Economics, Anders Aslund, who became known for his calls to exclude Russia from the Group of Eight, said that the "shale revolution" in the U.S. may bring world gas prices down. This will strike a devastating blow on Russia's Gazprom. Today, U.S. gas prices are four times less than those of Gazprom.

The Swedish expert expects that the Russian company will have to "decouple" the gas price from the oil price, which does not go along with the current problems at all. Gazprom's capitalization fell from $365 billion in 2008 to $128 billion in 2011. In addition, the European Commission continues its antimonopoly investigation. The commission has won serious cases in the disputes with Microsoft and Intel, so Gazprom may not escape. Aslund believes that only the Kremlin is to blame for this situation. The Kremlin, the official said, sucked all the money from Gazprom, and the company is now forced to shelve its megaprojects.

Analysts of "Market Leader" magazine have written a lot about the changes in the global gas market, which had been caused with the discovery of the so-called "shale" gas. The discovery allowed the U.S. to become self-sufficient in terms of gas supplies. Moreover, the country has left Russia behind on the list of world's largest natural gas producers, said leading Canadian expert with Masterforex-V Academy Eugene Olhovsky. However, Gazprom is not going to wrap up its South Stream project. The standstill of the works on the Stockman deposit, which was developed with a view to sell liquefied natural gas to the U.S., has not been frozen completely yet.

"This can be seen in the desire of Gazprom's partners to continue the project: the French Total, and even the Norwegian Statoil, which is technically out of the partnership, but the Norwegian company continues negotiations with Gazprom." However, it is Gazprom that insists on shelving the project. It is not the hopelessness of the Stockman field - the company needs to wait," experts said.

The near-term prospects for Russia are not so terrible. Many expect the collapse of the "shale revolution," which Aslund pins great hopes to. After all, the extraction of shale gas has proved to be practically hopeless in Europe. The U.S. Energy Information Administration has lowered its estimate for the shale gas production in the U.S. by 40%. Therefore, it is quite possible that the "revolutionary" American intentions about the expansion to the gas market may go up in smoke. And that will be the time for the Shtockman field to rise again.

Casting aside the political partisanship of Aslund, one has to admit that his comments are mostly correct.  It is not a good time for Gazprom, the company has hard times right now. In the beginning of this autumn, Gazprom for the first time acknowledged the problems with sales in the domestic market. The gas monopoly said that it was going to stop buying gas from independent producers from September 10 due to "unstable demand." The restriction was not to touch upon the gas, which other companies of Gazprom group acquire, as well as the gas transported by the Unified Gas Supply System to Novatek consumers and to oil companies. In total, the monopoly was going to cut purchases from Novatek, Lukoil and Sibneftegaz by about 80 million cubic meters a day. But the companies managed to come to an agreement with Gazprom.

And most importantly, Gazprom is not the leader in the media war with the U.S., which may badly affect other areas of the activity of the company. The administration of the company needs to position itself on the international market.

Valentin Vasspard.

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Author`s name Dmitry Sudakov