Gazprom: A future of lower prices?

Gazprom: A future of lower prices?

September 25, 2017 | NewsRoomGnome | news

Mirror mirror, on the wall

Despite the company maintaining one-third share of Europe’s natural gas supplies, the FT does not see good things on the horizon for Russia’s Gazprom.

Things have been good for Gazprom. Last year, the company exported a record-high amount of gas to Europe, the paper observes. But the challenger to the company’s success in European markets is the growing supply of liquefied natural gas – a familiar story, perhaps, to all of us. Rapidly growing output from the US and Australia will go beyond the demand of Asia, and any excess gas is likely to end up on European shores.

Gazprom’s strengths, strategies

But, writes the FT, how the story ends all depends on how Gazprom reacts – will it attempt to price out LNG from markets? The FT article notes the company’s strengths as the largest single supplier to Europe: low marginal costs and significant excess production and export capacity.

By going lower on price, Gazprom could reduce investments into European production and consumption. It could even start a price war to hold on to market share. The FT piece surmises that the company would need to offer a 25% price reduction to stave off supplies of LNG.

What happens when you go low on price

Over a longer-term timeline, by lowering the cost the company would give an incentive to higher gas demand in Europe and could also disincentivise investment in European gas production, according to the article.

Gazprom also faces another challenge – that Novatek and state-owned Rosneft are vying for access to Russia’s natural gas export pipelines so those companies can also access European markets where they can earn higher revenues. That could also force Gazprom to get competitive on price.

Read the full piece here.