For several years, Gazprom has had surpassingly bad PR -- worse even than Exxon, which since the 19th century heyday of John D. Rockefeller has almost proudly disdained the opinion of the world at large. The main problem has been Gazprom's intrusion into the lives of its neighbors -- its routine shutoff of gas to Georgia in the 1990s, for example, and its long reluctance to lease pipeline space for the export of natural gas from land-locked Kazakhstan, both actions that happen to coincide with the desire of Moscow to keep a foot on the throat of these former Soviet republics. But this blog has also noted Gazprom's distinction of being the only energy company on the planet with a record of elevating utility disputes to geopolitical events -- its legendary natural gas rows with Russian neighbor Ukraine have shut off the winter heat to Europe three times since 2006. Though Ukraine has paid its latest Gazprom bill in full, one would be a fool to bet against the prospect of a fourth cutoff this winter, as Jerome a Paris notes over at the European Tribune; indeed, Michael Kahn and Anna Mudeva at Reuters report that central Europe is carrying out actual infrastructure changes in case the yearly dustup recurs. Recently, Gazprom has been attempting to spruce up its image with a $250,000-a-month contract with Ketchum, a skilled PR agency with offices in London and Washington.
But this isn't the news. Instead, it is an ingenious Gazprom strategy of parlaying its market power in Europe -- the company supplies 25% of Europe's natural gas -- into a beachhead in the hyper-competitive U.S. Gazprom's goal: to supply 10% of the U.S. market within a decade.
It's an audacious play, but not outlandish. Take a look at the details in a story I wrote for this week's BusinessWeek. Last month, the company's Houston office opened with the main aim of marketing liquid natural gas from Sakhalin II (recall that Gazprom strong-armed its way into a controlling share of the project in 2007), on Russia's East Coast, in California. This goal hasn't gone off so well as yet, and probably won't soon -- U.S. gas prices are simply too low, and because of a glut of shale gas, prices aren't likely to rise much at least in the medium term. So Gazprom has sold all its LNG so far in Asia.
But a companion component of the strategy has succeeded remarkably. It's in pure gas trading. Though the trading side of the U.S. market is crowded with sophisticated actors stepping on one another to find and sell the fuel, Gazprom managed to corral and sell 350 million cubic feet a day in its first month of operation. That's a fraction of its goal -- the sale of 6 billion cubic feet a day. But it's a respectable start.
How did it do so? Gazprom says it's swapping gas with companies that are long in the U.S. -- meaning they have a comparable surplus of gas here -- and want to sell it in Europe, where Gazprom is long. It's a matter of convenience, Gazprom suggests -- it has excess gas in Europe, other companies have excess gas in the U.S., and the two effectively just swap supplies.
But consider the one deal that Gazprom has disclosed -- with the French utility Electricite de France (EDF). Under the deal, Gazprom will deliver 50 million cubic feet a day of gas to an EDF operation in Britain, and in exchange Gazprom will take possession of the same volume of EDF gas in the U.S. Simple, right?
But there's a wrinkle: EDF, hungry to secure long-term supplies, is also seeking to secure a percentage in Russia's planned South Stream, a natural gas pipeline that would bypass nettlesome Russian neighbors and carry gas directly to European customers. The U.S. and some Europeans have vigorously opposed South Stream, which they say will further cement what they regard as excessive existing Russian clout in Europe. But EDF is among those that not only approve of South Stream, but want a piece of it.
So, as others have done before it with different degrees of success -- including BP and Italy's Eni -- EDF is making nice with Gazprom. As EDF CEO John Rittenhouse told Reuters, "We are looking forward to expanding our relationship with Gazprom."