This CASE Network e-brief analyses Gazprom’s current position after the company notoriously turned off the spigot to twenty European countries for two weeks in January 2009 and thus truly established its reputation as an unreliable supplier to its European clients. The author discusses Gazprom’s present management problems:
the company is expected to suffer a multibillion-dollar loss this year
with its unwieldy bureaucracy, Gazprom can only produce from giant fields, leaving most secondary and tertiary fields undeveloped
Gazprom lacks a comparative advantage in the transportation of gas
Gazprom procures at incomparably excessive prices
According to the e-brief, Gazprom’s only comparative advantage is its control of one-quarter of the world’s gas reserves, which in fact do not belong to the company. Therefore, in author’s view its only true strength is government protection.
In current situation an improved governance of Gazprom is argued to be in Russia’s national interests. Thus, Gazprom’s shareholders and the European Union should come together and reform both the European and Russian gas sectors. The Europeans should take up President Dmitry Medvedev’s recent proposal for a new legal framework on energy cooperation.