Gazprom's Delays Cast Doubt on Putin's Goals

Just last year, Vladimir Putin boldly declared that Russia would expand its energy industry to become a global supplier of natural gas. Now the Prime Minister's ability to deliver on this plan is in doubt, as state-controlled Gazprom has hit a series of delays. In the meantime, ventures in Australia have won contracts from China and a glut of U.S. gas from shale is undercutting prices.

Two main factors have caused Gazprom to postpone export projects: First, Russian politicians have had trouble reaching consensus on how much gas the company should keep at home. The global economic downturn also has reduced overall energy demand, making the economics of gas development less attractive for the Russians.

The resulting uncertainty has caused the Russian energy conglomerate to put off investment decisions for a number of liquefied natural gas (LNG) projects, such as its Arctic Shtokman field. For similar reasons, the company has failed to make a call on whether to expand the $22 billion Sakhalin-2 project, Russia's first LNG plant, which started up last year just north of Japan.

While Gazprom tarries, ExxonMobil (XOM) and other rivals are locking up long-term gas deals with PetroChina (PTR), China's largest energy company. For Gazprom, it may already be too late to become a truly global player, says Mikhail Korchemkin, managing director at the consultancy East European Gas Analysis. "Gazprom should rather worry about keeping its share in the European market," he says.

Closer to home, Gazprom remains formidable. The world's single biggest gas producer, it supplies about a quarter of Europe's gas needs. Even there, it has lost market share to companies based in Norway and Qatar. Gazprom shares have fallen 9 percent this year, compared with an 8 percent decline in the Bloomberg Europe Gas Index.

Russia has said that it aims to capture 25 percent of the world LNG market by developing gas fields at Sakhalin-2, Shtokman, and the Yamal Peninsula in Siberia. But Keith Bainbridge, a partner at RS Platou, a shipping broker and investment bank in London, says: "There's no chance of Gazprom getting 25 percent of the world LNG market. LNG is now a global business." Bainbridge suggests that Gazprom would be better off considering a purchase of an Australian gas project, Total's (TOT) stake in a Yemen venture, or maybe bid for BP's (BP) Tangguh LNG plant in Indonesia.

Moscow-based Gazprom said in an e-mailed response to questions that it plans to participate in LNG projects in the Middle East, Africa, and Latin America. The company did not give details.

"Gazprom has ambitions, but competition and demand dynamics may have a significant impact on plans for presence in the U.S., the share of the European market, and LNG sales," says Valery Nesterov, an analyst at Troika Dialog in Moscow. Russian LNG shipments to the U.S. are planned for 2016 at the earliest, pushed back from an earlier target of 2013. Overall, delays in LNG projects may cost Gazprom as much as $12 billion a year in missed sales, Nesterov estimates.

Gazprom remains upbeat. New LNG demand from importers such as Singapore, it said, will mean that there will be "enough room for everyone."

The bottom line: Gazprom has delayed decisions about LNG projects, and its rivals are gobbling up market share in natural gas.

    Before it's here, it's on the Bloomberg Terminal.