How Gazprom's $1 trillion dream has fallen apart

Fri Jun 28, 2013 4:34pm EDT
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By Vladimir Soldatkin

MOSCOW (Reuters) - Zoya Danilina, who owns some 700 shares in Gazprom (GAZP.MM: Quote), says investors don't have to look far to understand that Russia's most powerful company has lost its way.

Danilina remembers when her shares were worth over 300 roubles each. Now they fetch about 100 roubles.

"There have been much better days, when tables were served with black and red caviar," she said on the sidelines of Gazprom's annual general meeting in Moscow on Friday, looking at a plate of boiled buckwheat, a popular staple food in Russia.

In the caviar era, Gazprom head Alexei Miller, a close ally of President Vladimir Putin, was overseeing a company with the world's third-largest market value at $360 billion. In 2007, he promised to boost it to $1 trillion.

Fast forward several years and Gazprom, still the world's largest gas producer and holder of 15 percent of global gas reserves, is worth $77 billion and could fall further as it faces a series of setbacks.

The biggest blow came from a shale gas revolution that has unlocked vast reserves in the United States.

U.S. prices have crashed, closing America as a prospective market for Gazprom, diverting cheaper liquefied natural gas (LNG) cargoes not needed in the United States to Europe, undermining Gazprom's position in its core market.

Europe, tied to Gazprom by a Soviet-built pipeline network, has balked at its contracts that tie gas prices to more expensive oil.   Continued...

The company logo of Russian natural gas producer Gazprom is seen on an advertisement in front of the White House in Moscow February 8, 2013. REUTERS/Maxim Shemetov