Key Takeaways:
- The global market share and influence of Russian energy giant Gazprom has plummeted.
- Vladimir Putin’s plan to force Europe to comply by cutting gas supply has backfired.
- Moscow hopes to convince China to increase gas imports from Russia significantly.
YEREVAN (CoinChapter.com) — Russian President Vladimir Putin’s attempted bravado against the EU is backfiring.
After threatening to freeze Europe by cutting out gas supply, he is now forced to run from pillar to post to ensure Russian multinational energy corporation Gazprom (GAZP) doesn’t become obsolete. As he has done several times since invading Ukraine last year, Putin relies again on China to compensate for the losses.
However, finding new markets for Gazprom is more than a challenge.
For years, Russia focused on supplying gas to Europe, ignoring other avenues that now prove to be a gross miscalculation. Experts often write about how the EU’s overdependence on Russia proved a huge mistake. However, the reverse is equally true.
Russia’s share in the EU market plummets
In the first quarter of 2022, Russia was the largest natural gas supplier to the EU. According to Eurostat, its share was a whopping 38.8%, with Norway trailing closely behind at 38.1%.
However, all that is a thing of the past now. As the EU joined the United States to impose heavy sanctions on Moscow, its share has plummeted.
According to the BCS World of Investments, Gazprom will likely permanently forfeit 65-75% of its previous share in the European gas market.
In the second quarter of 2022, Russia constituted approximately 23% of the total value of natural gas imports into the EU from non-EU nations.
Throughout 2022, the EU received 63 billion cubic meters of natural gas through pipelines from Russia. This is a significant decrease from the 140 billion cubic meters in the previous year. With about 40% of the EU’s total imports in 2021, Germany stood out as the EU’s largest recipient of Russian natural gas.
In 2023, the numbers have plummeted even further. According to data from Statista, Russia’s share in the EU’s gas imports via pipeline has fallen by 21%. It now amounts to just 17% of the total import against the previous 38%.
Meanwhile, its Liquified Natural Gas (LNG) share has also dropped by 5% and currently stands at 13% against the 40% from the US.
Putin relies on Xi Jinping again to get his gas out
China will host the third Belt and Road Forum for International Cooperation in Beijing from Oct. 17 to 18, 2023. Vladimir Putin has already confirmed his participation and will meet his Chinese counterpart on the sidelines of the event.
China is Moscow’s largest foreign market, and Putin will look to pull a few strings of influence to help Gazprom. The country’s energy giant relies on Putin to get back on its feet.
Lack of demand and Moscow’s inability to replace old customers with new ones have reduced production.
Gazprom announced a nearly 25% drop in natural gas production. Its output totaled just over 179 billion cubic meters between January and June this year compared to the corresponding period of last year.
Earlier this year, Russian Prime Minister Mikhail Mishustin approved the Government’s plan to build a third gas pipeline to China. Dubbed Power of Siberia 3, the project will connect the Russian town of Dalnerechensk and the Chinese town of Hulin. Gazprom and China National Petroleum Corporation (CNPC) will jointly complete the pipeline.
Battered and looking for immediate relief, Russia is doing everything to get Xi Jinping to buy more gas. However, Beijing does not share the same sense of urgency.
EU’s overdependence on Russia has been a lesson for everyone. Countries, including China, want to diversify their imports so they aren’t held hostage to global conflicts.
On the flip side, however, a new pipeline helps Xi Jinping reduce its dependence on the vulnerable seaborne LNG.
Can China bail Gazprom out?
Xi Jinping’s China, one of Putin’s last remaining strong allies, is the most viable alternative for Gazprom. However, it cannot replace Europe entirely.
Even in the best-case scenario, where all projects reach full capacity promptly, China would only account for roughly two-thirds of the volumes previously flowing to Europe.
And if Beijing extends a friendly hand, it will expect to get gas at lower prices. Moscow must also make billions in substantial investments over several years to supply its gas.
Nonetheless, Putin will look to make a lasting impression. China currently imports over 45% of its gas requirements. The Russian President will look to grab a large chunk of that.
Vladimir Putin’s gamble on Gazprom as an economic weapon has backfired. While Europe has found alternatives, China is not offering the same financial conditions. Gazprom now finds itself challenging as it adapts to shifting global energy dynamics.
In conclusion, Russia’s attempt to use Gazprom as a geopolitical tool has faced significant setbacks. The future of Gazprom’s international operations remains uncertain. The company’s fortunes have dwindled, posing challenges for both Russia and Putin.
