Russian natural gas monopoly critical to homeland’s economy and to Europe |

Russian natural gas monopoly critical to homeland’s economy and to Europe

MOSCOW – Even in a country built on an outsized scale, OAO Gazprom stands out as a behemoth.The state-controlled natural gas supplier is Russia’s largest company and a critical element of the country’s economy. As holder of the world’s largest gas reserves and supplier of about half the gas consumed in the European Union, it can throw its weight far beyond Russia’s borders.Gazprom’s might is in the spotlight this week in a tense feud with Ukraine over prices. Gazprom wants Russia’s neighbor to quadruple the amount it pays for gas and says it will stop supplies on Jan. 1 if Ukraine doesn’t swallow the bitter pill.Ukraine depends on Gazprom for about 30 percent of its gas, but it’s not the only one worried. About 80 percent of the gas that Gazprom sells to the West goes through Ukraine, and Europeans fear that reducing the amount going into Ukraine’s pipelines could lower the amount they get at the other end.If Ukraine’s refusal to pay the new higher price results in a diminished gas flow to Europe, that could undermine Ukrainian President Viktor Yushchenko’s assiduous efforts to court the West. That, presumably would be just fine by the Kremlin, which has been cold to Yushchenko since he overcame a Moscow-backed candidate to become president this year.Gazprom and the Russian government claim the dispute isn’t political, portraying it as strictly rational economics. Ukraine was recognized by the EU as a market economy, so it should pay in line with market prices, they argue. But Russia’s commitment to market principles came into question this week when Gazprom agreed to sell gas to Belarus for just 20 percent of the price sought from Ukraine – essentially cutting Belarus a break because it hasn’t reformed its Soviet-style command economy.This isn’t the first time Gazprom has cited bottom-line finance issues as justification for actions that carry a strong political message.In 2001, Gazprom’s media subsidiary took control of NTV, Russia’s main independent television station, citing nonpayment of loans it had made to the station’s holding company. Many analysts saw the move as part of a Kremlin campaign to muzzle aggressive media.NTV had been noted for its critical reporting on the government, especially the war in Chechnya, but its reporting has softened considerably since the takeover. It has given notably lengthy attention to the dispute with Ukraine, including a long segment last week showing Gazprom officials practicing ordering a cutoff of gas to Ukraine.That footage, from Gazprom’s high-tech pipeline control rooms, reinforced Gazprom’s image of power, which the company’s statistics also demonstrate. It claims gas reserves of 28 trillion cubic meters – more than 15 percent of the world’s proven reserves. In 2004, Gazprom reported revenues of 887.2 billion rubles ($29.5 billion) and paid 363.7 billion rubles ($12 billion) in taxes – about 13 percent of Russia’s national budget for that year.Sales to Ukraine are a significant part of that wealth: at the current rate of $50 per 1,000 cubic meters, the 25 billion cubic meters that Gazprom was to sell Ukraine this year would bring in about $1.25 billion.Ukraine says it can hold out for months after Jan. 1 on reserves and other sources of gas, and if it hangs tough Gazprom could lose part of its revenue stream just as it is preparing to make its shares available to foreigners next year.But Gazprom’s wide reach may call Ukraine’s bluff. That country’s single largest gas supplier is Turkmenistan – whose gas comes through Russian pipelines. In addition, Gazprom this week said it had struck a deal with Turkmenistan to buy huge amounts of gas itself, so much that some analysts suggested Turkmenistan won’t be able to supply Ukraine.Vail, Colorado

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