The Bridge by Thane Gustafson

Author:Thane Gustafson
Language: eng
Format: epub
Publisher: Harvard University Press

Managing the Initial Gas Bubble and the Cash Crisis

Over the past quarter-century the Russian gas balance has shifted twice, from surplus to shortage and then to surplus again, and this is an important clue to Gazprom’s behavior in the 1990s and afterward. In the immediate post-Soviet years there was a Russian gas bubble, caused mainly by the combination of giant legacy fields, imports from Central Asia, and a decrease in domestic consumption both in Russia and the so-called near abroad countries of the Former Soviet Union. Then, from the mid-1990s to the mid-2000s, the Russian gas surplus disappeared, as Gazprom’s legacy fields declined and gas from Central Asia vanished, while domestic consumption bottomed out and began to recover. This led to a vigorous response in the second half of the 2000s, as both Gazprom and independent gas companies began investing heavily in the next generation of gas in the Yamal region and the Yamal Peninsula (see Chapter 10). As a result, the Russian gas balance today is once again in surplus. By some Russian estimates, Gazprom alone had nearly 150 billion cubic meters a year of developed capacity available in 2017, which has been reduced to about 100 billion cubic meters per year. In short, there is again today a Russian gas bubble, although Gazprom is no longer its sole master.

But in the first half of the 1990s all that lay far in the future. As it exited from the Soviet regime, Gazprom had more gas than it knew what to do with.42 Thanks to the massive investments of the previous decade, its three main West Siberian supergiants were still at their peak, and its massive pipeline system was still relatively new. Yet domestic demand was falling as the economy went into a severe depression. By the time it hit bottom, domestic demand had dropped by just over 100 billion cubic meters per year, or 21 percent, from around 477 billion cubic meters in 1991 to a low of about 377 billion cubic meters in 1997 (as measured according to the apparent demand definition; production less net exports). That was the origin of the first gas bubble, which lasted from the early 1990s to nearly the end of the decade (see Table 9.3).

This surplus of gas generated massive amounts of rent. Despite chronic losses in the domestic market, Gazprom’s “fifth molecule”—the export molecule—was enough to make it the most profitable business in Russia. Gazprom’s managers were besieged with favor-seekers of all sorts. As Viakhirev recalled a decade later:

The contracts with the Europeans, especially the joint venture with the Germans, saved Gazprom. In Russia nobody was paying anything to anyone, or in the former Soviet Union either. But thanks to Europe, Gazprom had money. And long lines stretched out for that money: we began to pay taxes; we paid wages; and there was even something left over for capital investment. And the state was constantly ripping us off. Everybody was asking us for money—customs officials and generals, everybody. All my friends came around too, including the movie director Nikita Mikhalkov.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.