Gazprom, the natural gas company controlled by the Russian state, is in crisis. It is likely to fall victim to the shale gas revolution that is under way across the US. The shale gas revolution will probably have telling consequences for Russian state capitalism and President Vladimir Putin’s power.
This crisis erupted suddenly. With its surge in shale gas production the US has become self-sufficient in natural gas. It has overtaken Russia as the biggest natural gas producer. Crucially, US natural gas is cheap. Domestic US natural gas prices are only a quarter of Gazprom’s oil-linked eastern European prices. Such large price differentials cannot possibly last for long.
Many countries had prepared to produce liquefied natural gas for export to the US. Now these large volumes of LNG are being diverted to Europe, where spot prices have fallen to half of Gazprom’s prices. In Germany, Gazprom has been forced to accept large price cuts, but it insists on maintaining high contracted prices in eastern Europe, although oil and gas prices have delinked on the market.