Gazprom Has Handed the European Gas Market to the Russians

If you're wearing cruelty-free, opened-toed sandals with fair-trade socks then stop reading now and have a nice cup of organic camomile tea. You might not like what I am going to say.

Gazprom (LON: GAZP) plans to be the largest company in the entire world within 10 years - and it has the political backing behind it to make this achievable.

However, it is majority-owned by the Russian state that has been using it as a political tool. The company has also conspired with the Kremlin - pursuing an asset grab that would have sent the murderous Stalin to bed with a warm, fuzzy glow. The company has also just shafted BP.

Vladimir Putin and Gazprom are closely linked. There have even been rumours that he will sit at the helm of the energy giant once he leaves office, but this is merely a rumour.

I'd like to explain a little history to explain why the stupidity of European governments has allowed a country run by criminals, loony ex- Communists, alcoholics and psychotics to have such a hold over us - it's all down to the rejection of nuclear power, as promoted by the sandal wearers.

The political movement to ensure that nuclear power could not be on the agenda in Europe led to a massive increase in the use of coal. This action thus caused a significant amount of pollution - so the tofu munchers decried coal and insisted on a cleaner fuel. But not nuclear, oh no. So, the focus of electricity generation moved to gas.

It's not just ex-gulags that are abundant in Siberia - gas is abundant too. This decision to ignore nuclear by most of Europe except France has handed the Russians a gilt-edged future. Well, the Russian oligarchs that have all the power and money, that is.

The power brokers of Russia are not daft. They have seen this advantage for a long time and have been making moves to secure their power. Russia wants to become Europe's principal gas supplier and it will use any tactic that it can. And, little by little, it has.

The power of the Greens in Germany opposing nuclear power and ex-prime minster Tony Blair's inability to convince the Labour Party to back nuclear power has handed all the cards to Russia and Vladimir Putin. Europe's energy future is at the mercy of this ramshackle and corrupt country.

We can't change that fact, so we might as well go along for the ride. The only people who have been forward- looking are the French of all people; they generate around 80% of their electricity from nuclear power.

Already the former communist-infected countries of Belarus, Georgia, Poland and Ukraine have had their gas supplies cut by Putin.

While in office Putin also crushed Yukos - Russia's largest oil company.

Its head, Mikhail Khodorkovsky, was accused of tax evasion and, in typical Stalinist style, he was locked up in Siberia. Yukos was then broken up and seized by the state-controlled entities. It also looks like the same thing could be happening to Rosneft.

At the same time, Western companies have been driven out of the country to a massive extent. The TNK-BP/Gazprom saga has been rumbling on - but, surprise, surprise - it looks like the Russians have won this battle.

Recently it was announced that OAO Gazprom would take control of BP's stake in the Kovykta gas field. This field is said to have enough natural gas to supply all Asia's needs for five years. Gazprom will pay between $700-$900 million for the 63% of the Kovykta field held by BP's TNK-BP unit and half its regional pipeline unit. Immediately following the sale Roland Nash, the Head of Research at Renaissance Capital investment bank in Moscow said: "All global hydrocarbon companies are in the process of renegotiating their positions in Russia, and the government holds all the trumps." I feel confident that this particular asset grab is essential for the company's plan to be a major supplier to China.

It's not only BP that is suffering; other deals negotiated before Putin came to power have been interfered with. Last year, after allegations that Shell had broken environmental licences at its Sakhalin-2 gas field, Gazprom took control of the project.

The next attempt to freeze out foreigners is affecting ExxonMobil (NYSE: XOM). Gazprom wants to halt an Exxon-led project from supplying China. It wants it all for itself. And, you know what, it'll probably get it.

Oh, and have you ever heard of Baumgarten an der March? No, well it's in Austria. It's the largest natural gas hub in Europe - and Gazprom has bought it. Quietly.

So, it looks like the European gas market - and therefore the power generation market - has been sewn up by dubious Russians...and we have just sat around and let them. We are idiots. This situation will not change until European states build nuclear power stations and, with pressure from the green lobby building, that appears to be a long way off.

I consider the business practices of Gazprom thoroughly unethical and bordering on the criminal. The company has European governments over a barrel and it will exploit this to the max. It's all very distasteful, but of course it will make some stunning profits.

Regards,

Garry White
For The Daily Reckoning Australia

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