FYI: Gazprom has been in the news a great deal lately. What is it?

PUBLISHED : Sunday, 11 February, 2007, 12:00am
UPDATED : Sunday, 11 February, 2007, 12:00am

No, not a high-school dance in Texas; that would be Oilprom. Rather, it's the world's biggest extractor of natural gas, part-owned by the Kremlin and now very much part of Russia's foreign-policy muscle. Increasingly influential and well known, possibly for all the wrong reasons, Gazprom to many translates into English as 'mess with Russia and we'll send the Gazprom boys round to crank off your energy supplies'.

The state-controlled energy giant, which holds the third-largest reserves of oil and oil-equivalent in gas, behind Saudi Arabia and Iran, seems to be a bully, picking on those who cross the Kremlin. Neighbours and former Soviet republics Ukraine and Belarus have both fallen foul of the company after challenging their political subordination to the Kremlin. For their efforts, their pipelines were turned off midwinter, albeit briefly.

Such strong-arm tactics have unnerved Western Europe, which relies on Gazprom gas, pumped mostly through these states. Germany relies on Gazprom for 36 per cent of its gas needs, with former Eastern Bloc satellites such as Slovakia and Poland up to 90 per cent dependent. European Union nations get a quarter of their gas from the company.

As a result of the Belarus and Ukraine disputes, and their impact on its pipelines, the EU is trying to devise a central energy policy and diversify its sources of gas and oil. Unless the EU and other political entities switch to alternative, hopefully more renewable, energy sources, that will prove problematic. Gazprom's power is awesome. It boasts 93 per cent of Russia's gas reserves (16 per cent of the world's supply), giving the firm in April 2006 an estimated market capitalisation of US$270 billion, the world's third-largest corporation in such terms. After some allegedly semi-legal political manoeuvres involving the jailing of oil tycoons, demanding of back taxes and repurchasing of privatised shares, the Kremlin owns 51 per cent.

Russia and Gazprom aren't flexing their newly developed muscles only against states. Recently, Shell was forced to sell half its US$20 billion Sakhalin-2 gasfields project after the Kremlin refused it a licence, accusing the multinational of breaching environmental law. This was bizarre considering Russia's environmental record. (Have you visited a Russian oil and gas town?)

Those fuming at Russia's newfound energy power should consider this. In the 1990s, the Soviet Union went through a meltdown, suffering a political death and an economic depression on a par with that of 1930s America. Public assets, not least the energy rights, were sold off cheaply, often in highly dubious and shady deals. Resentment grew in line with commodity prices - people who live on a goldmine like sharing in its wealth - and it was only a matter of time before private and foreign energy monopolies became public and domestic monopolies. Gazprom, while making huge profits abroad, makes huge losses at home, subsidising domestic demand.

Perhaps an even odder aspect of Gazprom is its diversification. It doesn't dominate only gas and oil production and sales. It owns media companies and has stakes in other industries. Predictably, whenever it takes over, say, independent TV stations, such as NTV, or the widely bought newspaper Izvestia, editorial policies become far less critical of the Kremlin.

Founded in 1992, Gazprom may be the great Russian cash cow, which the Kremlin nurtures for its milk (it accounts for 25 per cent of all Russian tax receipts), but it is far from docile. Mess with Mother Russia and Gazprom may leave you out in the cold, literally.