Threats to Russian gas exports

Gazprom’s sales to Europe have been relatively stagnant, and indeed declined sharply in 2014 for the following reasons.

Demand decline

Overall European gas consumption fell from 577bcm in 2008 to 528bcm in 2013 and below 500bcm in 2014. Most forecasters do not see demand recovering to 2008 levels before the mid2020s at the earliest.

Geopolitical problems in Ukraine

Russia’s geopolitical problems in Ukraine have undermined European confidence in Russia as a secure source of gas supply. The interruptions in transit through Ukraine in 2006 and 2009 raised questions about the need for the EU to reduce its perceived dependence on Russian gas, and these concerns have been amplified since the annexation of Crimea in February 2014.

The Third Energy Package

The EU introduced legislation such as the Third Energy Package to liberalize the gas market and to make it more difficult for Gazprom to dominate by controlling infrastructure or by monopolizing individual markets. The EU has started proceedings against Gazprom, alleging unfair practices and pricing.

Threats of new supply sources

The threat of new sources of supply has started to emerge, the most notable example being the planned arrival of 10 bcm of Azeri gas via the TANAP and TAP pipelines from the end of this decade.

Arrival of US LNG

US LNG imports arrived at Henry Hub-linked prices in 2016.

Declining sales in Russia and the former Soviet Union

Pressure on Gazprom sales to Europe has been exacerbated over the past 5 years by declines in the company’s sales to Russia and the FSU. Gazprom has faced increasing competition from independent gas producers, especially Novatek and Rosneft.

Gas overproduction

Gazprom’s supply capacity has been increasing due to the decision, taken in the mid-2000s when it appeared that gas demand growth would be much more robust, to begin development of the giant gas fields on the Yamal peninsula in northern West Siberia.