Gazprom problems

The decline of Russia's biggest company, as told in 6 GIFs

Gazprom is the largest company in Russia, its biggest exporter, and the taxpayer on whom a great deal of the federal government’s budget depends. In the early 2000s, Gazprom forecasted that demand for its products would grow both in Russia and abroad, and so it actively invested resources in increasing its production capacity and building new pipelines. Alas, the forecast turned out to be a bit off. In the most articulate language known to modern science (GIFs), Meduza explains what happened.

1) Before the 2008 financial crisis, Gazprom issued positively fantastical economic forecasts: by 2015, the company expected its capitalization to reach a trillion dollars (even Apple isn’t worth that much today—and Gazprom is valued at 20 times less). It seemed that neither Europe nor the rest of the world could live without Russian gas, and the price of oil (and gas, too, as they’re linked inextricably) would rise forever—right up to $250 a barrel (it’s a little more than $50 now).

2) Things didn’t turn out as planned. The 2008 recession reduced global demand for gas. There was a “shale revolution” in the United States. Europe actively began shifting to alternative sources of energy. Gazprom’s relationship with Ukraine, one of its biggest clients, started breaking down. And then Russia’s relationship with the rest of Europe started falling apart, and the continent began looking ever harder for alternatives to Russian gas. Finally, inside Russia, “independent” gas producers began challenging Gazprom’s monopoly. (The word “independent” goes in quotation marks because, among this group, there are companies like state-owned Rosneft.)

3) Gazprom had to revise its plans: it froze the development of new extraction fields, canceled the construction of new gas pipelines, and started using at below capacity the new ones it already built. The newspaper Vedomosti estimates that Gazprom may have spent 2.4 trillion rubles ($40.2 billion) on unnecessary projects. This isn’t just a lot of money—it’s one-sixth of all the money the Russian federal government spends in a year. Today, Gazprom can produce at least 30 percent more gas than before 2008, but it’s not doing it, because it’s got nowhere to send it.

4) In order to maintain its position, Gazprom has started turning on some of its own clients, namely Turkmenistan. As a result, the Central Asian nations are gradually changing from partners into competitors.

5) Gazprom is still convinced that demand will rebound and prices will again sore, sooner or later—that the world cannot live without Russian gas. The “shale revolution,” so says this theory, has all the signs of a bubble. The company, not to mention the country, just needs to weather the storm.