Make no mistake, the oil and natural gas supply gluts are hurting businesses all over the world.
And Russia, though still a major player on the market, is losing ground fast.
The country’s biggest oil and gas company, Gazprom (MCX: GAZP) was once poised to be the highest-valued company on the stock markets, aiming for a $1 trillion valuation.
Instead, the company is now worth a fraction of its market value from 2008 when it announced that ambition. And it’s not just the current low markets that have knocked it down to this level.
Understand, Gazprom has held the oil and gas markets captive for decades. European and Ukranian natural gas supply is sold at a highly inflated rate, and Russia has been known to cut those supplies off if the price isn’t payed.
This kind of bullying has made several countries begin taking their business elsewhere.
For example, the Iran deal has made its oil a possible replacement for Russian oil, and upcoming liquefied natural gas supplies from the U.S. and Canada will offer parts of Europe another choice.
Another problem for Gazprom has been the weather. In recent years, mild winters have kept demand low. Now, with the onset of the oil and gas glut, there is almost too much supply to keep even that demand for the high-priced Russian commodities up.
Political problems are contributing as well. Russia’s moves against Ukraine and ongoing military presence have led to Western sanctions of Russian imports.
“It’s clear that the golden years when everyone was competing for Gazprom’s gas are over,” says Renaissance Capital energy analyst Ildar Davletshin.
Gazprom has responded with unusual compliance, changing its business model to reflect prices based on shipping and production costs rather than on customer vulnerability.
One option for the failing Russian gas giant has been to look East for other customers. One major deal with China went through last year, but that project is not expected to be online for several years.
Meanwhile, the falling Chinese economy may not be able to keep up the demand the company needs.
Russia may still have the oil and gas supplies, but without major changes, demand for it will continue to dwindle.
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Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
