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Gazprom, the Russian state-owned natural gas giant that supplies Europe with most of its gas, has benefited from a monopoly of Russian exports which was intended to prevent competition between Russian firms pushing down the price of natural gas.
Natural gas prices are now falling on their own due to an abundance of LNG and a weak European economy. On top of that it seems as if the Kremlin may be allowing some form of competition to enter the market.
Energie Baden-Württemberg (EnBW), the third-largest electric utility in Germany, has signed an agreement with an unnamed Russian energy company for the supply of 2 billion cubic meters of natural gas, worth about €600 billion over the next 10 years.
Stock traders quickly identified that Novatek, Russia’s second largest natural gas company, will supply the gas, with Gazprom operating as the middleman to ship the fuel. Bank of America Merrill Lynch in Moscow advised their clients to invest in Novatek due to the indications that Gazprom’s monopoly is slipping. Shares in Novatek have increased by 8% already.
It is unknown exactly why the Kremlin is allowing another company to export gas to Europe. Experts suggest it may be an acknowledgement that Gazprom is not adjusting well enough to the changing global gas industry, or just to acknowledge the competition that Novatek offers to Gazprom in Russian energy politics.
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com