Gas Monopoly Fuels, Finances Moscow's Might

The first in a three-part series

More In The Series

Gazprom, Russia's giant gas monopoly, is the world's largest producer of natural gas. The company lies at the center of the Kremlin's strategy to boost control over global energy supplies, and, many believe, its political influence. Read more about the series.

The inhospitable land of the Siberian Yamal-Nenets region is the source of much of Russia's wealth. i i

hide captionThe inhospitable land of the Siberian Yamal-Nenets region is the source of much of Russia's wealth.

Gregory Feifer/NPR
The inhospitable land of the Siberian Yamal-Nenets region is the source of much of Russia's wealth.

The inhospitable land of the Siberian Yamal-Nenets region is the source of much of Russia's wealth.

Gregory Feifer/NPR
Gazprom's Vyngayakhta gas production facility i i

hide captionGazprom's Vyngayakhta gas production facility, located in Yamal-Nenets, was built five years ago and is one of the company's most modern plants.

Gregory Feifer/NPR
Gazprom's Vyngayakhta gas production facility

Gazprom's Vyngayakhta gas production facility, located in Yamal-Nenets, was built five years ago and is one of the company's most modern plants.

Gregory Feifer/NPR
Gas flowing out of the ground nearby comes to Vyngayakhta for processing before being pumped into pi i i

hide captionGas flowing out of the ground nearby comes to Vyngayakhta for processing before being pumped into pipelines heading west to Europe.

Gregory Feifer/NPR
Gas flowing out of the ground nearby comes to Vyngayakhta for processing before being pumped into pi

Gas flowing out of the ground nearby comes to Vyngayakhta for processing before being pumped into pipelines heading west to Europe.

Gregory Feifer/NPR
Artur Kolomiets, head engineer of Gazprom's Vyngayakhta gas production facility in the Siberian re i i

hide captionArtur Kolomiets, head engineer at Vyngayakhta, says the global financial crisis won't affect the company's plans. He disagrees with experts who say Gazprom is not spending enough on production and exploration.

Gregory Feifer/NPR
Artur Kolomiets, head engineer of Gazprom's Vyngayakhta gas production facility in the Siberian re

Artur Kolomiets, head engineer at Vyngayakhta, says the global financial crisis won't affect the company's plans. He disagrees with experts who say Gazprom is not spending enough on production and exploration.

Gregory Feifer/NPR
Russian President Dmitry Medvedev i i

hide captionRussian President Dmitry Medvedev, shown here in December 2008, was once chairman of Gazprom.

Natalia Kolesnikova/AFP/Getty Images
Russian President Dmitry Medvedev

Russian President Dmitry Medvedev, shown here in December 2008, was once chairman of Gazprom.

Natalia Kolesnikova/AFP/Getty Images

More than 1,000 miles east of Moscow lies an endless landscape of stunted trees and snow. It's so isolated here in western Siberia, locals consider a three-day drive to be a short trip. Temperatures often reach minus 60 degrees Fahrenheit.

This land may be inhospitable, but it's the source of much of Russia's new wealth. The Yamal-Nenets region holds the biggest gas fields belonging to state-controlled Gazprom, the world's largest producer of natural gas.

'Gazprom Is Russia'

Outside a Gazprom processing plant seemingly in the middle of nowhere, workers bundled against the cold cut through a pipe, sending sparks flying. Inside, large turbines pump the Siberian gas into pipelines that stretch thousands of miles to Western Europe. This region produces 20 percent of the world's entire output of natural gas.

Head engineer Artur Kolomiets is a youthful-looking former naval officer from St. Petersburg whose expertise with turbines got him a job at Gazprom in the lean 1990s. He says most workers who spend weeklong shifts at the plant have to take serious precautions.

"They have all sorts of protective clothes and equipment," he says. "But when it's minus 70 degrees outside and the air seems heavy, the biggest pressure is psychological."

Workers' privations include life away from their families in dormitories where no alcohol is allowed. Still, jobs here are coveted. Gazprom is among the few employers in the region, and wages are relatively high. But electrician Sergei Kompaniets, who grew up here, says there's another reason he's proud of his job.

"Gazprom is a world leader; the entire country depends on us," he says. "Gazprom is Russia."

Pillar Of Kremlin Inc.

Gazprom used to be the world's third-biggest company — before the global financial crisis cut its share value by about 75 percent. A predicted drop in gas prices next year will deal another blow to the company's finances.

Even so, thanks to long-term supply contracts, Gazprom still pumps billions of dollars into the government's budget, and it's the main pillar of what's called Kremlin Inc.

Gazprom's headquarters — located 1,400 miles away from Yamal-Nenets in Moscow — is housed in a towering, glass-paneled skyscraper. The monolith is surrounded by a high fence, where a gate occasionally opens to allow black-windowed limousines to emerge. More than just a gas supplier, Gazprom is also a bank, an oil firm and a media company that helps enforce the government's control over formerly independent television stations and newspapers.

Gazprom also has snatched away major energy projects from Western companies such as Shell and BP. BP's deputy board Chairman, former NATO Secretary-General Lord George Robertson, says Gazprom could do that because in Russia, energy is power.

"There is little doubt that having it in the hands of one company has given that company very considerable influence both in Russia and in the wider world," he says.

Putin, Politics And Gazprom

Gazprom was originally created from the old Soviet Gas Ministry by former Prime Minister Victor Chernomyrdin, who became a billionaire almost overnight. The new company was a bloated dinosaur, run like an independent ministate.

After Vladimir Putin came to power, he put the company under Kremlin control by appointing loyalists from his hometown of St. Petersburg to key positions. One of them, Dmitry Medvedev, was chairman. He is now the president of Russia.

Putin based his doctoral thesis on the argument that Russia should use its energy industry to promote the state's interests. But energy expert Konstantin Simonov says that in Russia, political leaders treat state assets like their personal property.

"Putin thinks about Gazprom like it's his company," he says. "And that's why we can say that of course Putin is No. 1 in Gazprom."

Putin's supporters dispute the widely held belief that Russia's former president, now prime minister, calls the shots at Gazprom. His former energy minister, Victor Khristenko, insists Gazprom is no different from any Western energy company. "It's not a state company. It's a private company in which the state just happens to have a controlling stake."

But Simonov, the energy expert, says Gazprom is run in the interests not of Russia or even the company itself but of Putin and his clique. Experts say the company's profits are controlled — and many believe siphoned off — by shady Kremlin-connected financial and trading structures that perpetuate massive inefficiency.

There are also concerns about where Gazprom is going to find the gas to fill its foreign contracts. Gazprom says it will make $24 billion in capital investments next year. But some energy experts believe Gazprom is spending too little on maintaining production and exploring new gas fields. Gazprom already is buying cheap gas from Central Asia to make up shortfalls in domestic production and may soon have to cut back on supplies to Russian consumers.

Expanding Its Global Reach

Back in Yamal-Nenets, inside the modest offices of Gazprom subsidiary Noyabrskgasdobycha, Deputy Director Anatoly Sorokin admits production next year will decline but says he is not concerned.

"We're investing enough to maintain production," he says. "And anyway, does anyone in the world have enough resources to spend as he wishes?"

Despite its supply and financial problems, Gazprom isn't scrimping on expanding its network abroad. The company has appealed for government aid even as it goes ahead with plans to spend tens of billions to build two new pipelines to Europe.

And Gazprom is looking elsewhere for gas, including Africa. The company wants to build a pipeline from Libya to Europe. That would deepen foreign dependence on Russian energy, and make Gazprom even more powerful.

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