Date of review: September 2020 Book author: Thane Gustafson Вook published: 2020
The Bridge: Natural Gas in a Redivided Europe by Thane Gustafson (2020)
I have met Thane a few times both in Russia and the US. Thane knows Russia remarkably well as he speaks Russian and has visited the country numerous times.
Russian gas and relationship with Europe
I found his first book ('The Wheel of Fortune') captivating from the first sentence, so I immediately bought his second book which is on Russian gas and relationship with Europe.
The book covers many interesting topics and is full of historic details that I think are helpful to understand the future of the gas market. I particularly enjoyed reading the historic background on development of various gas market models in Netherlands, Norway and Russia, of course, as well as review of alternative power sources including nuclear especially in France and Germany. Surprisingly (at least to me) with both France and Germany initially being keen to develop nuclear, Germany failed to achieve much progress and retreated under the pressure from public protests, while France pushed through and succeeded.
A few key points that I picked up from the book are as follows:
Global gas and European gas markets are firmly moving to open market based pricing models and Gazprom has been quite flexible to adjust to the new reality, although did not embrace it initially.
Pipeline gas will keep losing competitiveness in a more competitive market, while flexible LNG flow can gain competitiveness.
Buyers will keep transferring pricing and volume risks to Sellers. I don't fully agree with that but clearly I cannot see the reverse happening. If this were indeed to happen, then the only option for Gazprom to stay competitive would be to focus on cost optimisation.
Putin is much more involved in the gas industry and Gazprom in particular than in most other sectors of the Russian economy. Miller, the CEO of Gazprom, has been always loyal to Putin, but in addition to that he has been quite hard working and preferred to get into details of various issues, leaving purely engineering decisions to professionals.
Russia is very focused on developing LNG as a more flexible source of gas, although some projects proposed by Putin (like Vladivostok LNG) Gazprom managed to push back.
The book does not give a definitive answer as to whether Gazprom would eventually be broken up or would remain in the current shape combining regulatory (like transportation) and competitive businesses (like production of gas) under one umbrella.
Gustafson talks about two major groups within Gazprom - the one focused on production ('engineers') and the other one in charge of exports which used to be the main source of profits ('bankers and dimplomats'). It looks like both groups are starting to work closer with each other, but one important group seems to be missing - financial professionals. I am not sure if the appointment of a new CFO, Famil Sadygov, who replaced previous CFO, Andrey Kruglov (who remained in office for almost 20 years) is a sign that things are changing, but it is an important development, in my view.
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