Gazprom Slow to Adapt and Unable to Influence

Highlights:• Changing market realities in natural gas engender significant challenges for Gazprom in both Europe and Russia alike. The trend consists in a growing number of suppliers domestically, with a boost of independent gas production, and internationally, with a more liquid gas and LNG trade.• Transition towards a new market model in the EU affects existing pricing mechanisms and contracts. For the Russian gas export monopolist a separation between pipeline capacity and commodity markets also generates risks of capacity-supply mismatch and constitutes barriers to new pipeline projects.• In Russia itself, Gazprom faces competition from fast-evolving gas producers such as Rosneft and Novatek. The two companies are striving for the gas export de-monopolisation, which already occurred for Russia's LNG.• Current low price context reverts the situation in Gazprom's favour. In particular, Gazprom's production competitiveness improves, oil-indexation regains a rationale, while natural gas demand growth rates somewhat restarted, whereas domestic competitors experience severe difficulties.• However, main political barriers, conflicts surrounding Ukraine and diversification strategies subsist. A more positive market context stems from exogenous factors rather than from Gazprom's own strategies.• It may become essential to use the positive market