Russia may become a player in North American energy markets sooner than anyone expected. According to the June 7 edition of the International Herald Tribune:
The Gazprom CEO’s bombshell comes on the heels of the recent acquisitions of steel mills by Russian steelmakers Evraz and Severstal in Oregon, Ohio and West Virginia. In 2006, Gazprom opened an office in Houston, and last year the company entered negotiations with BP to acquire a liquefied natural gas terminal on the island of Trinidad in the Carribbean. Gazprom has already shipped LNG to the U.S., and a Trinidad asset swap with BP could open the door for more LNG shipments to North America.Meanwhile, Deputy Secretary of the Treasury Robert Kimmitt, who travelled to Moscow last year to request that the Kremlin invest more of its $125 billion Stabilization Fund in the U.S., has called for more investment by Sovereign Wealth Funds in America, even as members of Congress express fears about these investments.
The fact that Gazprom is now proposing to be a major investor in a project of strategic importance for the U.S. (an Alaska/Yukon pipeline is expected to supply a large percentage of future North American natural gas consumption) may spark a heated debate in Congress about Russian investment in the U.S., particularly during an election year when American protectionist sentiment seems to be on the rise. Sen. John McCain, the Republican presidential candidate, has repeatedly called for Russia to be expelled from the G-8 group of the world’s leading economic powers. Sen. McCain’s positions on Russia may prove to be unpopular with the energy industry and other industries that stand to profit from partnerships with Russian companies.
In response to Gazprom’s aggressive acquisitions, many energy analysts will correctly point out that Gazprom has no choice but to acquire more foreign customers and assets if it wants to become the world’s largest energy company. Although recently the Kremlin has begun to liberalize Russia’s domestic gas markets, by law Gazprom remains capped on the rates it can charge Russian utilities at home, so naturally it seeks to expand its customer base through asset swaps and acquisitions abroad. This is the main reason why Russia made Ukraine, Belarus, and other former Soviet republics pay more for Russian gas in 2006 and 2007. It would have been politically unacceptable for Gazprom to ask Russians to pay more on their utility bills without first hiking prices on neighboring former Soviet republics.Today, after settling accounts with Russia’s neighbors, Gazprom is going global, consolidating its traditional markets in Europe through the Nord Stream and South Stream pipelines while expanding to China and Japan with a new pipeline to the Russian Far East. Gazprom is also seeking to develop natural gas projects in Nigeria.
Ironically, in December 2006, when the European Union proposed restrictions on Russian ownership in EU utilities, Gazprom Deputy Chairman Alexander Medvedev (no relation to President Medvedev) told reporters that, “in Europe the ghost of communism is back with all the attempts to take ownership of infrastructure and divide it. . . . I hope at least the U.S. will not go this way.” However, if Congress does act to prevent Gazprom and other foreign state-owned companies from acquiring assets in the U.S., Medvedev may have similarly sharp words for American politicians and pundits who once lectured Russia about the benefits of free markets and an open door to foreign investment.
Originally posted at Russia Blog.