All these positive factors eventually contributed to Gazprom's quick rise to the upper echelons of global company league. In terms of market capitalization, Gazprom had become the world's third largest company, as shown in a global study carried out by the respected Japanese Nomura Securities Investment Corporation. Its results were published in Tokyo in June 2008. The study showed that the total market cost of Gazprom floated shares had reached $341.8 billion by June 13, 2008. These were $8.3 billion more than in 2007, when Gazprom was only the seventh biggest in the world.Gazprom was not only the largest gas company, but it was also the most ambitious one, as announced by none other than its current CEO, Alexei Miller, to The Financial Times in June 2008.
“We have witnessed how Gazprom developed from a Russian company with limited foreign equity into a global transnational corporation with Russian roots. In the coming years, Gazprom will be not just a major company in the world, but the most influential company in the energy business and its target is to reach a market capitalization of $1 trillion.”
Well, only one year later, the picture is dramatically different: Gazprom's current value stands at $120 billion. In one year, its value has decreased by two-thirds, pushing it from the third position to the 40th in the global league of companies.
The main reason for this dramatic fall is, of course, the global economic financial crisis and the subsequent global economic recession, which affected Gazprom's production, sales and profits substantially.
In this respect, The Moscow Times has reported that Gazprom has received large blows as its production dropped by 34 percent in the first 10 days of May and exports have plummeted by 56 percent in the first quarter of 2009.
According to Gazprom Deputy Chairman Alexander Medvedev, Gazprom predicts that production levels will fall by 7 percent in 2009 to 512-523 billion cubic meters (bcm) and that income from exports will be $47 billion, a decline of at least 30 percent. Gazprom's investment program is also expected to fall around 30 percent, meaning that upgrades to aging facilities and new ambitious energy projects, including new lines will have to be revised and may be shelved.
Apart from the ongoing global economic recession, which has significantly decreased natural gas demand both domestically and in Gazprom's primary export market, Europe, there are other reasons for these grim and negative figures. The first one is to do with the natural gas crisis and ensuing standoff between Russia and Ukraine, which hindered supplies to some European countries for nearly three weeks last January, giving Europeans fresh reasons to speed up their efforts to decrease their reliance on Gazprom and to diversify other supply sources. In fact, Europe has been moving in this direction more forcefully than before, seeking other gas suppliers in many regions. It also makes use of liquefied natural gas (LNG) more than before, thereby reducing its use of Russian pipe gas. Another reason was the unprecedented warm winter in Europe. All of these reasons and the developments that they brought have reduced the need of natural gas for heating and left many countries' storage facilities reasonably full.
In the end, these developments created the current problems Gasprom faces today. Of course, while some of them could not have been foreseen, some could have been avoided, namely, the Ukrainian crises.
Now Gazprom is left to pick up the pieces, solve its problems and try to restore its former standing and position. However, one thing is almost certain: As long as the current global recession continues, Gazprom's main problems will not be easily solved, namely, sales and profits.
We shall wait and see whether Gazprom can overcome these problems.
