The Russians are coming….at a very bad time

Gazprom, the Russian energy group, announced today that it had entered the US market through the trading and marketing of natural gas via Gazprom Marketing & Trading USA.

The press release was, of course, filled with the boastful tone of any expansion. Here is what Vitaly Vasiliev, chief executive officer of Gazprom Marketing and Trading in the UK, had to say:

We have now achieved our goal of bringing the world’s largest gas company into the world’s largest gas market. Our US affiliate is now off and running, and we look forward to significant growht and profitability from our expanding geographical base.

A year ago, that might not have been so badly received. US natural gas prices were at a high, profits were way up, and there was more than enough good will to go around.

Yet that a major competing nation has set up shop in the US to began expanding into its natural gas market is going to rankle the many small US natural gas companies now struggling with US natural gas prices recently falling to a 7.5-year low. These companies already have had to lay off staff, curtail drilling and put off expansions with low gas prices, tight credit markets and the poor economy.

The timing could not be worse for the Russians now come in and say they have only just begun profiting off the US market.

That does not mean is wrong. Clearly, Gazprom has found a need for its services. The company said it has acquired physical gas supplies from counterparites at designated pipeline hubs across north America by executing a number of innovative, long-term gas swap transactions that have allowed it to quickly gain a substantial physical gas supply position in north America.  John Hattenberger, president of Gazprom Marketing & Trading USA, said more:

These gas swaps have given us a strong supply foundation to build our marketing and trading operations. We have already signed deals giving us more than 350m cubic feet per day of physical supplies at several different locations all across the US, for the next three to seven years. Our goal now is to grow from that position rapidly and expand into all major north American markets.

The Russians are here to stay. The little guys may not like it. But there is not a whole lot they can do about it. Resource nationalism is, so far, confined to less equitable markets such as Russia and Venezuela.

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