Gazprom: integrating vertically by expanding its power generation portfolio

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6 July 2011, Gas, Electricity, Nuclear, Solar, Wind

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After explicitly stating that its strategic aim is to become a global energy company covering the whole value chain, Gazprom is working with banks to investigate the opportunities for developing power plants in Europe. The countries initially identified as offering the greatest potential are Germany and the UK, while Turkey has also been mentioned. Gazprom hopes to produce a list of specific projects for consideration by the end of 2011.

Against the backdrop of Europe's estimated E1tn investment challenge, any company considering building new generating assets should in theory be welcomed with open arms. Moreover, given the recent policy changes away from nuclear power in Germany, Italy, and Switzerland, natural gas is seen as the ideal stopgap, not only because of its relative cost effectiveness against other sources of energy, but also because of its ability to balance growing amounts of intermittent renewable capacities.

More concerning for European regulators, however, is Gazprom's desire to extend its reach across the value chain, which is backed up by its enormous resources of natural gas in Russia. Operating gas-powered plants would allow Gazprom to act as a direct customer in the West for its natural gas supplies. Politicians aiming to reduce Europe's dependence on Russia by supporting non-Russian gas pipeline developments to the Middle East, such as Nabucco, may perceive Gazprom's move as irritating.

Gazprom believes that the average margins for power generation in Europe would be very attractive, and its plans therefore appear to follow a prudent strategy. The key for regulators is accepting the need for new gas power assets while upholding the goal of liberalizing Europe's energy market. Gazprom's decision is unlikely to be the last difficult challenge for Europe's energy ministers. The earlier they find ways of accommodating the divergent demands, the better for Europe's consumers.

Source: Datamonitor

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