Dividends and Russia tightens squeeze on Europe as it cuts gas supplies

In an ideal world you would also have some choice or alternatives for your suppliers. Most of us are loyal or habit forming and we go to the same gas station, the same insurance company and the list goes on. This is not bad, it is we feel a sense of loyalty to the company, even though the company likely does not feel the same way, but we have a sense of loyalty. For countries, they have the same aspect of loyalty and with that sense of loyalty infrastructure builds up and once it builds up, it is hard to change.

If you use the example of Europe, there are very good reasons why Europe imports gas from Russia as it is one of the biggest producers of gas in the world. Even though Russia has its own methods of doing business, if Russia commits to something the government backs the business. The Russia gas company is called Gazprom and it has pipelines across Russia to bring the gas to the markets in Europe and China. The company operates the same as American gas pipelines without the objections to building where they wish to build.

When Russia decided to invade Ukraine, the west including Europe imposed sanctions on Russia and Russia thought they could live with it, but every once in a while Russia likes to flex its muscles. Typically in the middle of the summer, normal maintenance goes on with pipelines, it is expected because of lower demand. In an article by Reuters, in late July Russia has cut capacity to 20% of gas flows. As much as a country would like, it is very hard to import gas from other countries because of the infrastructure which is built. The gas needs to go through a pipeline to a refinery to be processed and then sent along the way. For Gazprom, the refinery is run by Gazprom – the German companies are the distributors. Germany receives 40% of its gas from Russia, Italy receives more.

The Germany Department of Energy sees no technical reason why the latest reduction has happened or it is political. Russia wants Europe to ease up on its sanctions.

Linking to dividend paying stocks, for large profitable companies they can act similar to Gazprom and Russia but they generally do not need to. The only time they tend to do it when their profitability is at stake. If the management at your company is tending to act like the Russia government, it is time to find alternatives.

There are more questions than answers, till the next time – to raising questions.


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