Babes-Bolyai University

Faculty of Economics and Business Administration

International Business Management

Dissertation
The effectiveness of international strategies
(Comparative analysis of the Transnational Energetic
Corporations Gazprom and Shell)

Graduate,
Alina KUCIUK

Supervisor,
Lecturer/ Associate Prof. Ovidiu BORDEAN, PhD

2019
Contents
Abbreviations………………………………………………………………………………..3
Introduction…………………………………………………………………………………4
1. CHAPTER 1. LITERATURE REVIEW ABOUT THE EVOLUTION OF
TRANSNATIONAL CORPORATES
………………………………………………………………
1.1 Transnational corporation and its features…………………………………………………9
1.2. The structures of TNCs…………………………………………………………………..14
1.3. The current trends of transnational structures in the global market………………………16
1.4 Analysis of TNCs innovative strategies…………………………………………………..19
2. CHAPTER 2. FEATURES OF THE DEVELOPMENT OF TNC “GAZPROM”..
2.1 Dynamics of Russian oil and gas TNCs …………………………………………………..24
2.2 Strategies of TNC Gazprom entering world market ………………………………………28
2.3 Effectiveness of Gazprom’s strategy………………………………………………….33
3. CHAPTER 3. CHARACTERISTICS OF ACTIVITIES OF TNC “SHELL”….
3.1. Oil’s pills and gas flaring in Europe. Today’s situation in Europe………………………..37
3.2 The strategy analysis of TNC Shell entering the European market……………………….44
4. CHAPER 4. Comparative analysis of oil companies Gazprom and Shell
4.1 Global Oil Markets: problems and future prospects……………………………………….54
4.2 Strategic analysis of the external environment…………………………………………….58
Conclusions…………………………………………………………………………………….81
Bibliography……………………………………………………………………………………82
Abreviations

BCG - Global Management Consulting

CAC- Central Asia - Center
CTI- Competitive technical Intelligence
EBITDA- earnings before interest, taxes, depreciation and amortisation
ENTSOG- European Network of Transmission System Operators of Gas
FDI- foreign direct investment
LNG- liquefied natural gas
RRDB - Research and right to Development Branch
TNEC- Transnational Energy Corporations
UNCTAD- United Nations Conference on Trade and Development

Introduction

The relevance of the topic of the dissertation is determined by the increasing role of transnational
energy corporations in the global economy, and in this case we are talking about the TNCs Shell
and Gazprom that are operating worldwide, with the main activities in the European region .
It should be noted that their economic importance and role in the fate of the European community in
the 21st century increased significantly in comparison with the 20th century, due to the fact that the
world economic processes are entwined with the Europe political ones.
Undoubtedly, the globalization process as the main trend of human development in the new
millennium became an economic dominant of the world development, and paved the way for new
actors on the world stage —Transnational Energy Corporations (TNEC). Thus, the global energy
market started to be dominated by two of the world largest companies Shell and Gazprom, which
jointly control more than 50% of the natural gas market.
Many events on the international arena are connected with the activities of these two TNCs, that’s
why the analysis of their activities and their development strategies are of special research interest
to us. It should be bear in mind that Shell and Gazprom actively are participating in a global
competition and in world politics at the level of continents (in this case Europe), affecting in this
way the national budgets of countries and the interstate relations between them. They have become
a structural and integral part of the transnational environment of world politics, world capital and
world geopolitical actors.
In general, Shell and Gazprom are a fairly complex and constantly evolving phenomenon in the
system of world economy and world energy relations, requiring a greater attention to the study and
the analysis, as transnational energy corporations are increasingly becoming a significant factor in
the fate of a country or group of countries, and in the international system of economic, political,
environmental ,technological and social ties.

The scientific and practical interest in exploring the role and the development strategy of Shell and
Gazprom is firstly due to the survey of this companies international strategies on the global market
(their methods), and secondly due to the increasing importance of the integration processes that are
taking place in the European area (resource, economic and geopolitical reasons).
In this regard, a study of the role and development strategy of these TNECs in the modern system
of international economic relations is essential for understanding the current global trends in the
European energy field.

The degree of the studied topic. Transnational energy corporations are studied by researchers in
terms of their role and influence on international economic relations. The bibliography of research
on this subject includes thousands of titles. However, a research related to the development
strategies of the TNECs as actors of world economic policy are touched upon in a smaller number
of works, indirectly and fragmentary. So far, not a single special work has been published that
comprehensively studies these problems.
The beginning of a broad study of TNECs comes in the 90s. in the works of : Belous T.Ya., Vlasov
G.N., Ivanova I.D., Korneeva L.А., Levina V.N.,etc.
In the foreign literature published in contrast to the Russian publications, along with critical views,
is allocated a constructive role of TNEK of improving the efficiency of the economy and political
stability of states. In this regard, we can highlight the works of: Mirow K. and Mauer G, Corvin D.
Edwards, Negadhi AR, Fishwick R. Newfarmer R., Stopford DM, Danin K. O Richard I. Caves,
Dalmont E.L., Savary D., Germain M. and others.
During the last years, methodological and theoretical approaches to the study of TNCs intensified,
when can find them in the works of:Z. Bauman, Z. Brzezinski S. Wallerstein, J. Galbraith, A
Giddens, W. Grant, P. Drucker, R. Keohane, D. Nye, F. Nuscheler, D. Messner , D. Modelski, K.
Omai, D. Rosenau, S. Sassena, S. Strange, S. Huntington, G. Fisher, R. Folk, F. Fukuyama, E.
Epstein, M. Yusim, Bogaturova, I.G. Vladimirova, M.G. Delyagina, B.JI. Inozemtsev,
T.M Isachenko, M.M. Lebedeva, A.M. Liebman.

The object of the research is the activity and the development strategy of Shell and Gazprom, due
to their active participation in the formation of the transnational environment of the world economy.

The subject of the research is a comparative analysis of the international strategies used by of
TNCs Shell and Gazprom , also the political and economical activities of TNCs in the international
energy relations.

The purpose of the study was to determine the cause-effect relationships of the development and
internationalisation of Shell and Gazprom as being the main influential actors of the world
economy. In accordance with this goal, the following scientific tasks are defined:
1. To study the concept of a transnational corporation and the prerequisites for its occurrence;
2. To consider the features of the development of transnational corporations on the example of
Gazprom and Shell strategies;
4.To explore the specifics of the political and economical activities of Russian and Holland TNCs
in modern international energy relations
5. To analyse the formation and the development of TNEK Shell and Gazprom strategies as actors
of the world economy;
6. To reveal the characteristics and features of modern processes of transnationalization in the
context of globalisation, to show their trends and prospects;
7. To analyse the objective reasons, driving motives of the formation and the stages of
transnationalization of Gazprom and Shell;
8. To reveal the main problems that Russian international companies face in the foreign investment
markets;
9. To identify the role of the state in the formation and development of Gazprom and Shell;
10. To formulate recommendations for the development of a strategy for the transnationalization of
the Gazprom and Shell.

Scientific novelty of the study. Among the numerous works of local and foreign authors, studies of
TNC Shell and Gazprom are traditionally conducted from the point of view of their activities in
international economic relations: production, trade, financial statements , and in fact their study
doesn’t pay attention to the TNCs development stages of the companies, the internal and external
factors that are influencing the corporations, especially the political actors that are changing
drastically the path of the companys’ evolution locally and internationally.
The questions that are studied in this dissertation haven’t been yet the subject of a special
generalised study. That is why the scientific novelty in accordance with the results of the study is
that it is comprehensively detailed and thoroughly for the first time:
-analysed the formation and the development of TNEK Shell and Gazprom as one of the key
elements of the economic globalisation;
-The inquiry of the role and the place of the TNECs as actors of the world economy in the
development of the transnational environment;
-The effectiveness of the companies strategies of entering the European market and their impacts on
the global market.

Methodological basis of the work. Determined by the nature and the interrelation of the object and
the subject of research, as well as the goal and the objectives arising from it. Methodologically, the
analysis is relied on the basic principles of the study of the world economy. Also, a wide range of
general scientific methods and theories are used in this study (methods of system analysis, statistical
analysis, comparative analysis, expert assessment methods, the theories of internationalisation
processes and methods, comparative financial statements, technological innovations etc.). Taking
into account the complexity and multidimensionality of the TNECs Shell and Gazprom
phenomenon to achieve the goal of the study, has been used the method of complex analysis, which
allows to combine many heterogeneous phenomenas, identifying the stable links between them and
predicting their further development.
In addition, the work used traditional methodological techniques - an empirical generalization
(observation, comparison) in relation to a wide range of statistical data and specific facts; methods
of theoretical research (abstraction, analysis and synthesis, groupings, etc.), as well as the method of
compiling tables and diagrams.

The source base was made up of documents of different nature and official materials for ensuring
the scientific credibility of the study:
- documents and statistical publications of UNCTAD;
- leaders speeches of the leading countries of the world;
- speeches of the leaders of Shell and Gazprom;
- Annual reports of Shell and Gazprom.
- statistics on the activities of TNEC Shell and Gazprom, contained in the surveys of specialized
organizations, such as the World Trade Organization, the International Monetary Fund, etc.

The main provision subjects for the defence:

I. The transnational energy corporations Shell and Gazprom have noticeably intensified recently
in the formation of a new world order, gradually conquering more and more the economic
space, the natural and human resources, the financial capital and the technology innovations.
Their participation in the creation of a transnational environment of world politics is acquiring a
more structural, geographically extensive and in-depth meaning.
II. The globalisation of the world economy and politics has allowed to Shell and Gazprom to
become new major actors in world politics, whose political influence in some indicators is
comparable and often exceeds the influence of national governments. Moreover, in contrast to
the state, TNC transboundary is more efficient. Using huge financial resources in their activities,
international financial institutions and technologies, Shell and Gazprom received a substantial
and a large-scale access to the multidimensional impacts in the international community.
III. The politicisation of Shell’s and Gazprom’s activities on an international scale is intensifying.
Analyzing the development strategies of the both TNECs, we can establish the invariability of
the increasing political and economic weight of the corporations in the promising directions of
the future destinies on the European community.
IV. The TNCs are having a particular importance in the successful process of Russia's integration
into the world community. The formation and operation of its own large TNCs helps it in the
participation in the global political regrouping of forces, in which objectively it started to play
one of the leading roles.

The structure of the work. The thesis consists of an introduction, four chapters, divided into
paragraphs, conclusions and bibliography.
CHAPTER ONE
LITERATURE REVIEW ABOUT THE EVOLUTION OF TRANSNATIONAL
CORPORATES

1.1 Transnational corporation and its features

As J. Naisbitt predicted about two decades ago, globalisation has brought a new paradigm of
thought. The world market now has become a system of interdependent markets and communities.
(John Naisbitt. Global paradox. 1997)
So the firms that are internationalising are characterised by a certain corporate culture, a certain
mentality and a certain way of understanding the interculturality.
Authors of Anglo-Saxon origin use the term "multinational enterprise". However, the
economic language of UNCTAD (United Nations Conference on Trade and Development)
negotiations on direct investment abroad includes the notion of "transnational corporation”. In our
material we opt for the term of transnational corporation.
 Bartlett and Ghoshal (1989) have classified foreign companies into 4 types: global,
multinational, international and transnational companies (TNCs). Each type of company has a
different structure of relationships between subsidiaries and branches. These relationships are
influenced by factors such as industry, product typology and market forces.
1. The global company centralises its core functions, including the marketing and financial
functions. The headquarters are choosing the new technologies, and after it sends to its subsidiaries.
The costs involved are reduced by economies of scale and as a result of global operations. Local
specific needs are neglected.
2.In a multinational company the headquarter decides on the financing policy, but allows the
subsidiaries a greater autonomy which approaches a managerial style, as well as the ways to
respond to the needs of the local market.
3.The headquarters of an international company has considerable control over management and
marketing systems within subsidiaries, but lower than in global companies. Products and
technologies are developing for the local market and expanding to other markets that have similar
characteristics. The development stages are decided beginning from the life cycle of the product that
needs to be as efficient and flexible as possible.
4.Transnational companies have evolved since the 1980s as a result of market forces, coupled with
demand for efficiency, national responsibility and knowledge. The transnational model combines
elements of the global, multinational and international model. A product is designed to be
competitive globally, but is differentiated and tailored by subsidiaries to meet the local market.
Considering that in the international companies the product is created by the mother company and
later transferred to subsidiaries, in the transnational companies this process can be reversible.
Resources, including management technology and know-how, can be distributed and integrated
within subsidiaries with strong interdependence strategies. (Mead R., 2005, p.320).

Griffin and Pustay (1999) have identified the following companies, taking into account the different
market types: multi-domestic companies, global companies and transnational companies.
1.Multi-domestic companies consider the markets of different countries to be differentiated as a
result of local characteristics. Thus, it encourages the independence of affiliates in the field of
marketing and operational process.
2.Global companies consider the world as a unique market, standardising the marketing processes
as well as the production processes.
3.Transnational companies are structured in such a way so that the subsidiaries can operate
independently. This model attempts to combine the benefits of economies of scale with those related
to local characteristics. The organisational structures are set in such a way that the coordination and
communication between the parent company and the subsidiaries are effective. In practice,
however, the parent makes decisions about the activities of certain functions (production, research
and development), while the activities of marketing and human resources functions are adapted to
the characteristics of local markets through subsidiaries.
(Ricky W. Griffin, Mike W. Pustay, International Business, 7th Edition 2013).

Bartlett & Ghoshal Grill: Main Features of the Worldwide Companies:

CHARACTERISTICS GLOBAL MULTINATIONAL TRANSNATIONAL
COMPANY COMPANY COMPANY

CONFIGURATION OF Centralized and The capabilities and Dispersed,

ASSETS AND globally scaled the activities are interdependent and
CAPABILITIES specialised
centralised, the others
decentralised
THE ROLE OF Implementing the Adapting the skills of Stimulating national
INTERNATIONAL mother’s company the mother company contributions to the
OPERATIONS strategy development of
international operations

THE DEVELOPMENT The development The development of Developing the

AND THE DIFFUSION of knowledge and knowledge at the knowledge in
OF KNOWLEDGE skills are kept at centre, and their cooperation with the
(KNOW-HOW) the centre. diffusion at national national units and their
units. diffusion at the level of
the entire international
organisation

Modern special (scientific and educational) literature does not contain a single unambiguous
formulation of the concept of TNCs. But In the economic literature there are several, similar in
meaning definitions of TNCs.
In the draft UN Code of Conduct for TNCs developed by the UN for several decades, TNC is
defined as “an enterprise, whether public, private or mixed, with branches in two or more countries,
regardless of the legal form and area of activity of these departments in accordance with a specific
decision-making system that allows for a coherent policy and overall strategy through one or more
decision centres, and where the offices are thus interconnected, whether by property relations or
other relationships, that one or several of them can have a significant impact on the activities of
others and, in particular, use common knowledge and resources and to share the responsibility with
others. ” (UN Code of Conduct for TNCs,Theodore H. Moran 2008, p.30-70)
In the economic encyclopaedia the following definition of TNCs is given: “A transnational
corporation is a firm engaged in foreign direct investment” ( Economic Encyclopedia 2014).
Similarly, the definition is given by E. A. Gryaznov: “A TNC is defined as a company that owns or
controls production assets in two or more countries” ( Gryaznov E. A. TNK in Russia. The positions
of the world's largest transnational corporations in the Russian economy, 2000.)
In the modern economic dictionary, an extended definition is provided, which indicates the sign
of foreign activity as the main one: “a transnational corporation is a firm, a corporation that
performs the majority of its operations outside the country in which it is registered, most often in
several countries where it has offices, branches and enterprises “(John Black, Nigar Hashimzade,
and Gareth Myles. Modern economic dictionary. 2009)
According to a definition of the Harvard University research program, transnationals include
companies with more than six foreign subsidiaries. The UN, studying the activities of international
corporations, for a long time (since the 1960s) attributed to TNCs the companies with an annual
turnover in excess of $ 100 million and with branches in at least six countries.

The modern world economy is characterised by transnational processes where the role of
transnational corporations is increasing every year and it becomes more obvious. Transnational
corporations and their activities today are the driving force of the globalisation processes, since a
significant part of international trade is carried out through them, they act as investors in the
distribution of advanced technology. Also thanks to their activities, the international migration, in
particular the skilled labour has increased significantly.
Transnational Corporations are playing an important role in the internationalisation of production,
especially in the processes of expending the production relations between companies from different
countries.
The main factor in the efficiency of TNCs is the international production of goods and
services, which is the output of products by the parent companies of TNCs, and their foreign
affiliates based on the internationalisation of the production. By the end of the 90s, international
production of goods and services reached 7% of world GDP. Today the sum of exports and imports
across nations amounts to more than 50% of the value of total global output.(Melitz, J. 2008.
Language and foreign trade. European Economic Review, 52(4), p. 667-699.)
Almost all the largest TNCs belong to the "triad" - the three economic centers of our planet: the
USA, the EU, and Japan. Also, multinational corporations of newly industrialised countries have
been actively developing their activities in the world market. The sectoral structure of TNCs is
diversified: 60% of international companies are engaged in manufacturing (they specialise primarily
in electronics, automotive, chemical and pharmaceutical industries), 37% in services and 3% in
extractive industries and agriculture.
A transnational corporation can be associated with a large association that uses an
international approach in its business activities and involves the formation and development of an
international production and marketing, trading and financial complex with a single decision-
making center in the home country and with branches, representative offices and subsidiaries in
other countries. (Bulatov, A.S. World Economy 2014, p. 116)
TNCs are also national companies with foreign assets. Their production and trading
activities go beyond the limits of one state. On the recommendation of UNCTAD (the UN
Conference on Trade and Development, whose research is the main official source for the
development of TNCs), TNCs should include companies with at least 10% of their assets that are
located abroad.
(United Nations Convention on Trade and Development (UNCTAD) [Electronic resource] - URL:
http://www.un.org/ru/development/surveys/trade.shtml).
In the present, the following types of Transnational Corporations are distinguished:
1. Horizontally integrated corporations with enterprises that are producing most of the products
(example: Fast Food Network)
2. Vertically integrated corporations, which unite under one owner, and the production of the final
product is under one control. In particular it can be noticed in the oil industry, as the crude oil is
often produced in one country, then it is refined in another, and the sale of the final oil products
in the third countries.
3. Diversified multinational corporations that include national enterprises with vertical in
horizontal integration. A typical example of a corporation of this type is the Swedish
Corporation “Nestle”, which has 95% of its production abroad, and is busy in the production of
food, the sale of cosmetics, wine, and so on. The number of such companies had grown rapidly
in recent years.
Modern transnational corporations perform important functions in the world economy, the
set of which is constantly expanding.
All their diversity can be defined as “stimulating”:
1. TNCs are stimulating a scientific and technical progress, since within their framework most of
the researches works are held, new technological developments are emerging;
2. TNCs stimulates the globalisation trend of the world economy, contributing to the intensification
of the mass rapid transit, and involving the host countries in international economic relations;
3. TNCs stimulate the development of world production. Being the largest global investors, they are
constantly increasing their production capacity, creating new types of products and jobs in host
countries, stimulating the development of production in them, which means in the world economy
as a whole;
4. TNCs stimulate competition in the global market. This doesn’t contradict the fact that they have
the highest competitiveness.
Also I would like to mark the competitive advantages of TNCs:
1. Ownership and access to natural resources, to the capital and results of the Research &
Development all around the world;
2. Horizontal diversification in different industries or vertical technological integration in one
industry, ensuring in both cases the economic stability and financial stability of TNCs;
3. The ability to choose the location of branches in different countries, taking into account the size
of their national markets, economic growth rates, prices, availability of economic resources, as well
as the political stability;
4. Low cost of financial resources due to wider possibilities of their attraction;
5. Access to qualified personnel and rich opportunities for their selection.
In this way, we can conclude that transnational corporation is a special international operating
entity, with a single production-financial and scientific-technical policy, a system for improving
forward planning and management, and an extensive marketing service.

1.2 The structures of the TNCs

The structure of TNCs is characterised by a very large variety of individual forms depending on the
type of activity of a particular TNC, the nature of its production, the number of countries in which it
operates. Depending on the situation on the market, the structure of the corporations is in constant
change and development.
The traditional most typical structure of TNCs includes the parent (mother) company. It makes
strategic decisions, monitors and distributes financial flows. It provides global leadership and
develops a development strategy for the entire corporation.
Foreign affiliates have different organisational forms:
-A subsidiary is a company abroad, in which half or more of the shares belong to the parent
company, it appoints managers.
-Associated company - the main company that has from 10 to 50% of the shares.
-A branch is a foreign subsidiary that the main company owns completely or is part of a joint
venture.
The scientist V.P. Mozolin, exploring the activities of American corporations, identifies three main
forms of their direct investment abroad: branches, branches with 100% participation (subsidiaries)
and joint ventures. However, what has been said about American corporations is true in most cases
for TNCs
of other
countries,
especially

industrialized ones.

Fg.1 The structure of the TNCs.

TNCs control the most important industries and hold the power in their hands. Annual sales of some
corporations exceed the GNP of many relatively small countries.
The American specialist of management Dymsza, marks that the structures of a TNC is
influencing the company’s success. (Dymsza, W. A. Multinational business strategy 1972, p.21-40).
While the scientists of the Harvard Business School K. Bartlett, S. Ghosbal and
D. Birkinshaw distinguish in an article several types of organisational structures of TNCs, that
allows a more efficient use of the inherent advantages of the companies. In their studies, they
criticise
the use of the matrix structure of an enterprise organisation and propose an alternative model — a

global planning model with a flexible approach to local making decisions, simultaneously using the

international experience and innovation, as well as the exchange of knowledge between individual
segments of the organisation.
The process of development of the organisational structure that K. Bartlett, S. Ghosbal and
D. Birkinshaw educed can be seen in the figure. (Managing Across Borders: New Organisational
Response, Christopher A Bartlett; Sumantra Ghosbal 1998, p.43-53)

TNCs provides good conditions for the headquarter operation and supports the interests of
certain forces that operates on a global scale. TNCs intervene in the formation of foreign and
domestic policy of states, are engaged in its implementation, possess a huge number of funds, and
opportunities for its accomplishment, and control of their interests, they are politically active and
implement their political goals, due to economic interests in the world level. The activities of TNCs,
as a rule, coincide with the interests of those in power- the political elite. TNCs are also one of the
main institutions of the political process in the modern world.
The scientist R. Robinson is also considering that an important feature of TNCs is their relationship
with the state, as the decision-making in transnational corporations is carried out in the interests of
one country- the country of origin of the parent company (Robinson R. D. International
management N. Y., 1966. p. 153-154 )

1.3. The current trends of TNCs in the global market

In present days, on the world stage the corporations are presented as transnational, that are owned
or under the control of a single state, as well as multinational organisations.
TNCs can be characterised as abroad organisations, where the cycle of manufacturing
operations have a significant impact on the structure of the economic activities, exports, pricing, as
well as on the labor market of the host state. The peculiarity of a transnational corporation, as a type
of an international monopoly, is determine by the fact that it is actually national in terms of capital
and control, but at the same time international in its activities, which is often carried out through
foreign branches.
Currently, under the influence of the processes of international economic liberalisation and,
mainly under the investment activity, the spread of advanced technologies and toughening
competition, TNCs are stepping up a deep integration strategy, while geographically dispersed
branches and some fragmentary production systems are transformed into certain production and
marketing networks that are globally or regionally integrated.
According to the Russian scientist L.A.Jdanova , the TNCs can be considered a fairly large-scale
financial industry, scientific, technological, trade service incorporation that is operating in a joint-
stock form, carrying out operations both as in the country of residence as outside this state. At the
same time, depending on the dominant form of ownership in the structure of the share capital, the
TNCs can be divided into 4 groups: family, state, industrial, and “exchange” ones. (L.A.Jdanova.
Organization and management of an industrial firm in developed countries 2008, p.57.)
On international markets, there are several transnational giants that are dominating, but also
collaborating and competing with each other. TNC accounts for approximately 66 to 75% of world
exports. At the same time, there are about 30 TNCs in the world, whose turnover ranges from 30-70
billion dollars, they are producing electronics, petrochemical products, chemical, food and
pharmaceutical industries. They are followed by about 30 other more companies with a turnover of
10-30 billion dollars. The next 50 corporations have a turnover of 5-10 billion dollars. (Balatsky
E.V. Model of economic evolution “Society and economy”. 2009. - №9 , p.5 - 16.)
So by this we can see that the main goal of a modern TNC is to maximise not so much the profit, as
the market . Trade between TNCs units doesn’t occurs at market prices, but more at transfer prices,
which are determined by the internal policies of the corporation. Thats why more than 1/3 of world
trade does not operate according to the laws of the free market, because of being under the complete
control of TNCs.
Today's global international economy allows TNCs to use open borders to produce goods where
costs are lower, and to sell them where a higher rate is included in the price. For example, the
markets of high-tech products, are mostly dominated by developed countries - the USA, Japan,
Germany, the United Kingdom, France, which control more than half of the global markets.
In our days, the TNCs possessing vast resources and financial potential, in the global market they
are heavily investing- in research and development. If earlier the focus was on the use of capital and
labor, and the technological process was considered as an exogenous factor, then in the new concept
technology becomes the main endogenous component. For the transmission of the technologies,
developed countries are using three channels:
1.The first channel is the export of high-tech semi-products that are not produced in the imported
country, in order to improve the quality of manufacturing of the final products.
2.The second channel is the purchase and sale of licenses, which is associated with a risk for the
market position of the company-seller. Therefore, TNCs prefer to sell their outdated technologies,
and use new ones in their foreign affiliates.
3.The third channel, and the most important channel for a technology transfer, is direct investment
in the form of joint ventures. (I.N. Gerchikova. International business: Textbook for universities
2001, p.68-92)

In this way we can conclude that corporations that are evolving, changing their forms and internal
structures are considered to be the basic driving force in the economies of developed countries.
The figure is showing the change of only 10 years difference of the largest companies in the
world, how the technology companies are dominating in the modern world, comparing to 10 years
ago, when the oil business was dominating the top ten list. The oil companies are still dominating
the global rankings(Royal Dutch Shell- NR.5, with a revenues of $ 311,870 and a profit of
$ 12,977; and Gazprom- NR.49, with a revenue of $ 111,983 and a profit of $ 12,250), but the
culture of innovation is a key catalyst that is changing the world, and achieving world domination.
(Global Data. World’s Largest Companies 2018.)

1.4 Analysis of TNCs strategies

Corporation strategies are a way to accomplish its goals in a changing market environment.
TNC strategies are based on the concentration of its resources (marketing, development of services
that increase customer loyalty and product value, R & D) in the sphere of their own strategic
advantages. This concentration is largely due to foreign direct investment (FDI), carried out with
the aim of acquiring strategic, primarily intangible, assets.
In the UNCTAD review, the following trends were noted in the TNC strategies:
-Choosing a place for FDI. The most attractive country to invest in is China, followed by Brazil,
Poland and South Africa.
-Moving corporate functions. Most likely to move overseas /abroad the production as the main
function of the corporation. Following the production, distribution and sales, support services and
logistics are also moved there.
-Ways of investing. Globally, TNCs will equally intensively use three methods of capital investment
- mergers and acquisitions, the so-called greenfield investments, and other methods (such as
licensing or entering into strategic alliances) . TNC strategies will vary by
The region.
(World Investment Report 2005. Transnational corporations and the Internationalization of R&D.
UNCTAD, N-Y – Geneva, 2005.)
1. Asia and the Pacific. TNCs are especially optimistic about the prospects for this region. China is
regarded as the most attractive country for FDI (in this aspect, it is far ahead from the rest of the
countries). India ranks second in the ranking, followed by Thailand. As for entering the market,
companies planning to start work in Asia tend to use the benefits that greenfield investments give
them.
2. Latin America and the Caribbean. Brazil, Mexico, Argentina and Chile, traditionally are
attractive to the foreign capital, and they will remain so. In fifth place in the ranking is
Venezuela. In this region, TNCs prefer to use greenfield investments.
3. Africa. It is expected that FDI that flows in the countries of this continent will remain stable,
since Africa is not yet included in the strategic plans of most of the world's largest TNCs. Foreign
 companies work here on the terms of unequal partnership, thereby reducing risks for themselves.
Of the states located south of the Sahara, only South Africa and Nigeria are among the top five
investment countries. Three more countries are in North Africa.
4. Central and Eastern Europe. The first place in terms of investment attractiveness is Poland. Part
of this, as well as the high ratings of Hungary and the Czech Republic, is due to the accession of
the mentioned countries to the EU. RRDB (Research and right to Development Branch) and
greenfield investments are expected to be equally used for capital investments.
5. The developed countries. The United States is considered the most attractive for investment.
They are followed by the United Kingdom, Canada, Germany and Japan. It is assumed that cross-
border of the RRDB will remain a predominant form of international expansion in the economies
of developed countries. For an effective functioning of the international companies, a number of
special features of their strategy are contributing.
That includes the flexibility of the investment policy, in which the most important decisions in the
TNCs are made under the influence of prevailing circumstances: government policies, competition,
access to advanced technologies and marketing networks.
(World Investment Report. Transnational Corporations, Market Structure and Competition Policy.
2015)
A great importance in the strategy of TNCs is to maintain a certain level of export earnings.
If the enterprises in the home country of the head company for any reason reduces the volume of
exports of their products, then measures are taken immediately to expand exports of products from
foreign affiliates, which contributes to the export of products from host countries. Such measures
ensure the continued presence and preservation of TNCs in the global market.
Another common strategy for TNCs are the international strategic partnerships or strategic
alliances between TNCs. Usually, the goal of alliances is to unite the scientific potential, speed up
the process of introducing R & D results into production, reducing their costs and divide the risks of
mastering the production and marketing of new complex high-tech products.The combination of
alliances and inter-company relations, forms a system of horizontal and vertical integration of
production and R & D, which is regulated with the use of information technology. Some types of
strategic alliances are designed to expand the range of products and consumers. Such alliances
provide for a joint marketing research, the use of common sales channels, sources of information
and advertising campaigns. At the same time, participants in R & D alliances compete with each
other in the finished product markets. (Movsesyan A., Libman A. Current Trends in the
Development and Management of TNCs // Problems of Theory and Practice of Management. 2001)
The key elements for implementing a successful TNC business strategy are the following
factors: product / service usefulness, constant updating of products / services and business
processes, concentration of resources of the company on priority areas (research and marketing),
responsiveness to market demands, development of internal and external networks. All these factors
are being interrelated. In this way, the strategic development of TNCs in the modern world is
multivariate, but it certainly is aimed to successfully overcome the uncertainty of the business
environment, maximum cost reduction due to increased competition and increased cost of
innovation, as well as achieving operational flexibility.
In conclusion, a fundamental strategy for the development of large foreign companies is the
strategy of "internationalisation" of activities, ensuring their expansion. The implementation of this
strategy depends on the choice of market and methods of entering the company on the national
market. When choosing a market, factors such as a developed infrastructure, professional training of
local personnel, the presence of an agglomeration of efficient suppliers, related service companies
and service companies are of great importance.
Summarising the methodological foundations of the TNCs strategies we can suggest a
systematic approach to the process of its development. Proceeding from this, it includes the
following main stages:
1. The identification of the main goals and objectives of the innovation development of the TNC in
the strategic period.
(At this stage, based on the analysis of the TNCs mission, should be determined the most important
landmarks of its innovative activities in the strategic period.)
2. The analysis and the forecasting of the states external business environment in the region and
country.
(This stage of formation of the strategy is intended to ensure the interaction of TNCs with the
market environment, carried out by adapting the corporation to its changes.)
3. The analysis and the forecasting of the development of the potential of TNCs
(The essence of offensive strategies is the development of fundamentally new technologies and
products. At this stage, are determined the reserves for increasing the efficiency of the TNCs
development , on the basis of its own sources by assessing its potential opportunities.)
4. Predicting the structures.
(First, we have to forecast the development of the external environment, possible external
innovations could be detected. Then, based on the results of assessing the potential of the
corporation, potential internal innovations can be determined.)
5. The formation of the TNCs strategy.
The result of this stage is the development and the elaboration of the TNCs strategy, which should
match with its basic (integrated) development strategy, taking into account the projected changes in
market needs and the capabilities of the corporation.
 The analysis of the methodological basis for the formation of the TNCs strategies, shows that
its economic essence is determined by the content of the basic strategy of corporate development
(growth, stabilisation or survival strategy), the type of which predetermines the objectives of the
strategy.(Innovative development of economy, N.V. Tikhomirovoy. 2008, p.473)
For example, optimal opportunities for the development is created by a basic growth strategy.
And on the contrary, the implementation of a basic survival strategy does not allow to bring out an
effective strategy due to the implementation of a tough economy. That's why, depending on the
content of the basic TNC development strategy, in the conditions of stable operation, the
transnational corporation, as a rule, uses the protective approach and the strategies for to enter a
new market.
A corporation that is operating in a competitive environment seeks to secure advantages over
other enterprises.
To do this, it uses a strategy - the organisational use of resources to achieve specific goals. The
enterprise strategy forms and predetermines the role, place, content of the innovation strategy. The
relationship between corporate and the strategy is realised primarily in the development of the
production of new products and changes in the production process.
The main directions of the strategy are formed:
-during an expedient process and rational use of the most accessible results of the innovation
activity to achieve the general goal of the enterprise : of meeting the needs for a certain type of
product or to provide certain types of services;
-thanks to the provision and economical use of resources in the development of products
innovations. (M.S. Arsenyev Transnational Corporations. Russian Economic Journal. 2011. - №
12,p. 35.)
Depending on the organization's business strategy, its resource capabilities and competitive
positions, all strategies can be reduced to several main types:
- “Reaction strategy”. It is used when competitors are threatened with a “technological
breakthrough”;
- “Penetration strategy”. It is used when the technology is the main condition for TNC to release on
a new market.
-Licensed strategy.
It consists in the acquisition of scientific and technical developments of strategic importance for the
TNCs. An important role plays the evaluation of potential opportunities, and we should consider
that the products manufactured by the TNC must be demanded on the market, and its production
must ensure high efficiency of TNCs activities. (F. Telnova. The development strategy of enterprises
in the modern period: theory and methodology 2009,p. 450)
 The most significant factors that are affecting the choice of a strategy are:
1. The information about the behaviour of competitors during economic changes;
2. The tendency and attitude of the top management of the company to risk, and the ability to
develop measures of minimising it;
3. The trends and the development prospects of the industry.
In this way, the essence of the process of forming a strategy of a transnational corporation is to
carry out multivariate calculations that allow you to determine: strategic management and the
corresponding strategy. (Kazakov I.A. Transnational corporations and regulatory elements in the
global economic space 2009, p.71)
The essence of a strategy is the development of fundamentally new technologies and products.
They are used in the implementation of the basic growth strategy and are characterised by spending
a large amounts on the R & D.
Protective innovation strategies secure the position retention of the TNCs on the market. It is used
when the corporation implements a basic stabilisation strategy.
In conditions of a stable operation, the TNCs are using the defensive and innovative strategies.

CHAPTER 2
2.FEATURES OF THE DEVELOPMENT OF TNC “GAZPROM”
2.1 Dynamics of Russian oil and gas TNCs
In the modern world, the processes of globalisation of the economy is becoming more and more
widespread. The condition for effective long-term development of Russian business is its successful
entry on the international arena- the transnationalization. This topic is relevant and for the Russian
leading oil and gas TNCs.
Russia's global expansion is still largely limited to a small number of companies operating in the oil
and gas, but considering the raw materials orientation of Russian exports, the largest reserves of gas
and oil, the state support, Russian oil and gas TNCs have the best prospects in the world market.
An analysis of Russian and world practice shows that at the beginning of the 2010 prerequisites
have been formed for the participation of Russian oil and gas companies in the global direct

investment market. They can be divided into 3 types: general, specific to companies and specific to
the state, where the common prerequisites are:
First, the fact that Russia is one of the largest energy power in the world (Fig.1) .
It has the largest reserves and is the largest exporter of natural gas (Fig.5), the second largest coal
reserves, the eighth largest oil reserves, and is one of the largest producers of oil. It is the third
largest energy user. (World Oil Outlook 2017, OPEC)
Russia, contains about 13% of all the world's proven oil reserves and 34% of natural gas reserves.
Annual production of primary energy resources in Russia accounts for more than 12% of total
world production. Today, the fuel and energy complex (FEC) is one of the most important,
sustainable and dynamically developing industrial complexes of the Russian economy. It accounts
for about a quarter of the gross domestic product, a third of the industrial output, about half of the
federal budget revenues, exports and foreign exchange earnings of the country. ( Reznikov Ya.G.
Expansion of foreign investments of Russian energy companies on the world market, Nr.2, p. 20-
27)
Secondly, the largest corporations in the world are playing a crucial role in energy production,
the largest of them, such as Exxon Mobil, Royal Dutch Shell, PetroChina, are concentrated in
developed countries, while the main resources and demand are concentrated in developing
countries.
The third common prerequisite for the transnationalization of Russian oil and gas companies is
that within the Russian economy the oil and gas industry plays an important role. This is evident, in
particular, because in the rating of the 400 largest corporations, compiled by the magazine offshore-
technology, Russian corporations are also included, such as: Gazprom, Lukoil, Rosnefty.
(https://www.offshore-technology.com/)
The volatility of oil prices directly affects not only the revenues of Russian TNCs, but also the
country as a whole through falling budget revenues and through strengthening the ruble exchange
rate, that’s why the need of smoothing the dependence of oil and gas companies against oil prices
and the economy against oil and gas revenues becomes more and more obvious. In this regard, the
state seeks to push oil and gas companies to develop refining oil, which despite a significantly
lower margin , it helps smoothing out the effect of changes in the global price of oil, since the oil
products are not being exchange goods, they are less affected by the price fluctuations. ( Rubanov I.
Expert Magazine Nr.34, 2015)
The fifth prerequisite- reflected in the “Energy Strategy of Russia until 2030” the goal of
product diversification and the channels of transportation of oil and gas with the participation of
foreign TNCs, is also one of the common prerequisites for the transnationalization of Russian oil
and gas companies, since attracting foreign companies to participate in Russian projects, it helps
Russian TNCs to obtain new technologies and to expand the access to foreign markets through
international cooperation.
The prospect of development of the fuel and energy of Russia is largely determined by its size
and geographical location. Russia is geographically connected to all three major oil markets:
Europe, the USA and the Asia-Pacific region. In the “Energy Strategy of Russia until 2030” is
provided the development of a system of trunk pipelines and sea terminals for the oil supplies to
these markets. In addition to the diversification of production centres, it is necessary to carry out the
diversification of oil and gas supply routes - which is the main method of risk management in the
face of high demand uncertainty (or volatility) on the world markets. (Khristenko V. Russia in the
World Oil and Gas Markets,2016)
As for the transnationalization prerequisites, specific to oil and gas companies, they correspond
to the global motives for the search of resources, efficiency, and the strategic search for assets.
Firstly, international investment activities help oil and gas TNCs to gain access to resources. An
example is Lukoil, which actively buys upstream assets abroad (in Iraq, Equatorial Guinea).
Secondly, transnationalization allows the companies to increase the share of the refining oil in
their activities, in order to enhance the added value of products and to reduce their dependence on
the volatility of oil prices; creating an energy supply chain to the final customer. In particular, the
acquisition of refineries in Serbia and Germany by the companies Gazprom and Rosneft allows the
access to the European market, bypassing the high export duties of oil products.
Thirdly, international investment activities allows companies to acquire innovative technologies,
for example, the Nord Stream pipeline built by Gazprom made of an unique steel, is the first gas
pipeline in the world that can transport gas for 1,224 kilometres without using compressor stations.
(Slutsky L. Russian TNCs - “Tigers” of the World Economy, 2017)
The fact that Russian oil and gas TNCs are mainly state-owned, and the oil and gas industry is of
strategic importance for the country, this leads to an even greater interweaving of their interests.
Moreover, some decisions are made in terms of the country's foreign policy interests. The presence
of Russian oil and gas TNCs has certain advantages for Russia, on the basis of which we can
distinguish the prerequisites of transnationalization that are specific for the state:
1. Firstly, the level of economic development of any country and the consistency of its market
relations are determined not only by statistical indicators, such as GDP, industrial production index,
export volume, but also by the activities of companies that are represented on the global market.
The attitude of the international business community towards the state depends on their success and
reliability in working with partners and customers.
Following the logic of M. Porter, we can say that a country's competitiveness is made up of the
competitiveness of the companies in the world market. Due to the fact that there are not so many
competitive advantages for Russian companies in other industries, the oil and gas sector is the most
promising from the point of view of transnationalization. (Michael Porter. Competitiveness in a
Globalised World 2006)
2.Secondly, transnationalization has a positive effect on the development of national productive
forces, on the overall social-economical situation in the country. Due to image considerations,
TNCs are forced to ensure high standards for their employees, bringing working and pay conditions
closer to world standards. Ensuring social stability, the social policy is becoming a necessary
condition for TNCs to strengthen their image. In addition, TNCs are interested in the stable
development of the national economy, since they are deeply rooted in it.
3.Thirdly, state-specific prerequisites include the fact that TNCs actively are introducing
international standards of corporate governance in the Russian enterprises, all of this has a positive
effect on the atmosphere of Russian business. The development of TNCs leads to the transition of
the business to a qualitatively new level. With the transition to a more efficient management and to
an increased transparency of the company, TNCs are creating a new standards in the domestic
market. As a result, the suppliers of TNCs, as well as the competitors who do not operate in the
global market, also have to move to a new level of operation.
4.Fourthly, the main ways of expansion of Russian oil and gas TNCs are mergers and strategic
alliances, which helps the Russian companies to acquire new technologies. In this way, companies
are importing technology, know-how, innovation and are increasing the technological level of the
country. (Chernikov G.P., Transnational corporations and the modern world. - 2008, p. 400 )

2.2 Strategies of TNC Gazprom entering world market

In our days, of great importance is the quality of management, its the ability to strategically
combine all the resources, link them with the competence of the organization. Hence, the most
important characteristic of the “strategically” is to find a good market niche to the available
resources and to act in it.
What is the strategic goal of Gazprom?
The strategic goal of Gazprom is to become a leader among global energy companies through the
development of new markets, diversification of different types of activities, and ensuring reliable
supplies. At the same time, Gazprom sees its mission in providing the most efficient and balanced
gas supply to consumers in the Russian Federation and fulfilling, with a high degree of reliability,
long-term gas export contracts.
On what principles is the strategy of Gazprom build on?
The strategy of Gazprom is based on the following principles of the Company's activities:
- to increase the efficiency in all the parts of production chain from extraction to marketing of
natural gas, oil and refined products;
- the expansion and diversification of activities through projects that create high-value-added
products;
- to respect the interests of all shareholders of Gazprom;
- to improve the corporate governance;
- to increase the transparency of financial and economic activities;
Why does the diversification of activities is among the strategic priorities of Gazprom?
Under the diversification of the company we can understand the expansion of the areas of its
production activity and the composition of final products, striving for new markets and the
development of logistics schemes. All of these are necessary attributes for to realise a strategic
competitive advantages of global companies.
As Alexey Miller, the Chairman of the Board of Gazprom, noted: “Gazprom’s strategy is a vertical
integration in natural gas and a diversification in related products and“ high processing ”. The
modern structure of the global hydrocarbon business is dominated by universal oil and gas
companies. The concentration of capital and the presence of a single infrastructure leads to a
reduction in unit costs and a significant increase in profits. "
That’s why in present day, Gazprom is a global energy company, that is one of the largest gas
companies in the world. The company is a world leader in this industry. The main activities of the
company being: exploration, transportation, storage, processing and the sale of gas, condensate gas
and oil, as well as the production of gas and heat in Russia and abroad. A peculiarity of Gazprom is
that it is a supplier and a producer of energy resources at the same time, having a powerful resource
base and an extensive gas transportation infrastructure. (https://www.gazprom-neft.com/press-
center/news/1113245/ . Official Gazprom website)
 Gazprom accomplishes all the strategic tasks of the company by implementing from the
beginning the following promising projects:
1.The development and the use of hydrocarbon resources from Central Asia.
Since 2004, Gazprom, through its subsidiary” Zarubejneftegaz”, has been involved in the restoring
of gas production at the Shakhpakhty field (annual gas production at this field is about 400 million
cubic meters). In January 2006, Gazprom and the Uzbekneftegaz National Holding Company
signed an Agreement on the basic principles for conducting a geological survey of the subsoil of
investment blocks in the Republic of Uzbekistan, with an after development of an oil field
identification.
2.The project of expansion of the gas transmission system "Central Asia - Center" (CAC) - the
Caspian gas pipeline
The CAC gas pipeline system today is the main transportation route for gas exports from
Turkmenistan, Uzbekistan and Kazakhstan. Gazprom provides transit from Central Asia to the
Russian and export markets, and also acts as a transit operator for Turkmen gas through the
territories of Uzbekistan and Kazakhstan. (Газпром" О компании / История / 2005 год".
Gazprom.ru. Archived from the original on 19 March 2008)
3.Development of hydrocarbon deposits abroad
Gazprom has been carrying out geological exploration in the shelf zones of India and Vietnam.
In September 2005, Gazprom won a tender for the exploration and development of two blocks of
offshore gas fields - in Venezuela. Gazprom holds the exploration and development licenses for 30
years. During the first four years, a geological exploration program has been envisaged, including
seismic surveys and drilling of exploration wells. ("Gazprom on Foreign Markets". Gazprom. 22
January 2009.)
4.Nord Stream 1/ Nord Stream 2
The Nord Stream gas pipeline project was created as a fundamentally new route for exporting
Russian gas to Europe. The Nord Stream gas pipeline route, which is about 1,222 km in length, has
been inaugurated in 2011 , which passes through the Baltic Sea from Portovaya Bay (Vyborg
district) to the coast of Germany (Greifswald region), and the second project Nord Stream 2 began
the constructions in 2018, planning to double the capacity of cubic metres by laying two additional
lines . It is the longest sub-sea pipeline in the world, and before Nord Stream, no one in the world
had ever built a gas pipeline that could transport gas for 1,222 kilometers without using compressor
stations. The new pipeline supplies Russian gas to European consumers in the amount of up to 55
billion cubic meters per year.
The Nord Stream project was included by the European Union in the list of priority projects of
the trans-European gas network. Its implementation has allowed Gazprom to diversify export flows
and to directly link the gas transmission networks of Russia with the European gas network. A
distinctive feature of the Nord Stream gas pipeline is the absence of transit states on its way, which
reduces country risks and the cost of transporting Russian gas and simultaneously increases the
reliability of its export supplies. The construction of the gas pipeline also contributed to the
expansion of gas supply to the North-West Federal District of Russia. (Dempsey, Judy. "Europe
Worries Over Russian Gas Giant's Influence". EnergyBulletin.net/The New York Times. May 2008)
When the project Nord Stream has been developed, United States and several Eastern Europe
countries started to oppose, as they where concerned about the increased influence that Russia can
have in that region.
From the political aspect the opponents have seen it as a move for Russia to bypass transit
countries: Ukraine, Belarus, Estonia, Chech Republic, Slovakia, Poland. (Cohen, Ariel ,26 October
2010. "The North European Gas Pipeline Threatens Europe's Energy Security) These countries are
concerned that on a long-term plan it can threaten their gas supplies without affecting the supplies
of Western Europe countries. ("Delays hit Nord Stream plans". Upstream Online. NHST Media
Group. 6 November 2007.) Nord Stream critics said that because of this pipelines Europe can be
dependent on Russian natural gas, and they can use it as a political tool. (Larsson, Robert L."Nord
Stream, Sweden and Baltic Sea Security" 7 November 2009.)The Poland’s defence minister in 2006
compared this project with the Nazi- Soviet Molotov- Ribbentrop Pacts signed in 1939 ("Polish
Defense Minister's Pipeline Remark Angers Germany" 3 May 2006). In the book of Edward Lucas “
The New Cold War: Putin’s Russia and the Treat to the West” he stated: "though Nord Stream's
backers insist that the project is business pure and simple, this would be easier to believe if it were
more transparent.”, and that “Russian energy sector "in general lacks transparency" and Gazprom
"is no exception”. (Solum Whist, Bendik (November 2008). "Nord Stream: Not Just a Pipeline").
From Russian point of view, this criticism has appeared because of the loss of important transit
revenues, and because of the loss of political influence from the transit countries.
In 2017 the U.S Senate imposed new sanctions agains Russia that targeted the Nord Stream 2
project, and it was actively criticised by Germany and Austria, saying that US was threatening
European energy supplies, and that : “"Europe's energy supply is a matter for Europe, and not for
the United States of America.To threaten companies from Germany, Austria and other European
states with penalties on the U.S. market if they participate in natural gas projects such as Nord
Stream 2 with Russia or finance them introduces a completely new and very negative quality into
European-American relations.” ("US bill on Russia sanctions prompts German, Austrian outcry".
Deutsche Welle. June 15, 2017.)
5. Entry on Chinese market
Significant demand potential for Russian gas exists in the countries of the Asia-Pacific region,
primarily in China. In 2006, after the official visit of the President of the Russian Federation
Vladimir Putin to China, the leaders of Gazprom and the leaders of Chinese National Oil and Gas
Company signed a Protocol on the supply of natural gas from Russia to the Chinese National
Republic(CNR), which sets basic agreements on the timing, gas supply routes and pricing
principles. Russian "blue fuel" begun to be delivered to China since 2010. Gas flows to the CNR
from the Unified Gas Supply System of Russia via two routes - the western route, and the eastern
one - from the fields of Sakhalin Island.
With the signing of the Protocol, the gas industry of Russia emerged a range of strategic advantages.
The significance of the “Chinese vector” is closely connected with the Gazprom programs for the
formation of new gas production centers - on the Yamal Peninsula, in Eastern Siberia and in the Far
East. The presence of China among the main consumers of Russian gas gives a substantive idea of
the promising volumes, terms and routes of supply, as in 2014 Gazprom and the China National
Petroleum Corporation signed a contract worthing $400 billion for 30 years gas deal. “We consider
China not only as the most promising export market, but also as a partner in gas transmission
projects and joint marketing of gas,” said Alexey Miller, Chairman of the Gazprom Management
Committee, Deputy Minister of Energy of Russia.
("China and Russia sign $400 billion 30-year gas deal". Russia Herald. 22 May 2014.)

6.Liquefied natural gas

One of the main strategies that Gazprom used to enter the world market is entering with a new
product - liquefied natural gas (LNG).
Global gas consumption is growing at an average rate of 2.5% per year, with much of this increase
being due to LNG.
LNG has become an integral part of the global gas trade, moving into the category of one of the key
factors shaping the global market. The volume of LNG trade in 2005 was 189 billion cubic meters.
m, having doubled since the early 1990s, and increasing every year, mostly determined by the
growth in demand for natural gas in the United States, UK and the Asia-Pacific countries.
Gas supplies in liquefied form has an advantage from the point off view of market coverage
opportunities regardless of their geographic location.
Since 2004, Gazprom has been implementing a phased strategy to increase its presence in the LNG
market. As part of the implementation at the first stage of the strategy, liquefied gas was delivered
to the United States, the United Kingdom, South Korea, Japan, as well as Mexico and India. Total
LNG sales amounted to about 1 billion cubic meters.
At the next stage of the strategy implementation, Gazprom planed to organise LNG production in
Russia and in third countries, while ensuring independent LNG marketing. In order to effectively
enter the global LNG market, Gazprom provided for the anticipated entries- existing LNG projects
on a raw material base owned by other companies through acquisition or exchange.
The systematic increase of LNG production (in Russia and abroad) and the capacity of the tanker
fleet for its transportation in parallel with marketing efforts made enable for Gazprom to occupy a
significant position in the global market for this product by 2030. (Lunden, Lars; Fjaertoft, Daniel;
Overland, Indra, "Gazprom vs. other Russian gas producers: The evolution of the Russian gas
sector". April 2018, p. 663–670.)
The most attractive market for deliveries by Gazprom is considered the Atlantic basin, as being the
most capacious, and experiencing the greatest excess of demand for this supply.
The strategies of Gazprom are of global importance for the viability of this corporation. Without
which, an enterprise simply cannot survive in the harsh conditions of a market economy, much less
be able to compete.
The main objectives of their strategies are forward-thinking views on the most efficient and
balanced gas supply to consumers and the reliability of fulfilling long-term gas export contracts.
The meaning of their new strategic projects is to open and develop new fields to enter new
markets. Because gas is the most optimal and mutually beneficial option to meet the growing
energy needs.
(Source: Gazprom Export, thierrybros.com )
2.3 Effectiveness of Gazprom’s strategy
The functioning of the company in a competitive environment makes the management to pay
special attention to the efficiency of operations, which is achieved, first of all, by analysing the
financial performance and the return on capital invested in investment projects. (Davydova L. A.
Financial Strategy of an Enterprise, 2014. p.86). Over the past two years, market fluctuations in the
energy market have had a significant impact on the capitalisation of corporations in the fuel and
energy sector. (example Fig.7. Capitalisation rating of the largest Russian companies)

Company Industry Capitalization at the Capitalization change

end of 2016 $million for the year, %

Gazprom oil/gas 44 257.9 -20

Rosneft oil/gas 37 249.2 +1.2

Sberbank Bank 29 969.4 +44.9
Lukoil oil/gas 27 456.6 -18.1
Novatek oil/gas 24 805.4 +5.4
Norilsk nickel metallurgy 19 917.5 -13.2
Surgutneftgaz oil/gas 16 745.3 +10.7
Magnet Trade 14 435.9 -12.8
Bank VTB Bank 14 084.5 -7.4
Under these conditions, the capitalization of Gazprom by the end of 2016 decreased by 20%, which
is more than the closest competitors on the Russian market ( Lukoil - 18.1%, Rosneft + 1.2%).
In these conditions, in order to maintain the leading position in the domestic market and the
leading position in the world, Gazprom needs to develop and adopt measures to improve the
business processes of the corporation. An effective tool for increasing the effectiveness of a
company in international practice is the company's financial strategy, which sets targets for the
medium term and offers tools for the implementation of these tasks. The analysis of trends in the
global energy market is also recognized as an integral element of the financial strategy and allows
to anticipate the negative changes of the energy supply and to respond promptly to such threats.
In order to increase its competitiveness, increase profits and increase efficiency, the company
has to develop and to implement a financial strategy. Financial strategy involves the identification
of sources of capital investments of the company and the planning of profits derived from
participation in projects. Successful implementation of investment projects is based on the concept
of strategic management. (Wilkomir A.K. Principles and methods of financial strategy of the
enterprise. 2016.p.18)
As it was mentioned before, the strategic goal of PJSC Gazprom is to emerge as a leader among
global energy companies through the diversification of sales markets, ensuring reliable supplies,
increasing business efficiency, and utilising its scientific and technological potential. A special
feature of Gazprom and one of its advantages is that it is both a producer and supplier of energy
resources, having a powerful resource base and an extensive gas transmission infrastructure. And
due to Russia's geographical position, the company has the opportunity to become a kind of energy
“bridge” between the markets of Europe and Asia, supplying its own gas and providing gas transit
services to other producers. This predetermines the content of the company's strategies in its key
areas of activity.
In this regard, the dominant directions of the company's development are:
- formation of financial resources (identification of potential financial resources of the company,
relevant to the objectives of the company);
- effective use of resources of the company, identifying project risks and calculating the
profitability of the company's projects, rational allocation of resources in accordance with the
tasks to be solved);
- ensuring the economic security of the company (ensuring the financial stability of the company in
the implementation of economic activity);
- improving the quality of financial management of the company in accordance with the chosen
strategy for a medium
and long term
(Blank I. A. Financial
strategy of the enterprise,
2015, p.72)
The implementation of
these areas requires the
company to set clear
objectives, including the
development of financial
strategy goals, objectives
aimed at achieving the
established goals and
tools for implementing
strategic goals.
(The objectives of the
company's financial strategy are reflected in Figure 8)

This effective financial strategy of Gazprom must take into account not only the specifics of the
company's development, but also the competitive environment of the markets in which the company
intends to conduct its business, as well as the influence of many external factors that the company is
not always able to control, but must take into account.
At the end of 2018 the situation of the company Gazprom is next:

-the balance in the oil market has improved , however the situation remains very difficult as prices
show high volatility.
- the working conditions in the country, the macroeconomic policies of the government and the
Bank of Russia led to a decrease in the dependence of the ruble exchange rate on oil prices,
stabilisation of inflation at low levels. But all these risks are controlled at the expense of a
conservative approach to financial policy, setting and controlling the limits of operational and
capital expenditures, creating reserves in certain areas.
- Gazprom beats gas export records to Europe, increased the deliveries to Russian consumers, and
increased the oil production, which affected the financial performance of the group. The revenue
 in rubles has increase by about a quarter, while the EBITDA in rubles has increase by more than
60% and reached a record value in the entire history of Gazprom.
- Maintaining free cash flow at a positive level remains one of the priorities of Gazprom’s financial
policy.
- Now they are simultaneously implementing three major strategic projects (“The Power of
Siberia”, “Nord Stream 2” and “Turkish Stream”)

CHAPTER 3
3. CHARACTERISTICS OF ACTIVITIES OF TNC “SHELL”
3.1. Oil’s pills and gas flaring in Europe. Today’s situation in Europe.

The energy doctrine in a wide sense means aiming at economical, political and technological
measures, which are reflecting the interests of subjects of different levels in the energy field. We can
assume that the development of the energy doctrine was proceeding in parallel with the
transformation of the reproduction technologies of the mineral resource base and the development
of the global gas market against the globalisation of world processes.
The researchers identify the following stages of development of the European gas market:
1. Predominantly national gas markets.
The European gas market, is one of the largest energy markets in the world, and is one of the
main importers of the Russian gas. Five countries of Western Europe (Great Britain, Germany,
Italy, the Netherlands, France) account for 70% of gas consumption in the European Union (EU).
Since 1930s, the development of gas markets in the EU countries began, and until the 1960s they
were primarily of a national, internal character. In Italy and France, gas fields were discovered in
the 1930s, and in Germany and the Netherlands in the 1950s Britain began to purchase liquefied
natural gas in 1950s, and local gas production began only in the 1960s.
2. A common European gas market.
Since the 1960s, international trade in gas and the diversification of its supplies was developing.
During the 1960s and 1970s the demand for natural gas in France, Italy and Germany was ahead
of the domestic production, and gas imports became necessary. The UK produced enough gas for
domestic consumption and began to export gas only in the late 1990s. In the Netherlands, after
the discovery of the Groningen field, gas exports began on a large scale. This period is
characterised by the creation of a huge transport network built in Europe for the an international
gas trade. It was originally created for shipments from the Netherlands, then from Russia,
Norway and the United Kingdom. For international deliveries, in particular from the Netherlands
to Italy, Europe needed a network of high-pressure pipelines. It was financed under the
“Netback” scheme, according to which gas prices in the country of destination are associated
with pricing for competing fuels, and the payment for gas didn’t include the transportation costs.
The growing problem of the competitiveness in the European industry was pushing the European
Union to create a more competitive and more efficient energy sector.
3. The liberalisation of the European gas market.
The goal of liberalisation was to create a more competitive and efficient energy sector. The
liberalisation of the European gas market had a huge impact on the global energy sector as a
whole and began to drastically change the energy market not only in European countries, but also
the energy policy of the main gas exporting countries, in particular Russia. In 1996, the European
Union adopted the Electricity Directive, and two years later the Gas Directive. This documents
provide general rules for the energy markets of the European Union. (Pantin V. I. Cycles and
rhythms of history 1996.)
In January 2007, a report was presented on the future of the EU energy policy. It provided for a the
third parties a draft legislation relating to European gas and electricity markets. The main provisions
of the draft in relation to natural gas markets were:
• a mutual review on the energy and environmental issues;
• establishment of a European Energy Regulatory Agency for monitoring cross-border issues;
• strengthening the energy security and accelerating the energy integration markets;
• increasing the market transparency.
In 2009 appeared the division of energy companies into generating and network companies. Some
companies had to produce and sell the energy, while others that are not directly related to them had
to be responsible for its delivery. The ENTSOG, was established at the initiative of the European
Commission, to ensure the stability of gas supplies to European consumers and gave equal
conditions of access to the gas suppliers to distribution networks.
Current trends of the European gas market
Currently, in the EU are three groups of countries that can be distinguished by the level of
development: large gas units, transit countries and end users. Countries claiming to be the EU gas
units (Belgium, Germany, Spain, Italy, Great Britain) are engaged in gas production, export, import
and independent transit. Transit countries (Austria, Hungary, Slovakia, Czech Republic) control the
flow of gas, and their weight in the international gas arena is determined by geographical location.
End-users in the EU are countries that are not sufficiently integrated into the European gas
transportation network (Portugal, Finland, Sweden, Latvia, Lithuania and Estonia). (Gubaidullin A.,
Campaner N. Gas in Europe: is there an alternative? 2006. No 1.)
The structure of the gas market in Europe has been historically formed under the influence of gas
flows from the regions of the North Sea, North Africa and the USSR. The countries that have direct
access to the North Sea have become the largest European producers (Great Britain, the
Netherlands, Denmark), and the network of gas pipeline has been developed from north to south to
connect the resources of Belgium and France, and then Italy and Spain.
In recent years, the use of the LNG has begun to actively develop. The presence of country's LNG
terminals allows them to import gas from Algeria, Nigeria and the Gulf States. LNG terminals with
contracted gas volumes, the crossing of a large number of gas pipelines allows the development of a
node in which the gas flows can be controlled . In Europe, there are already several such nodes
(hubs). (The Europe regions, markets and hubs Fig. 9)
The main reason for the growth of demand for natural gas is the fast increase in the share of natural
gas as a resource in the energy sector. The power generation sector was switched to the use of
natural gas. For European countries, it is very important that the environmental characteristics of
gas make it a relatively clean fuel for power station and power plants.
Domestic gas reserves and the domestic supplies of natural gas in the European Union countries are
limited. There is a steady increase in consumption. After the fourth and fifth extensions of EU in
2004–2007 , the dependence of EU on gas imports increased by 17% (from 48% in 1999 to 64% in
2009) . The reserves of Great Britain and the Danish reserves of the North Sea, which constitute the
bulk of EU gas, may soon be almost completely depleted . Taking into account the fact that the EU
own fields are depleting, the power industry is increasingly focused on the use of gas, also taking
into account the processes of mutual integration of the power and the gas industry in the region.
(Christie E. European security of gas supply – A new way forward 2009.
http://www.tse.fi/FI/yksikot/erillislaitokset/pei/Documents/Ju- lkaisut/Liuhto
%200809%20web/pdf.)

EU environmental policy
For the EU, are important that the environmental characteristics of gas make it a relatively clean
fuel for heat and power plants. Natural gas is more efficient than coal per unit of energy. Plans for
winding up the nuclear power in Sweden and Germany include a partial replacement of nuclear
power plants with gas. It is expected that after the closure of polluting coal power plants in Poland,
Czech Republic, Estonia and Bulgaria, these countries will increase their dependence on gas
supplies from Russia.
The main suppliers of gas in the EU are currently Russia, Norway and Algeria. The depletion of
the North Sea will increase the dependent on imports: the EU's gas imports could reach from 200
billion m3 in 200 to 650 billion m3 in 2030. The imports in this period may increase from 38% to
70%, and the biggest part will came from Russia and Algeria. (A. Kidyamkin. Formation of a
strategy for cooperation between Russia and the European Union in the field of natural gas transit in
the context of globalization of world energy 2014.)
As it was described before the natural gas consumption in Europe grew steadily in the previous
decade (with the exception of the crisis year of 2009), reaching its maximum in 2010 (597.9 billion
cubic meters).Europe is the only region of the world with such negative dynamics.
In the ( Fig.10/11) is shown the “Additional natural gas demand per country in 2015, 2016, and
2017”. We can see that in the last three years there has been an increasing that was concentrated
more in Germany, Italy, Turkey and UK, and a lesser extend in Spain. In 2017 the biggest extend
was in Turkey (+7.1 bcm) (started to have considerable big import volumes from Rusia

“Gazprom”- project TurkStream and BlueStream since 2017), in 2016 Germany (+10) and UK
(+12.6).(The Oxford Institute for energy studies.Natural gas demand in Europe in 2017, p.4).
Eastern European countries are more energy intensive than Western. And as it was said before the
gas intensity of countries depends on the historical availability of gas.
 One
of the priorities of the energy policy of individual countries in Eastern Europe is the development of
natural gas production. These include Bulgaria (development of offshore fields and shale gas),
Poland (traditional deposits, coal gasification), Turkey and Romania.
According to the strategic documents of the Eastern European countries energy sector, the
consumption of natural gas in the future until 2030 will be largely determined by the demand for
gas from the electricity sector (power plants). Under the influence of this factor is expected an
increase of gas consumption in Czech Republic (+ 7% for 2017–2030) 2, Hungary (+ 10%), while
in Poland it will hardly change - 20.2 billion cubic meters. m in 2030 against 20.1 billion cubic
meters. m in 2017. Replacing the electricity with gas for heating and domestic needs will determine
a demand for it also in Bulgaria (+ 9% by 2030) and Serbia (+ 25% by 2030).
A significant effect on the dynamic of the gas consumption in a number of Eastern European
countries will have the demand from the industrial sector. This factor will determine the volume of
natural gas consumption in Romania, Turkey, Greece (an increase from 4.9 billion cubic meters in
2017 to more than 7 billion cubic meters by 2030) and Croatia - there it can increase from 3 billion
cubic meters. in 2017 to 6 billion cubic meters in 2030. (IEA, Oxford Institute for Energy Studies,
Analytical Center based on the strategic documents of Eastern Europe in the field of energy 2019)
 

(Fig.14)Forecast of natural gas consumption in Eastern European countries in 2018–2030

 (Greece)
(Serbia)
(Slovakia)
(Turkey)
(Bulgaria)
(Czech Republic)
(Poland)
(Austria)

One of the most important goals of the state policy of all Eastern European countries in the gas
sector is to ensure their energy security, due to the diversification of sources and routes of supply of
natural gas, owing to the high dependence of these countries on its import.

3.2 The strategy analysis of TNC Shell entering the European market
One of the most important oil and gas companies in the present is the oil and gas corporation
"Royal Dutch Shell”.
It was formed in 1907 as a result of the merger of the Dutch company "Royal Dutch Petroleum
company" and the British "Shell transport trading company".
In our days, Shell is the fifth largest company in the world, and the largest in Europe ("2018 Shell
Financial Statements: ROYAL DUTCH SHELL PLC 4TH QUARTER 2018 AND FULL YEAR
UNAUDITED RESULTS”). The main areas of production and business activities of Shell include:
exploration and development of oil and gas fields, extraction and processing of hydrocarbon raw
materials, production of petroleum products, a wide range of petrochemical products, as well as
LNG, transportation and sales of oil, gas, refined petroleum products and petrochemistry.
If we look at the ownership structure of Shell, for a long time it has been functionally divided
between several parent companies and holding companies. The holding companies were owned by
three parent companies, namely: Dutch Shell Petroleum N.V. and English company Shell Petroleum
Company Limited owned 60% of the shares, Shell Transportation and Trading Company owned
40% of the shares. In 2011, In summer 2005, the shareholders of Royal Dutch Petroleum Company
and ones of The "Shell" Transport and Trading Company approved the merger of the parent
companies into one company naming it “Royal Dutch Shell”, and opening the headquarters of Shell
in the Netherlands.
As a result of the merger, the Netherlands has become the largest investor in the world, and the UK
the largest recipient of investments, with a total amount of 164.5 billion dollars.
Shell is an international group of energy and petrochemical companies. The group is present
in more than 130 countries, and the number of employees worldwide is over 110,000. Shell is
committed to ensure that the global oil and gas reserves continue to be produced and transported
profitably. Shell’s strategy and priorities for the future are: "more production and profitable
downstream." Shell focuses on the supplies and growth using its existing portfolio.
For Shell, the Competitive technical Intelligence (CTI) is one of the most important tools used
in the formation of the company’s strategy process. In order to achieve a comprehensive and
predictive vision of the competitive environment, is required an understanding of both the dominant
technological trends and future developments for a long term. The strategy formation process is
supported by the CTI, which addresses such topics as business needs, market dynamics, key
players, and internal competencies.
Manjula N. - the senior strategic analyst at Shell Global Solutions, says: “Our analytical work and
intelligence activities provides us with the necessary basis to determine the priorities in strategic
actions, as well as for ensuring their timeliness. Shell has been analyzing its business environment
for a long time, and we are the supporters of it’s business planning, which is supported by the
information thats effectively analysed . ” (Manjula Interview Report 2017)
She also notes that the quality of the planning process should not depend on staff rotation.
Systematic intelligence activities will be needed to ensure that the quality of the information that is
used for a strategic planning will remain stable or it will improve over time.
The support and the improvement of the process of technological intelligence thats is used in
strategic planning does not constitute anything daunting, but still requires a constant work of a
certain number of employees. Manjula N. describes how time-consuming process of starting and
managing is: “First of all, you need to create a good portfolio of information sources, which takes a
lot of time.
The collection of public information is the first step, but numerous expert networks, both
internal and external, should also be formed. In the end, management will have the opportunity to
directly consult with experts, but in order to achieve this is a phased process that may take years. “
In the matrix below is presented a systematic approach to the formation of the intelligence operation
that Shell is using. Manjula N. commented: “We first developed a database of competitors and
customers, after which we moved to business models, partnerships, and the industry value chain.
After carring out the preparatory work, we can now form scenarios for the development of a future
industry landscape. ”
 During the course of the process they have concluded that all three keys factors of the
success that are involved in this process had to do with the understanding of why they have
created their own intelligence capability:
1.Interaction with key decision makers (DM) in order to expand the actionable intelligence
2.A deep understanding of the information needed for the decision makers
3.Willingness to adapt the intelligence operation based on the changes in strategic decisions

The intelligence framework developed by Shell to understand the key player strategies and the
future technology:
This Technological map ( Fig.15 ) consists of blocks, which can be described as:
1. Issue framing
If the focus is not on the right issue, they they will not be able to conduct a qualitative analysis and
give good recommendations. It is extremely important to have a dialogue with top management to
identify the issues that are in the centre of attention.
2. Collection of the information from Internal Sources
First of all, the information is collected from internal sources to form a information base on the
focus issues.The results of this phase are the maps of key players, as well as an overview of the
thought leaders.
3. Collection of information from External Sources
The analysis of the external sources, such as publications, Internet researches, intellectual results
and external expert interviews”.
4.Analysis
This phase includes positioning, analysis of patents, partners, benchmarking, as well as the analysis
of 5 market forces. As a result, an exhaustive analysis is done of the existing and future trends,
uncertainties and problems, as well as the movers& shakers that are in the industry. Based on the
analysis, the competencies needed to effectively respond to the changes that can appear in the
industry are identified .
5. Workshops
The workshops are used to verify and confirm the results of the analysis, as well as to elaborate a
compound of the uncertainties, opportunities and challenges.
6. The result
The result of this process are the strategic alternatives that Shells’ management evaluates and uses
for making decisions.
By using a systematic approach for understanding the technological business factors, Shell
has been able to improve the quality of its strategic planning and future developments. The diagram
below (Fig.16) shows the strategic positions of oil key industry players. Based on this analysis, the
strategic planning is carried out to determine the order and time of the Shell's own actions and
activities.
\

The uniqueness of Shell’s global business :

- It has more than 110,000 employees who speak 51 languages and work in 140 countries.
- Shell conducts geological exploration and production of oil and gas in more than 70 countries of
the world.
- Shell accounts for about 3% of world oil production and 3.5% of natural gas.
- The volume of oil and gas production in 2016 amounted to 3.7 million barrels of oil equivalent per
day,
- 20% of the world's solar panels are made by Shell.
- Shell owns the world's largest network of gas stations, serving under a single brand, which has
more than 44 thousand service stations worldwide.
-“Every four seconds, at least one plane refuels Shell jet fuel.” During this time, 1,200 vehicles are
serviced at the Shell petrol stations.
- Shell owns in whole or in part more than 50 refineries.
- The sale of the company's chemicals achieved £1.6 billion.
- The company successfully develops the deposits of non-ferrous metals and uranium in Australia,
Canada, Germany, non-ferrous metals in New Zealand, Great Britain, Morocco, and uranium in the
USA and Spain.
- For the seventh year in a row, the Shell brand has been ranked first in popularity among motorists.
-It also owns (fully or partially) oil pipelines in the UK, Germany, the Netherlands, Switzerland,
Austria and the USA.
These figures are enough to understand the scale of the company, and, consequently, its need for
labor resources. Royal Dutch / Shell realised that a career in a company is a product, and that the
candidates are its customers. ("8 Apr 2015 - Recommended Cash and Share Offer Announcement"
(PDF). Royal Dutch Shell)
Also Shell develops lightweight drilling rigs for offshore fields. Research and development is
critical to the continued success of Shell, which has large research centres in the UK and in the
USA, as well as a number of other smaller laboratories.
Currently, Shell has adopted the concept of “corporate venture financing”, with a budget of $125
million for an investment over the past five years. Today, the company applies this concept as a key
opportunity for incorporating innovations through a full range of financial transactions, acting as a
catalyst for change to shape its future strategy of an innovative leader in the oil and gas industry.
The concept of corporate venture financing allows the oil and gas company Shell to develop and
implement promising innovative projects that provide the company with competitive advantages in
the global market.
The operations of Shell can be divided into 4 groups:
1.Upstream- it operates the searches for crude oil and natural gas, after recovers it and controls the
upstream and midstream infrastructure necessary for to deliver it on the market.
2.Integrated Gas and New Energies – manages liquefying natural gas, converting gas to liquids and
low-carbon opportunities.
3. Downstream- operates the company’s manufactures , distributes and ships the crude oil, also is
manages the marketing activities for chemical and oil products.
4. Projects and technologies- operates the delivery of the companies main projects, ensures the
technical services, provides the technology for the upstream and downstream activities. ("What we
do". Shell Official website.)
The company has also an imposing asset portfolio with a significant number of developments
and projects. We will analyse just a few of them:

1. Africa (example of Nigeria)

Shell began its activities for oil in Africa since 1950s, and in Nigeria in 1958, after expanding its
upstream oil sector in Egypt, Algeria, Morocco, Tunisia, South Africa and in the the downstream
sector in other 16 countries. ("Where we operate". Shell 2018). In those countries Shell had a huge
production of barrels of oil, as for example in Nigeria it reached 4 million barrels per day, making
Nigeria number 1 gas flares worldwide. (Oluduro 2014, p. 27-28).
The African weak government and the high level of corruption made the government wanting
control over the oil operations. With the signing of the “Joint Venture Agreement: Shell took 30%,
Nigerian National Petroleum Corporation (NNPC) 55%, Total Exploration and Production Nigeria
Limited 10% and Nigerian Agip Oil Company Limited 5%. ( Shell Nigeria. Shell Petroleum
Development Company (SPDC) 2014, p.37 )
When NNPC started to have funding problems because of inadequate allocations from the countrys
federal budget, oil companies lend money to NNPC which undermined NNPC’s ability to exercise
full regulatory and monitoring powers over the oil companies. But ss Nigerian national budget was
depending almost 90% from the oil income, the government didn’t impose consequences over oil
companies when they exceeded their powers. The Nigerian communities were excluded from the
benefits of the oil business, and this brought a negative impact on the society and environment.
Shell started to be accused for the violation of the human rights in Niger Delta. (Rieper 2013, p.22)
The oil pipelines that were close to the villages were exploding and oil leakages were happening
every day. This situation has released a toxic substance in the air, and even until today, the gas
flaring remains Nr.1 environmental polluter in Nigeria, degrading everything in that region, making
the fauna, flora and even people to die. In 2010 the company started a divestment from the
downstream countries, as protests and strikes started to brake out. The conflict between Shell and
the local communities still continues until now. (STEINER , Richard, Double standard: Shell
Practices in Nigeria Compared with International Standards to Prevent and Control Pipeline Oil
Spills and the Deepwater Horizon Oil Spill 2010, p.5). However Shell continues its activities of
extracting the crude oil from the Niger Delta, and as well the downstream activities in South Africa.
("Stakes in four Nigerian oil fields being sold by Shell” 2015, p.3)
2. Canada
In 2018 Royal Dutch Shell has announced an agreement of investing in western Canada a project of
liquefied natural gas, constructing a route to Asia for North American gas. The project is already
under construction, and has a strong support from the local community. The amount of the
investment is of $40 billion. This projects is an important mile stone for Canada as for the global
gas industry. Threw this project Canada will gain the capability of sending its cargos to Japan on
only 8 days compered to the 20 days that are now. This project is based on the assumption that
China and Japan will replace the usage of coal with the liquefied natural gas.
At the moment Shell holds 40% of the LNG of Canada. ( Bloomberg L.P. 2018)

3. Russia
Royal Dutch Shell is one of the largest foreign investors in Russia in terms of investment. It
participates in the development of the Sakhalin-2 PSA project, together with Gazprom and the
Japanese Mitsui and Mitsubishi. The company also plans to take part in the development of offshore
oil and gas projects together with Gazprom.
Shell in Russia is actively engaged in the marketing of lubricant materials - the group accounts 20%
of the total import of industrial and engine oils to Russia. At the Domodedovo airport, Shell charges
more than 30 airlines. In St. Petersburg, Moscow, Vologda and other regions, the company has a
network of gas stations (as of June 2013 - 100 stations). In August 2010, the construction of a Shell
lubricant plant which worth $100 million began in Torzhok, and it was opened in 1012. It produces
200 million liters of products per year. This Shell plant from Torzhok is part of a regional group
which unites the Shell-production of lubricants in Europe and Africa. The products of the plant are
also supplied to Russia, Belarus, Kazakhstan and Ukraine. ( Shell will launch the production of
lubricants in Russia - www.rian.ru/economy/20090831/183097983.html // RIA Novosti, August 31,
2009)
Shell will also join the consortium to build two new gas pipelines for the project “Nord Stream”
witch will have a capacity of 55 billion cubic meters of gas per year. “Shell will be also the first
company with whom Gazprom will hold talks on the implementation of the Baltic LNG project,
which is scheduled to launch in 2020. This plant and Nord Stream will have one resource base.
By purchasing GB Shell will strengthen its position in the LNG market. Gazprom intends to
continue to adhere not to a European, but to a Eurasian strategy. “The Eurasian strategy is a global
strategy. LNG will play a more significant role in the implementation of this strategy than in
Europe, ” says Alexey Miller, the Chairman of the Board of Gazprom.
Another project that these two companies have took sides was the development of the Russian
Arctic shelf and the deepwater shelf abroad in 2013.
Shell has seeked to increase the shares of Russian LNG in its portfolio not only from the expense of
Gazprom, but also entering into into a 20-year contract with Novatek for the purchase of 0.9 million
tons of LNG per year from Yamal LNG.

Other Shells’ projects:

-Atabasca Oil Sands (Athabasca Oil Sands Project) (Alberta, Canada)
-Gas field Groningen (Groningen gas field) (north-east of the Netherlands)
-Na Kika (Na Kika) (Gulf of Mexico, USA)
-Sakhalin-2 (Sakhalin, Russia)
-Production of liquid fuels from gas (Pearl Gas to Liquids) (Qatar)
-Bonga (Bonga Deepwater) (Nigeria)
-Petrochemical Complex in Nanhai (Nanhai Petrochemicals Complex) (Guangdong Province,
China)
-Kashagan Project (Kashagan Oil Project) (Kashagan field, Atyrau, Kazakhstan)
(Oficial Shell website)
At the moment, the company is actively engaged in a number of projects related to the improvement
of oil production and technologies that are used

Vertically integrated oil companies like Shell provides an entire production cycle from the
production, refining and sales of petroleum products to delivery to the end users. Stability activities
of the company provides stability in the flow of funds in the state budget, but does it provides
stability and improvement to the environment and to the communities?
In the history of Shell have been quite a lot of scandals and conflicts developed, here are few of
them:
1. Canada
The Shell's open mines in Alberta, Canada in 2014, are destroying the habitat of local residents
year after year. For its production, the company takes clean water from the Athabaska River.
Every year it is more than 600 million cubic meters, the volume of this fresh water is sufficient to
supply three million people. After the usage, the water is so polluted that it cannot be returned to
the river. This is especially dangerous in the dry season - after withdrawing the water level in the
tributaries of the Athabaska drops to a critical one. This is an irrecoverable damage to fisheries,
as well as to the caribou deer, that is the main animal in the culture of Canadian Indians - over the
past decade there have been two times less deers. (Favorscaya M. The dark side of Shell, 2015)
2. Arctic
Shell's Arctic Story began in 2009, when the company announced its intention to drill three wells on
the Alaskan shelf. In 2012, Shell failed the tests of its rescue ship Arctic Challenger, when the Coast
Guard said the bottom of the ship was “crumpled up like a tin can.”.
The drilling vessel named “Noble Discoverer” that Shell was trying to pass off as a modern
technology, was actually one of the oldest drilling rigs in the world, as it was built in 1966 as a
wood barge. In November, a fire broke out on the Noble Discoverer due to an engine failure. A few
days later, the coast guard detained it due to failures in safety systems and pollutant emissions into
the air.After several years of unsuccessful attempts, in 2012, Shell managed to start drilling the
arctic wells. But this attempt ended as a real catastrophe when the drilling rig got into a storm, ran
aground and was damaged so seriously that it had to be written off as scrap metal.
The US Coast Guard, after an investigation concluded that its main reasons were inadequate risk
assessment and poor management. In 2014 Public organizations were able to prove in court that the
company deliberately downplayed the impact of oil development on the nature of Alaska. The
company got a fine of $12 million, as it has a "long list of violations, risky actions, mistakes and
attempts to deceive", which led to "engine shutdowns, equipment damage, the creation of dangerous
situations.” (Steven Mufson, ‘Shell says it won’t drill in Alaska in 2014, cites court challenge ’, The
Washington Post, 30 January, 2014 ).In 2015 Shell returned its activities to Arctic, but Greenpeace
discovered that drilling in the Chukchi Sea threatens not only the nature of Alaska, but also of
Russia, in particular, the famous Wrangel Island Arctic reserve. Shell is promising modern
technology and brilliant prospects, but at the same time the company's documents do not contain
practically any information about how it will deal with transboundary pollution. (BOEM ‘Chukchi
Sea Planning Area Oil and Gas Lease Sale 193 in the Chukchi Sea, Alaska Draft Second
Supplemental Environmental Impact Statement.’ 2014, p.154)

3. Nigeria
In the Niger Delta, Shell pumps oil already half a century and extracts up to 15% of its raw
materials. Nigeria, thanks to Shell, is one of the champions of the world in oil spills. But the leaks
occur almost ten times a week. At the same time, the number of accidents every year are increasing:
if in the 80s, Shell poured about 30,000 barrels (over five years), then over the five-year period in
the 2000s - almost 300,000 barrels! The main reason are the pipe wears. Part of the spills, from 20%
to 70%, the company was writing off on local residents. But as the locals cannot be verified, in this
way Shell eliminated the need to pay compensation to the victims. This is how Amnesty
International describes everyday life here: “People have to drink polluted water and wash in it. They
eat food poisoned by toxins. Agricultural land is polluted, as is air. People suffer from skin and lung
diseases, and the government doesn’t even measure the level of air pollution ”*.
In 2009, the Dutch court accepted the charges of the farmers from Nigeria against Shell. And only
in February 2015, the company agreed to pay to each victim less than $ 300. ("Stakes in four
Nigerian oil fields being sold by Shell” 2015)

Only a few of such situations are described, as the big picture is much more terrifying. All of this
situations, conflicts and scandals are putting a big spot on the image of the company. The company
became one of the top 5 largest, richest and most powerful TNC in the world, but what was the
price and did the companys’ strategy had such a purpose or it was just a strategic mistake.

CHAPTER 4
4. THE IMPACTS OF ACTIVITIES OF TRANSNATIONAL ENERGETICS
CORPORATIONS (TNEC) ON THE ENERGETIC FIELD AND EUROPEAN ECONOMY

4.1 Global Oil Markets: problems and future prospects

More than fifty years ago, the oil reserves on our planet exceeded the natural gas reserves by almost
half. Today, the explored reserves of natural gas in the world are almost equal in terms of their
performance with oil and it continues to grow. Modern society can not do without the use of natural
gas, as it is environmentally cleaner, cheaper in cost, has a more simple pipeline transportation and
distribution, respectively, without gas it becomes increasingly problematic to develop such an
industry as engineering, petrochemical and refining industries, etc. One of the priority sectors in
which
natural gas is used is the communal sector. Actually, another advantage of using natural gas is that it
contributes to automating technological processes, improving product quality and reducing its cost,
and also, which is important, increases labor productivity. And of course the main advantage of this
type of fuel is it is more environmental friendly.
(Fig.19 World proven gas reserves 2017)
Based on Figure 20, the leaders as largest reserve holders are countries such as Iran, Russia,
Qatar, Turkmenistan, the United States, and United Arab Emirates.
As we can see from Figure
21, the situation looks a
little different. The
Middle East is the
leader in terms of
production,
Russia is the main
challenger. On the 3rd
place is Africa.
Traditional consumers of natural gas is the industry of the transport sector, where, when used in a
liquefied or compressed form, natural gas is an effective motor fuel, reducing atmospheric pollution
by 45-65%. Consumers are also sectors such as agriculture, services, households and the energy
sector.
In terms of consumption of gas there are 4 major energy states: the United States, whose gas
demand exceeds its own production, Russia, China, Iran.(Fig.22 (calculated the consumption in in
billion cubic meters, Romania has 11.9 m.).
The actual resource of natural gas can not replenished itself and it can also not be formed by
itself, therefore, it is necessary to extract and consume it as rationally as possible. According to the
BP Statistical Review of World Energy 2018 , we can talk about 193.5 trillion m3 of proven gas
reserves. About 125 trillion m3 of gas is supposedly hidden in the bowels of the earth. According to
some sources, this gas should be enough for humanity for about 70 years. Iran, Russia, Qatar,
Turkmenistan and the United States remain the leaders in gas reserves, while the United States,
Russia, Iran, Qatar and Canada remain the leaders in gas production.(BP Statistical Review of
World Energy 2018, p. 26)
At the moment there is still some tension between Europe and Russia because of the events in
Ukraine. Russia exports 37% of its natural gas to Europe, and after the Ukraine crisis, Russian
exports to Europe have risen to record levels in the last two years. But the politicians in the US and
in the European Union offer Europe to abandon the purchase of Russian gas and to get it from
another source. So why does EU still depends on Russian gas?
Well one option can be to increase the gas supplies of Norway. But Norway is not able to
significantly increase the gas supplies to Europe in the event of a reduce purchase from Russia. By
2020, Norway plans to increase gas production to 130 billion cubic meters per year from 110 billion
cubic meters in 2013. In this way, Norway can give only an additional 20 billion cubic meters per
year.
Another option can be to provide Europe with shale gas from the United States. However,
according to experts, American shale gas is not able to expel Russia from Europe. For a start, both
Europe and the United States will need to spend a lot of money to build an infrastructure for
exporting liquefied natural gas to Europe. (Basedau, M. A Paradox of Plenty? Rent Distribution and
Political Stability in Oil States.2016.)
“Forbes” analysts say that the suppliers from the United States can export LNG to the EU only
by sea. In our days, there are four LNG terminals that operate in the United States, but only one of
them, Corpus Christi, has a contract with Europe to supply 20 million cubic meters of LNG per day.
In April 2016, the United States just started to export LNG to Europe. And Europe itself still needs
infrastructure for receiving LNG tankers.
The third option can be to use the states of the Middle East, namely Iran and Qatar. But after the
introduction of economic sanctions, which where supported the EU, Chinese companies came to the
Iranian market, and started to fully control the oil and gas complex of Iran and are actively working
to develop the largest gas field on the planet named “South Pars” and the main volumes of gas will
be sen from Iran to China .
Also Qatar owns a significant share in this field, they supply gas to Japan. After Japan turned off
its nuclear power plants, they need 157 billion cubic meters of gas a year. Japan set the highest gas
prices in the world, which is why almost 40.8%, gas from Qatar goes to Japan and also to South
Korea, 16.3%, Singapore, 11.8%, Thailand, 4.6%, India, 4.4% .
So we can conclude that replacing the Russian gas with alternative sources will be too expensive.
Thats why Russia will remain the main supplier of gas to Europe for at least another 20-30 years.
And if Russia will be able to successfully further develop the transport infrastructure and gas
liquefying infrastructure in the east of the country, it will be able to use the benefits of its
geographical position and it will remain one of the main players in the gas market.
If we look at the prospects of development of gas markets, we can notice that one of the main
trends affecting the energy consumption forecasts, is the growth of the planet’s population, because
it remains the key driver go energy demand. The population will increase by 25% and reach 9
billion people by 2040. Population growth will lead to an increase in the global GDP, therefore it
will be an increased need for energy.
The industry will remains the main source of growth for primary energy consumption. The
transport sector continues to grow, but by 2035 it will begin to decline, firstly because of the
appearance of electric cars. Another major component of gas energy growth is used in other sectors
(housing and communal services and agriculture).
With the globalization of the gas market, geopolitical issues arise. Experts have different
opinions on this. Some say that the gas trade will strengthen the relations between importing and
exporting countries. Others believe that this will increase the dependence on imports and this will
eventually provoke political upheavals and economical difficulties. Any tensions and regional
conflicts in the gas supplying countries can lead to the blocking of gas supplies, and as a
consequence to unpredictable consequences of the economies of the countries associated with gas
supplies from these territories. (Yergin D. The Quest: Energy, Security, and the Remaking of the
Modern World. 2012 832 p.)
Currently we there are 3 formed regional gas markets. (North American, European, Asian) and 5
forming (CIS, Central and South America, Near and Middle East, Australia and Oceania, Africa).
Many experts believe that the formation of one single global gas market until 2040 is not foreseen
for several reasons.
Firstly, gas still remains a regional energy, while oil is global. And, proceeding from the
historical circumstances, the regional gas markets are relatively isolated from each other, and most
of the international gas trade is having intra-regional routes and does not belong to the global
market.
And one of the most important reasons is that the markets will remain divided, since for
regional gas markets it is quite natural that there is no single global gas price, taking into account
the specificity of gas as a commodity and because each region has its own pricing system , and it is
not at all easy to restructure in a different way due to the established historically relations between
countries. (Eremin S.V. World gas markets in the context of globalization: problems and prospects
for the adaptation of pricing mechanisms. 2013)

4.2 Comparative analysis of oil companies Gazprom and Shell

“Strategy is the art of creating value” (Zorska 2000, p.146)
This comparative analysis is a comparison of the performance of two transnational company's Shell
and Gazprom, using financial analysis, benchmarking, strategic analysis for the internal and
external environment. It allows us to assess the possibility of forming key competencies, but also
reflects the competitiveness of the organisations.

1.Analysis of the working environment (competitive environment)

One of the most common tools for analysing the competitive environment is Porter’s analysis model
(the “ Porter’s Five Forces” model).
Gazprom

Bargaining power of buyers
Threat of new entrants
Threat of substitute products
and services
Gazprom is one of the leaders in the sales of
petroleum products, and also it has many related
projects that makes the threat of customers to be
LOW
reduced to a minimum.
Also the number of buyers far exceeds the number
of suppliers.
The threat of new entrants in the oil complex is
extremely small, since organizing a business in this
industry requires large investments to acquire
LOW equipment and technologies, develop new fields,
and establish sales channels. Therefore, today the
independent oil companies that have entered the
industry do not pose a major threat to competition.
In the modern economic and technological
conditions, oil and petroleum products remain the
main sources of energy that can meet the growing
energy needs of all sectors of the economy. The
steady demand for petroleum products is also due
to the indispensability of this energy source in
many sectors of the economy.
LOW Today there are no acceptable technological and
technical solutions for the transfer of transport
engines and equipment to other energy sources.
That’s why Gazprom products will not have serious
fluctuations in demand in the future. According to
some analysts, in the future the demand for oil and
oil products will only increase.

Rivalry among existing players
Bargaining power of suppliers
The evaluation of the competitive environment shows, that Gazprom is not strongly influenced by
the five competitive forces due to its leading position in industry competition, vertical integration
The company main competitors on the regional
market are “Lukoil” and “Rosneft”. On the
international level the market for petroleum
products is highly competitive and promising.
There is an opportunity to compare products from
MIDLE different companies. Also there are restrictions and
price differences. But since Gazprom is one of the
main suppliers of oil and gas in the world market, it
has the opportunity to regulate itself the policy of
its products, and to implement its own policy rules.
Gazprom depends on the infrastructure and tariffs
of natural monopolies.
Changes in prices, customs duties and transport
tariffs may have a negative impact on the range of
products, revenues and supply routes to Gazprom.
Any serious malfunction of the pipeline system or a
restriction in access to the facilities of Gazprom
may disrupt the transportation of oil and oil
products in the company. On the other hand,
MIDLE
vertical integration allows the company to unite
under its control enterprises that ensure the entire
production cycle - from production to sales. Long-
lasting and well-established communications
between the supplying companies, which are part of
a vertically integrated structure, provide Gazprom
with uninterrupted and timely deliveries of
materials and equipment at the required price.
and high production potential. Still it has a middle threat from the among existing players , but it is
not critical, since the company itself is a “giant” in the industry.
Shell
Bargaining power of buyers
Threat of new entrants
The number of the suppliers are less that the
number of buyers, which means that the buyers
have just a few firms to choose from. But the
MIDLE powerful costumer base and loyalty of Shell is
also increasing offers and discounts from the
company that can put pressure on Shells’s
profitability.
The entry in this industry is quite difficult for the
new entrants because:
- the government policies are very strict and the
capital requirements are very high
- Its quite difficult to achieve the economies of
scale, thats why the large capacities of
LOW
production for Shell is a cost advantage
- The oil and gas industry requires an expensive
capital (especially in the R&D field), thats why
its hard for the competitors to enter this dynamic
industry.
 Threat of substitute products
and services
Rivalry among existing players
Bargaining power of suppliers
There are very few substitutes that are available on
the market for this products, but they are of an
higher quality, higher price, which means that the
customers are unlikely to switch to those products.
LOW
Also Shell provides to the costumer unique
benefits, which ensures the buyer to not switch to
another product or another firm.
In this industry the number of existing players are
just a few, where most of them are giants and
brands recognised globally, but each of this firms
is having its own strategy, tactics, branding, which
concludes that the rivalry among them is high.
HIGH
In this industry the products produced can lead to
overproduction, which means that the firms have to
increase offers, discounts and to cut down prices
so that all the products can be sell, and this leads to
a profit decrease in the industry.
Shells’ number of suppliers is high, meaning that
the suppliers don’t have a lot of control over the
prices.
Shell is an important customer to its suppliers,
meaning that the suppliers profit is connected to
LOW
the industry’s profit, that's why the suppliers grant
reasonable prices.
Even if there isn’t a big competition between the
suppliers, the oil and gas companies still have an
important power over them.
This analysis shows that Royal Dutch Shell is a giant, a global recognised brand on the global
market, which still has to deal with some risks that can put pressure on the companies profitability,
like the rivalry that exists among global players and the power of the buyers. However the company
is fast in innovating new products, it is high service oriented , it builds effective supply chains with
the suppliers, and it all helps the company to manage challenges and to build a competitive edge.

2. SWOT Analysis

The purpose of the SWOT-analysis is to formulate the main directions of development of

the enterprise through the systematisation of available information about the strengths and
weaknesses of the company, as well as potential opportunities and threats.
1. Gazprom SWOT Analysis

Strengths Opportunities
1. Effective management (minimisation of costs, 1.Geographical diversification (access to the
the process of intensification of production); markets of North America and Asia-Pacific
2.Large gas reserves in Russia; countries);
3.Diversification of routes and improving the 2.Gas resources of Central Asia can provide an
reliability of gas supplies to Europe; opportunity to enter new sales markets;
4.Ability to satisfy the growing demand for energy 3.Opportunities to expand the range of products;
resources every year; 4.Control over all the competitors within Russia;
5. Leading place in the growth rate of market 5. Independence in the choice of the gas
capitalisation among European companies; supplier;
6.Large R&D investments; 95% of used 6.Leading position in the field of gas distribution;
technologies meet modern requirements; 7. Maintaining the market share in the European
7.Development of production and sea gas market
transportation of liquefied natural gas (LNG); 8. Expansion of pipelines
8. Implementation of all the requirements of the
International Labor Organisation Conventions
ratified by the Russian Federation;
9.Best advertising campaigns, sponsorship and
charity activities;
10. Stable financial position;
11. Strong brand recognition in the international
market, especially in the CIS countries;
12. Wide product range: gasoline, fuels,
automotive oils, etc.

Weaknesses Threats
 1. The use of aggressive methods to enhance the
oil has lead to a decline in production
2. High degree of state control;
3. The need to invest serious funds in the
development of new fields;
4. The value of Gazprom shares still remains
undervalued;
5. The high cost of advertising, sponsorship and
image maintenance;
6. The impossibility of ensuring the growing
demand for energy resources every year due to
the supply of LNG;
7. The lack of production facilities for processing
hydrocarbons.
1. Excessive internal regulations on tariffs can lead
to low profitability;
2.The organisation has serious international
competitors which possess large gas reserves;
3.The weakening of Gazprom’s position on the
Central Asian market due to the increase of gas
supplies by Turkmenistan and Uzbekistan to other
countries;
4. Sanctions imposed by the EU and US can have a
dramatic economic effect according to some
specialists
5. The presence of strong regional competitors in
the field of production (large vertically integrated
oil companies Lukoil, Rosneft)

The analysis of the environment and activities of Gazprom showed that Gazprom’s position on the
Russian and international market is consistently stable, as the company has great energetic, financial
potential and vast information resources. The main problems can be the competitiveness against
other gas supplying countries (Caspian region,Central Asia and the Middle East), otherwise,
Gazprom has a good basis for maintaining the current level and further development.

Royal Dutch Shell SWOT Analysis

Strengths Opportunities
1. The world's leading oil and gas company
(gas supermajor);
2.Global presence in over 100 countries, and in all 3. The decreasing costs of shipping transportation
three major world markets (Europe, Asia, North
America) ;
3. It has its own funds for competing in this
competitive industry;
4.The company has created strong brands
recognised around the world, like Shell V-Power
and Shell FuelSave;
4. High and successful product innovations;
5. Highly skilled and motivated workforce ;
6. Customer satisfaction and loyalty due to its
recognised brands;
7. Strong exploration capability;
8. Strongly improved and developed R&D;
9. A strong competitive advantage over the cost
benefit and quality control;
10. Own production of solar cells;
11. Leading position in the field of energy
generation from RES.
1. The increased demand for LNG and fuel
2. Long term profitable partnerships with Gazprom
4. The differentiating pricing strategies on the new
markets
5. Shell can engage in joint ventures, mergers and
acquisitions on the Chinese market
6. Energy demand will increase by 40% by the
year 2040 (according to the US Energy
Information Administration), in this way Shell
can take control over these demands
7. Further development of the industry of
(Renewable Energy Systems )RES based on the
companies reputation and capital
8. Government support for the industry
 Weaknesses
1. Growing debts;
2. Violating corruption laws;
3. Environmental damages caused by the conflict
of Shell’s operations in Nigeria ;
4. Violation of human rights;
5. Increased exploration expenses;
6. Expensive trainings for the development of
employees
Threats
1. Carbon dioxide emissions can cause climate
changes imposing further increasing costs to the
company as well as stricter regulations;
2. Unsecured company profitability due to the
slowdown in economic growth in the United
States and in EU;
3. Interest rate fluctuations and the war in the
Middle East
4. New environmental regulations can be a threat
to some products (Paris Agreement 2016)
5. The increasing number of market players in this
industry that are causing an intense competition
6. Certain government restrictions
7. Fluctuation of the price of crude oil

Royal Dutch Shell Plc has created strong brands that are recognised worldwide to enhance their
image in the global market. Despite all the difficulties and risks that are associated with the
company's global operations, there are opportunities for the company to expand and grow its
activities in emerging markets. To cope with the risks of globalisation of operations, it is desirable
that the company use strategic partnerships with local operators in new markets in order to increase
its market penetration. Also this analysis shows that the company has great challenges and areas that
need improvement.

3. Internationalisation Development

Gazprom
1989- The starting point of the development of “Gazprom”, which became responsible for the
production, transportation and the storage of natural gas products.
1990- Gazprom started to hold the monopoly of the export of natural gas and the formation of
different joint ventures in the countries where the products where exported. The Western states -
especially Ukraine and Belarus were important for Gazprom as transit countries to Central and
Western Europe. After the collapse of the Soviet Union, Belarus and Ukraine, introduced transit
fees, which made Russian gas exports more expensive. Ukraine tried to use it’s position on
companies gas transit to Western Europe, so because of the transit fees and the abuses during the
transit, Gazprom started to develop plans for other transit routes to get rid off the Ukraines’
monopoly and to reduce the transit costs more efficiently. Thats how pipeline projects started to
appear. (NewsBase, FSU Oil & Gas Monitor, January, 2002)
1995- Gazprom enters the gas business in Turkmenistan, Kazakstan, engaging joint ventures.
(countries chosen because of geographical, language, cultural advantage )
1998- First pipeline that was bypassing Ukraine was the Yamal pipeline, going threw Belarus and
Poland . However the construction of these pipelines could cause same gas transit problems with
Belarus like the Ukraine , thats why they thought of a solution of constructing pipeline via Finland,
Sweden and Denmark to Western Europe (Gazprom plans to deliver natural gas to Sweden through
a pipeline from Finland across the Baltic Sea (NewsBase, FSU Oil and Gas Monitor, June 200�1).
The major task of Gazprom for the next years was the control of the transit pipelines.
2000- Responsible for around 25% of the natural gas deliveries to the Baltic States, for 54% of the
deliveries to Ukraine, for 25% of the gas deliveries to Moldova and for 35% of the supplies to
Belarus. In addition, Itera is the operator of the gas pipeline grid in Armenia and Kazakhstan.
(Liuhto, 200�; Renaissance Capital, 2002; Itera, 2002).
2000- Gazproms’ co-operation with Wintershall helps the company to increase its market access to
Western Europe countries , maintaining access to the gas supply system of West European coutnries
in the downstream sector.
2002- Suggestion from Vladimir Putin, the president of Russian Federation to create a Eurasian
gas alliance with the Central Asian gas producers because of the gas deficit of 10 bam per year, and
because of the growing gas consumption. (NewsBase, FSU Oil & Gas Monitor, November 200�1)
2002- The extension of export capability of Gazprom products to Europe started to meet internal
and external problems. Starting with the rise of production costs, ending with the need of an
investment capital. Thats when the cooperation with the foreign partners started for major projects.
(the Blue Stream/ Nord Stream gas pipeline project started )(Heinrich, �999b; Gotz, 2002)
2002- Shell and Gazprom started to cooperate in different projects: Zapolyarnoye, Sakhalin-II
( Vedomosti, �7 April, 2002)
2006- Russia gain an exclusive right (a monopoly) of exporting natural gas from Russia (Neil
Buckley and Tobias Buck, "Duma votes for Russian gas export monopoly" Archived 27 May 2007
at the Wayback Machine, The Financial Times, 16 June 2006)
2007- Formation of a joint venture between Gazprom and EniSpa (Italy), construction of a pipeline
from Russia- Turkey- Hungary -Italy
2013-Gazprom starts the activities in Vietnam
2013- Gazprom starts producing oil on the Arctic shelf
2014- $400 billion contract with China National Petroleum Corporation on exporting natural gas to
China ("China and Russia sign $400 billion 30-year gas deal" 22 May 2014.)
2014- The development of TurkStream project, gas pipeline toward Turkey
2014- Started its activities on Arctic
2018- Gazproms’ record of quantity of exported gas for daily supplies to Europe(713.4 million
cubic meters of gas) (Gazprom Official Website)

The companys’ development can be decided into two stages, in the first one we can see an
institutional framework that arises from privatisation processes, and the second one started at the
beginning of 2000’s when the company embarked the expansion startegies, developing different
projects both on national and international levels, and where both have received political and
financial support from the Russian government. After the leadership gained on the local market, the
company started to compete with other TNCs, entering on foreign markets, investing in foreign
projects ( especially in the EU ones), diversifying its transportation infrastructures. The company
strategy became the implementations of long-term goals and projects, partnerships with different
foreign gas companies, which brought the company to a leading position on the global market.

Shell

1907- Royal Dutch Shell Group was formate

1906- Royal Dutch explored and produced oil in Romania

1910- Oil exploration and production in Russia

1912- Oil exploration and production in United States

1938- Crude oil production of the company counted 11% of the world total production

1985- Shell starts its operations in the United States market

1985- Development of projects Troll in Norway and the Gulf of Mexico

1989- Development of joint ventures in Hungary

1900- Production of LNG in Malaysia

2002- Oil and gas projects are developed with Russia

2002- Development of joint ventures in China with China National Petroleum Corp (CNPA)

2010- The acquisition of Australian company Arrow Energy Limited

2010- Development of joint venture in Brazil- Raizen

2012- The production of oil and natural gas in the Gulf of Mexico

2012-2018- Exploration activities in Egypt, French Guiana, Pakistan, Tunisia

Shells’ operating in over 70 countries , and during all these years since 1907 the company’s
internationalisation process was always successful. Mostly the success was based because of the
market entry strategies and because of the expansion strategy, that was applied according to
different situations.
As we can conclude from the company’s history is that the joint venture are playing a meaningful
role in the company’s internationalisation process (China, Brazil ), also the wholly owned
subsidiaries are another important strategy in the companys’ internationalisation expansion
(Australia, South Africa, Canada, Hong Kong, Nigeria, India, Pakista, Egypt, Philippines).
Other strategies that are used include: franchising, licensing, collaborative ventures, exporting,
turnkey projects. But the chosen strategy depends on different factors, like the environmental,
social, economic, cultural factors, and on particular situations.
.

*In this analysis, we will consider specific multipliers of oil and gas enterprises and conduct a
comparative assessment of Gazprom and Shell companies. In order to properly apply industry ratios
we need to have a basic understanding of the activities in which the company is engaged.
Enterprises of the oil and gas sector (Oil & Gas) are usually divided into three main segments:
GAZPROM SHELL

UPSTREAM Exploitation and exploration of The upstream activities are

gas in Russian Federation
(development of large projects) headquarter of the company -
MIDSTREAM -Development of long distance
gas pipeline into Europe and
Asia.
- The construction of several
LNG plants
centralised more in the
in Hague. There the
concentration is more on the
exploration and production
sector.
Development of pipelines,
Shell Pipeline Company ( Shell
operated subsidiaries and
investments, third party
operated investments )
 DOWNSTREAM Most of the downstream The Shell business has more
projects are in the Europe than 44.000 petrol stations all
Union ( the company’s over the world and has various
strategies are from upstream to oil refineries .
international downstream):
- established subsidiaries that
are directly linked to
Russian holding.
- -shareholdings
- Joint ventures with large
European majors

This analysis leads to the conclusion that Gazprom and Shells’ strategies are guided by long-term
goals , where Gazproms internationalisation supports the idea that the expansion has served more
geopolitical, cultural and geographical interests, while Shells internationalisation supports the idea
of the worldwide expansion as a leader in the oil and gas industry.

FIG.3 Gazprom from upstream to downstream

FIG.4 Shell Upstream-Downstream Map.
PRODUCTS SERVICES EXPORT JOINT VENTURES ACQUISITIONS
GAZP -natural gas -gas -Western Gazprom has over -2001 Gazprom
ROM -LNG transportation Countries (the 35 joint ventures, acquired NTV
-electricity services largest importers the main ones are: -2005 the
and heat - construction are: Turkey, - Gazprom and company bought
-crude oil and Germany, Italy, EniSpa (Italy), 73% of the oil
-refined installation France, UK, - Gazprom 50% company Sibneft
products - -gas and Austria, and Wintershall -2006 agreement
-gas liquid Switzerland, 50%(Germany) with Mitsubishi
condensate hydrocarbon Belgium, Greece, and Shell go
Finland, - Shell 50% and buying a share of
transportatio Gazprom 50%
n and Denmark, Sakhalin Energy
Netherlands) (Meretoyahane -2007 buying the
storage ftgas.
-Eastern and Tyumen Oil
- Exploration Central European Germany) Company
- Transportati countries - Repson and -2013 the
on and ( Slovenia, Serbia, Gazprom company
logistic Slovakia, (Spain) acquired
services Macedonia, - PetroVietnam Profmedia
- FEED Poland, Romania, and Gazprom -2014 Gazprom
services Bulgaria, Croatia, (Vietnam) acquired a
Moldova, Czech - PDVSA and distributing firm
Republic, Gazprom “Central
Hungary, Bosnia (Venezuela) Partnership “
and Herzegovina) - Saudi Aramco
-Asian countries (
and Gazprom
Turkmenistan,
(Saudi Arabia)
China, Japan,
future projects
with Korea)
ROYAL - -Transportation The company Main JV (170 -2002 acquiring
DUTC petrochemi of fuels exports total): Equilon
H worldwide:
SHELL
cals -Exploration -Asia, Oceania,
-Infineum Enterprise
-natural gas and production Africa 39,6% International Ltd -2010 acquired
-LNG -distribution -Europe 30.6% (Global, 50% East Resources
-lubricants and marketing -United States Shell 50% -2015 acquired
-petroleum -Refining 23.1% ExxonMobil) BG Group
-Other Americas
-fuels -Storage -Saudi -2017 acquired
6,7%
Petrochemical NewMotion
Company (Saudi -2017 acquired
Arabia, 50% First Utility (UK)
Shell; 50% Saudi -2019 acquired
Basic Industries Hazira LNG
Corporation) -2019 acquired
- ELLBA BV Greenlots
(Netherlands, -2019 acquired
50% Shell; Sonnen
50% BASF) (Germany)
- Petrochemical
Corporation of
Singapore
( Singapore,
50% Qatar
Petroleum
International
and Shell; 50%
Japanese
company)
- The Polyolefin
Company
(Singapore,
30% Qatar
Petroleum
International
and Shell; 70%
Japanese
interests)
- CNOOC and
Shell
Petrochemicals
(China, 50%
Shell; 50%
CNOOC)
-Raizen (50%
Shell 50%Cosan ,
Brazil )
4.Technological Innovation
1. Gazprom
Gazprom considers the development of the innovative activity and the improvement of the
technological level of the company as a priority of its activity, since only on this basis an effective
and sustainable development of the oil and gas sector, and the Russian fuel and energy complex
(FEC) can be ensured. Gazprom invests heavily in research and development.
The innovative activities of Gazprom Group include the development of long-term plans and
programs for a sustainable development of the fuel and energy complex of Russia, the development
of the resource base and the creation of new technologies for an efficient extraction of natural raw
materials.
One of the most important elements of the activities of Gazprom is the effective management of
intellectual property. This ensures the implementation of the strategic course of state policy on the
transition to the country's innovative development, improving the economic and financial
performance of the company.
In June 2016, the Gazprom Innovation Development Program until 2020 was approved. This
document contains a whole range of measures for the development and introduction of new
technologies, innovative products, and the services for extraction, transportation, processing of gas
and oil, as well as the production of electricity. The main targets for the development of an
Innovative Development Program are:
-reduction of production costs;
-saving energy resources;
-improvement of consumer qualities of products;
-increase of productivity;
-improving the environmentally friendly production.

Gazprom Key Technological Innovation Projects:

1.Key innovation project for the development of technologies aimed at improving the productivity of
wells

Name of the Introduction of a set of technologies aimed at improving the productivity of

project wells (2016-2025)
 Description The developers are faced with such technological problems as low enrolment
ratio, high skin factor, premature decline in productivity, insufficiently
efficient penetration through low-power production horizons. Solving these
problems will allow the company to increase the amount of reserves involved
in the development and improve the economic performance of field
development projects.
The goal of the project is the introduction of an advanced drilling and of
completion technologies for a cost-effective involvement in the development
of hard-to-recover and residual reserves, speed up the commissioning of wells
and reduce the capital costs. The project involves the following technological
tasks:
- Introduction of re-fracturing technology in horizontal wells
- Introduction of drilling technology for depression
- Increasing the length of the horizontal well bore
Effects Achievement of the strategic goal of extracting 100 million tons of oil
equivalent. per year since 2020, compared to the extraction of 20 million tons
of oil until 2016. The implementation of the project will achieve target values
of the KPI "Production from high-tech wells.” The project plans to introduce
the most efficient technologies available in the domestic and foreign markets.

2. Key innovative project for the development of tertiary methods of enhanced oil recovery

Years of development 2013-2021

Description The goal of the project is to create a technology that provides a cost-
effective increase in oil recovery in depleted fields in the Russian
Federation.
The use of technology will contribute to solving one of the most pressing
problems facing the Russian oil and gas industry - reducing oil
production in mature fields in Western Siberia. It is expected that the
technology can be applied in most mature fields in Western Siberia in
order to increase oil recovery.
The project is aimed at achieving the strategic goal of Gazprom to
increase hydrocarbon production.The increase in production due to the
introduction of this technology will bring additional revenues to the state
in the form of tax revenues.

Novelty level Physical and chemical methods to increase oil recovery, including
polymer flooding technology, are fairly common in the world, but soda-
surfactant-polymer flooding technology is new - only a few individual
projects have been implemented in Canada and China.
3. Key innovative project in the direction of developing unconventional oil reserves

Years of development 2015-2021

Description The goal of the project is to create a set of domestic technologies and
high-tech equipment that will ensure the involvement in the development
of more than 760 million tons of recoverable hydrocarbon reserves in the
Khanty-Mansi Autonomous Okrug and Yamal-Nenets Autonomous Area.
The introduction of technology will contribute to solving one of the most
pressing problems facing the Russian oil and gas industry — expanding
the resource base by engaging in the development of unconventional
reserves. The problem becomes more urgent with the depletion of deposits
in Western Siberia.

Novelty level The closest analogue is the technology of oil extraction from dense rocks
is in the United States. However, these technologies can not be applied in
the Russian Federation due to differences in the geological structure of
unconventional resources. In this regard, they are trying to solve the
following tasks:
1.The development of an optimal set of multi-stage hydraulic fracturing
technologies adapted to the geological and technological conditions of that
area.
2.The search for an optimal method of influence on the reservoir and the
development of equipment for its implementation

(Gazprom Official Website)

2. Shell

According to Shell , in our days the key to success of unlocking the energy world lies in innovation.
Thats why Shell is investing annually billions of dollars in the technical innovations and in R&D.
This huge investments have helped in the achievement of their strategic objectives, and brought the
newest innovations on the energy market, like: methods of oil-recovery that increases the
production from the existing field, equipment of drilling-rig that delivers wells safer and faster, a
visualisation software that shows unseen geological details, different processes that liquefies more
efficiently the natural gas, that refine better the crude oil and formulations of lubricant and fuel that
perform better, a processing design of a simplified integrated gas (Sheels’ R&D expenses , 2013.)
The company has development different projects around the world both on upstream and
downstream sectors, where the company has shown its biggest and unique innovations. Some of
these projects are:
-PERDIDO (the world’s deepest spar of 2,450 metres and the second deepest gas and oil production
hub.) in general the history of the development of deep-water is impressing (first deep-water hub
developed in 1978)
-PEARL GAS-TO-LIQUID (the world’s largest plant to turn natural gas into cleaner-burning fuels
and lubricants.) The project is developed between the joint venture of Shell with Qatar Petroleum,
and becoming one of the major project in the world. The plant produces enough synthetic oil each
year for more that 225 million cars, and enough diesel for more that 160.000 cars a day.
-STONES (the world’s deepest oil and gas project in the US Gulf of Mexico -2.900 metres) The
projects has used special types of flexible pipes, the first in the world used disconnected buoy that
unlocks the oil resources in the ultra-deep waters. The achievements made with in this project is
showing the difficulty of the production, making it a record-breaking water depth for an oil and gas
production facility.
The main accent the company is putting on is the development of innovative technologies that are
more environmental friendly and on different ways of an efficient and safely unlocking of energy
resources. One of such projects is the innovation of deep-water technologies. The history of
developing this kind of energy projects has a long history of over 40 years, but the processes and
the technologies that the company has developed are used by a lot of energy companies today. It has
instigated sure and low cost operations in the deepest weeks in the hall world. (Shells’ Official
Website.)
 EBITDA, mln $ Net Income, Net Debt, mln Cash Flow Per
mln $ $ Share, mln $
GAZPROM $39.973 M $22.395 M $46.522 M $1.12 M
SHELL $ 59.072 M $23.352 M $51.428 M $6.36 M

Financial Performance

Crude oil Refining Reserves Natural Price of Price Total Enterprise

and and of Gas gas per of sales Value
crude
Natural distribution Liquids Reserves 1.000 oil per
gas % (MMBbl cubic barrel
Production s) meters
%
8% Gas 11.280 35,355 $238 $ 55 $126. $118,34
distribution bcm 475 B
GAZPR M
- 51%
OM
Gas and
Oil
refining-
25.8%
13 % 87 % 6.258 40,541 $265 $ $388. $333,42
bcm 66.35 379 B
ROYAL M
DUTCH
SHELL

(Market Screener Equities, Gazprom Annual Report 2018, Royal Dutch Shell Annual Report 2018)
5.Internationalisation processes
The internationalisation process of a company is one of the main goal of a firm , as the chosen
strategic criteria leads the company to the achievements of its goals. Gazprom and Shell have took
different decisions of entering foreign markets even if both of them are vertically integrated
companies. We can compare their decisions with two theoretical approaches.
1. Gazprom- Increment internationalisation, also known as the Uppsala Model. The
internationalisation process of this company started with the choice of the market that was more
closer in geographical and cultural terms. As we can see in the company’s history, Gazproms’
starting point of internationalisation started from the Eastern Europe (Ukraine, Belarus) and
Northern Asian (Turkmenistan, Kazakstan) Countries, where were big cultural and language
similarities, continuing with the expansion in Nordic Countries (Finland, Sweden) where the
geographical distance, the expanses were minimum. After the company earned experience, it
has started to increase its international commitment in order to enlarge its profits and activities.
2. Shell- Global Management Firm or the OLI paradigm. The internationalisation process followed
a widespread global organisation strategy. Its members having a strong financial development.
The company’s development was influenced by 3 main factors:
-Ownership factor ( the company has already obtained a competitive advantage on the local
market)
-Location factor (the exploration of natural resources worldwide, starting in Africa and South
America)
-Internationalisation factor (starting with wholly-owned subsidiaries in UK, then starting to
export, investing in higher-powered ships that could carry more oil bunks )
(Cumberland. Theory development within International Market Entry Mode. 2006, p. 349-372)

6.Recommendations for improving the strategic management system of Gazprom

Options for improving the efficiency using various types of resources:
• encouraging the investment in the reproduction of mineral resources and the development of
deposits (national mining projects in Eastern Siberia and the Far East, Sakhalin, the northern shelf,
etc.);
• increasing the level of technological safety and efficiency of energy transmission networks;
• reducing the cost of advertising, sponsorship and image maintenance;
• Increasing the LNG production;
• diversification of gas supply routes to other countries;
Any large corporate structure is constantly changing in accordance with the logic of the company.
Gazprom is no exception. Options for improving the management structure:
• Development of the basic principles for building corporate names of subsidiaries, according to
which the name of the subsidiary should contain the name of the parent organization, Gazprom.
Transformations are necessary to ensure the structural transparency of the Company and the
visual identification of Gazprom in Russia and abroad.
• Transition of more than 60 subsidiary companies and organizations of Gazprom to a single
corporate identity, which is also aimed at improving the company's internal corporate structure.
• Delegation to subsidiaries of all necessary rights of operational autonomy and financial
responsibility, which is an important condition for flexibility and efficiency of management.
These transformations will increase the efficiency of Gazprom as a vertically integrated company
and will significantly increase its competitiveness.

The strategic management system of Shell

Shell has achieved tangible competitive advantages, thanks to the excellent work of the strategic
planning. Thanks to scenario planning, Shell managers managed to foresee the collapse of oil prices
since 1986. They have taken big steps to ensure profitability even in such unfavourable situations,
while its competitors were in the illusion that in the 1980s. oil prices will remain high. After that the
Shell’s analytical planning methods were developed to such a level of depth and complexity (using
the best interdisciplinary team of advisors in the world) that they made it possible to start creating
scenarios for two-year development cycles.
The only factor that they are not taking into account is that even if they say that their strategy is
based on the safety of the environment, their acts are showing sometimes the opposite, which puts a
big spot on the image of the brand and on the companys’ trustworthy.

Conclusions
As a result of this work, has been explored in the first part the nature, structure and functions of
transnational companies, positive and negative aspects of TNC activities in the global economy
were identified, and in the second part has been studied the activities and the strategies of two
transnational corporations - Gazprom and Shell.
First of all we can conclude that the transnational corporations are becoming a determining factor in
the global economic system, since they play the role of an international regulator of production and
distribution of goods due to the wide range of operations, from production processes to operations
in the field of investment, financial and trade policies.The influence and scale of the activities of
TNCs are primarily expressed by the growth of their numbers.
TNCs are increasingly becoming a determining factor for deciding the fate of a country in the
international system of economic relations. Active industrial, investment, trading activities of TNCs
allow them to perform the function of international regulation of production and distribution of
products. According to UN experts, TNCs promote economic integration in the world.
One of the most powerful TNCs are operating in the fuel and energy complex.
And here we came to the second part of the study, where we analyse Gazprom and Shell TNCs , that
are one of the largest gas companies in the world; on the basis of their management efficiency, they
largely depend on the social-economical-political development of the countries where they
activate . Therefore, it was important to study and analyse their worldwide activities, their
internationalisation processes and strategies, the influencing factors and even to understand their
role in the modern system of international relations.
We can observe that the organization’s development strategy, its market position and
competitiveness are given full attention to both internal and external factors. Moreover, when
studying such large organizations like Gazprom and Shell, it is necessary to take a comprehensive
approach to the changes that are in the enterprise and in its environment.
The structure analysis and the companies activities have shown that the companies have great
potential not only in energy, but also in social, financial and information resources. However, taking
into account the external factors that are influencing these companies we can conclude that the main
threats for both corporations are the strengthening competitiveness that exists on the market of this
industry and the political regulations that are or can emerge. The strategic methods, technological
innovations that exist in the corporations contribute to an effective achievement of the companies
goals, ensuring a leading position on the global market and a rising future development.

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