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At the 2007 World Energy Congress in Rome, Paolo Scaroni, CEO of Italy's Eni (the world's sixth-largest oil company), outlined a scenario that was both prescient and wrong. He accused the European Union of "sleepwalking" into an energy security nightmare because of its "staggering" dependence on Russian natural gas. He said, "it seems incredible that the EU, which debates and legislates every aspect of our existence—including the curves of cucumbers and the bends of bananas—failed to spot what was going on in an area of such vital importance to Europeans."

Scaroni's warning came a year after Russian energy giant OAO Gazprom cut gas supplies to Ukraine for three winter days because of a payment dispute. In 2009, the Russians employed their let-the-bastards-freeze-in-the-dark strategy again. That time, the disruptions were longer and the Ukrainians weren't the only victims. About half of the Russian gas supplied to the EU travels through Ukraine, and 18 EU countries experienced gas shortages. Russia supplies 30% of the EU's gas, and a simple twist of the valve can wreak social and economic havoc.

In March, Crimea, Ukraine's southernmost region, was formally annexed by Russia after a largely peaceful invasion. The United States, Canada and the EU launched retaliatory sanctions. At first, Russia seemed to have the upper hand; if the sanctions were to bite hard, goodbye gas, hello candles. So Scaroni was right? He was, in the sense that Europe and Russia seem to be barrelling toward an energy cold war. But he was wrong about the victim. Gazprom needs the EU much more than the EU needs Gazprom.

Russia lives and dies by Gazprom's fortunes, and the company was in decline before Russian President Vladimir Putin's troops strolled into Crimea. Its descent will only accelerate as the EU moves with alacrity to loosen Russia's stranglehold on its gas markets.

At first glance, Gazprom still looks big, powerful and intimidating—Russia's dreadnought. Controlled by the Kremlin, it is the world's leading gas producer, with 18% of global reserves, and the top name on the Moscow stock exchange. At last count, its annual gas exports were worth about $66 billion (all currency in U.S. dollars), equivalent to 13% of Russia's total exports. In the third quarter of 2013 alone-, Gazprom's profits were $8.1 billion. It has 400,000 employees and a pipeline network that spans 168,000 kilometres.

Gazprom's pipelines also extend like a spider's web into Europe, its most profitable market by a long shot, and more are being developed. The company virtually owns the energy markets in Eastern Europe. Even in Western Europe, Gazprom's market share is substantial. More than a third of Germany's gas imports, and about a fifth of Italy's, come from the company.

Now the bad news for Gazprom: Most of its financial results—from return on equity to profits—have been going in the wrong direction in recent years. That downward trend is bound to accelerate, thanks to the gas glut in much of the world and the company's tendency to scare clients in Europe.

Also, if Gazprom can make or break Russia's financial health, Europe can do the same to Gazprom. The EU's gas consumption has been in shallow decline since the middle part of the past decade, thanks to deindustrialization, efficiency gains, greater use of cheap coal and surging electricity production from solar, wind and hydro. On some days, almost 100% of Portugal's electricity production comes from renewable sources.

Gazprom didn't become one of the biggest companies in the world by misreading consumption trends. It probably figured out before the Europeans did that Europe would need slightly less gas every year. But Gazprom appears to have wholly miscalculated the North American shale oil and gas boom, which is turning the U.S. into an energy superpower. The result is an all-American gas bubble. The cure? Exports of liquefied natural gas (LNG).

Washington's restrictions on gas exports were crumbling even before the Crimea crisis. Since then, Congress has come under strong pressure from both sides of the Atlantic to scrap them. Many Republicans see exporting gas to Europe as the perfect tool to deprive Gazprom of sales. Hungary, Poland, Slovakia and the Czech Republic have lobbied House Speaker John Boehner to allow speedy exports to Europe in case Gazprom cuts supplies.

Canada is also ready to play a role. The German utility E.ON recently signed a deal with Halifax-based Pieridae Energy to import LNG from a terminal that is to be built in Nova Scotia.

Putin's geopolitical gambit could destroy the goose that laid Russia's golden egg. In 2008, Gazprom's market value was $250 billion and CEO Alexey Miller said it would be worth about $1 trillion by 2015. It is now worth less than $90 billion. For Putin, winning Crimea and losing Gazprom is a bad trade.

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