Correction: A previous version of this article used an unconventional English spelling, Tymchenko, for the last name of Gennady Timchenko, an owner of the Russian competitor Novatek. The article incorrectly described him as a halfowner of Novatek and as running a Swiss company called Gunvor. He owns 23 percent of Novatek, according to a spokesman, and is one of two principal owners of Gunvor but has no formal management role there. Although Gunvor maintains offices in Switzerland, it is based in Cyprus. The article also incorrectly described him as a former judo instructor. He practices the martial art but was never an instructor. A previous version also incorrectly described the Russian petrochemical company Sibur. Sibur was not purchased by Gazprom rival Novatek, but by Novatek’s two principal owners, Leonid Mikhelson and Gennady Timchenko. Sibur also was described as having been a Gazprom subsidiary before the purchase. It was primarily owned by two companies, Gazprombank and Gazfond, which are distinct from Gazprom but connected through cross-ownership. This version has been corrected. 

Employees of OAO Gazprom walk along a platform beside gas cylinders at the company's gas compressor facility at Volokolamsk, Russia, on Nov. 30, 2010. (Andrey Rudakov/Bloomberg)

The foundations are starting to crack at Gazprom, the giant energy company that is the central pillar in the economic and political system constructed by Russian President Vladimir Putin.

Gazprom’s exports of natural gas to Europe, which form the mainspring of its wealth, are falling, and a potentially major fight is brewing over price fixing. Russian officials publicly criticize the company for its sloth. Subsidiaries are being lopped off and sold at fire-sale prices to more agile competitors, almost certainly on orders from the Kremlin.

Neither at home nor abroad does the company appear to have a competitive answer to the dramatic decline in gas prices worldwide — sparked by the rapid development of American shale gas. Gazprom, the world’s largest producer of natural gas, has grown somnolent, its critics say, failing to invest in research and development and ignoring the changes transforming the industry.

Under Putin’s control, Gazprom has been a principal driver of the rest of the Russian economy, generously spreading rewards and high-paying contracts to Kremlin favorites. It employs nearly half a million people, working in cities and towns in every region of Russia. Even now, as the company hits significant turbulence and declining profits, it is continuing its free-spending ways — with a new $1.9 billion office tower in St. Petersburg, planned as the tallest skyscraper in Europe, just a token expression of its opulent habits.

“It’s a very important instrument,” said Vladimir Pastukhov, a visiting scholar at St. Anthony’s College Oxford. But after 12 years, Putin and his friends have squeezed so much from it, he said, there may not be much left to wring out.

Gazprom’s troubles are likely to accelerate a long-running trend, which makes the government the loser. An extraordinary 60 percent of Russia’s revenue comes from taxes and income from fossil fuels, economists believe; Gazprom alone accounts for 12 percent of all Russian exports. The state owns just over 50 percent of the company and is heavily dependent on the taxes and profits it brings in. But as officially reported income goes down while spending stays steady, the government takes in less and less. Spinning off the more lucrative parts of the business has the same effect.

“It’s the nationalization of costs and the privatization of profit,” said Mikhail Krutikhin, an energy analyst with a company here called Rusenergy.

But the implications for Russia’s policy toward its neighbors and the rest of Europe are immense, because the Kremlin has used Gazprom as its chief club when bullying recalcitrant nations that depend on its supplies of gas. The consequences for Putin’s system itself — in which Gazprom has been both the main income generator and the chief dispenser of financial rewards to those in favor — are potentially profound.

“It’s going from being Russia’s greatest asset to Russia’s biggest problem,” said Vladimir Milov, once a deputy energy minister and a longtime critic of the company.

Gazprom in its current form spreads so much cash around that, as Sam Greene, who studies state-society relations at the New Economic School here, put it, “They subsidize essentially the way politics is run in the country.”

Gazprom still has plenty of money — its reported profit was $44 billion last year. But profits are down more than 23 percent in 2012, and the deputy minister of economic development, Andrei Klepach, said the company could run into serious problems as early as 2014 because of competition stemming from cheap shale gas.

At Putin’s behest, nonetheless, it is continuing to pursue hugely overpriced projects for political ends that are unlikely ever to pay for themselves. Foremost among them are two ambitious undersea pipelines to Europe, justified neither by demand nor by supply.

This is standard procedure for Gazprom, a $119 billion company. A phenomenally profitable monopoly up to now, it has been a prime source of funds for the Kremlin’s pet projects. It spreads its export earnings throughout favored sectors of the Russian economy — propping up rail-car builders, for instance, with orders for more freight cars than the railroad can haul — and dramatically overpays for the privilege. A mile of pipeline in Russia costs about three times as much as one in Germany.

It is a company that has devised intricate means to cover its tracks and keep billions of profits off its books, to divert cash and reward Putin’s favorites, but it has paid so little attention to the changing realities of the actual gas business that, some analysts say, it is spending its way into insolvency.

Big earner, big spender

Gazprom was set up in the Soviet era to export gas to Europe. After the collapse of communism in 1991, Russia broke up its oil monopoly — oil prices were very low at the time — but held on to Gazprom, its chief earner and its chief spender.

When Putin took the presidency in 2000, he told the oligarchs he would protect their businesses as long as they stayed out of politics. Clifford Gaddy of the Brookings Institution calls this “Putin’s protection racket.”

But Gazprom, in which the state at that time had a minority share, was in a different category. It wasn’t just a business. Putin moved carefully in the beginning, because it was too valuable an asset to pick a fight over. First, he replaced the board chairman with his St. Petersburg friend Dmitry Medvedev, whom he was to anoint as Russian president in 2008. A year after installing Medvedev, he engineered the appointment of Alexei Miller, an old associate from St. Petersburg, as CEO.

The state arranged to take on a majority stake in the company. As Gazprom became the chief means of rewarding Putin’s inner circle — men who were elbowing the first generation of oligarchs aside — Putin installed another longtime associate, Viktor Zubkov, as chairman. Zubkov is the keeper of meticulously collected and undoubtedly compromising information on each of the oldtime oligarchs, Gaddy and Barry Ickes, an economist at Penn State, assert.

Gazprom became not just another company, but a component of the political system: a bulwark of Putin’s domain.

When Putin wanted to bring the news media to heel a decade ago, Gazprom Media was organized. It bought up enough television companies, newspapers and radio stations to give it today one of the biggest media holdings in Europe.

When Putin wants money for a sports complex in Orenburg, or a chess academy in Khanty-Man­siysk, or a monument in Yaroslavl or an apartment-house development in Moscow, he calls on Gazprom.

When he needs financing for a political campaign, or a loan on favorable terms for one of his friends, he goes to the same source, Greene said.

He has wielded Gazprom as a blunt weapon against Ukraine, where corruption has provided the company with rich opportunities to assert influence and to manipulate huge amounts of cash. Ukraine’s large storage facilities and its role as a transit nation through which most of Gazprom’s exports flow have given rise to layers upon layers of middlemen who take their cut. The country itself is Gazprom’s biggest foreign buyer and pays a higher price than any other customer. Ukraine’s debt to Gazprom is growing so large that politicians and analysts worry the country will be drawn tightly into Russia’s orbit.

“Putin was very deeply into the affairs of Gazprom, always,” Milov said. How much, for instance, will Russian consumers have to pay for gas, and how much will they be subsidized by the company? Every year, Putin picks the numbers, said Natalia Volchkova, a professor at the New Economic School here.

In doing the president’s bidding, Gazprom officials have practically lost sight of the investment needs of the company — modernization, maintenance and expansion — and of the need to compete. They have been in the money and political power business, not the gas business.

“The individual interests of managers are not aligned with the interests of the organization,” Volchkova said. “Loyalty is more important than efficiency, as in any state company.” Loyalty, that is, to Putin and his system — not to the running of a good company.

Private investors share the doubts about Gazprom: Though the Russian company’s reported profits in 2011 top even those of Exxon Mobil, its stock valuation is about one-quarter that of the American oil giant. Bloomberg calculated in August that Gazprom had fallen out of the top 20 of the world’s largest corporations.

But neither the demands of the market nor of the shareholders can force greater efficiency on Gazprom, Greene said. “There’s only one shareholder who matters.”

Stagnant production

Gazprom’s production has been stagnant for years. A huge new $20 billion gas-extraction project in the Barents Sea was put in mothballs this month after Gazprom’s foreign partners — who alone had the expertise to pursue it — dropped out.

Gazprom has spent a decade trying to negotiate a huge deal with China, but with no results so far. The two sides are about 1,000 miles apart on the routing of a new pipeline.

The advent of shale gas in the United States has increased supplies and driven down spot prices worldwide, and Europe can now buy liquefied natural gas from the Middle East at a relatively attractive price. It is also exploring its own shale-gas potential. Customers have been renegotiating contracts, as the Russian giant comes under more pressure. Unlike oil, natural gas until recently was difficult to ship except in pipelines; this gave Gazprom a guaranteed, if partial, monopoly as a gas supplier to Europe.

But that era is passing. Gazprom executives have been very slow to recognize the competition. Their company is large and sprawling and, with a seemingly eternal income stream, had no need to be innovative or especially adept at what it did. It opened the spigots and gas and money flowed in gushers.

“They will have real problems in export sales in the coming years, and they’re not ready for it,” Milov said.

Now the European Union is putting pressure on Gazprom to “decouple” its pipeline business from its gas-supply business. The Kremlin is unlikely ever to go for that idea.

The E.U. has also opened an antitrust investigation into Gazprom’s business dealings in Eastern Europe, accusing it of price fixing. The Kremlin, by its defensive pronouncements, clearly takes the threat against Gazprom seriously. A new presidential decree forbids Gazprom from reaching a settlement without getting the Kremlin’s approval.

At the same time, though, Putin is shaking up the gas business at home. A beneficiary has been a domestic competitor called Nova­tek, whose two principal owners, Leonid Mikhelson and Gennady Timchenko, recently snapped up a Gazprombank and Gazfond subsidiary, which are connected to Gazprom through cross-ownership, known as Sibur for way under market value. Novatek may, reportedly, get permission to start exporting gas, as well, breaking Gazprom’s monopoly.

“The favoritism toward Nova­tek is pretty striking,” Gaddy said. Timchenko — who knew Putin when they belonged to the same martial arts club in St. Petersburg — owns 23 percent of the company. He is also one of two principal owners of a Cyprus-based company called Gunvor that has become extremely profitable as a middleman in exports of Russian oil, though he has no formal management role. His p

artner is Leonid Mikhelson, who rose to second-richest man in Russia on the Bloomberg billionaire index thanks to the Sibur deal — the index valuing Sibur at its actual value, not what he and Timchenko paid for it.

The government has also announced that it is reversing its policy and once more placing its own people on the Gazprom board. That is unlikely to substantially change the way the board — already a rubber stamp — runs its business. It is probably a sign of “a fight under the rug” between Prime Minister Dmitry Medvedev and Igor Sechin, a close associate of Putin and head of the Rosneft oil company, Krutikhin said.

One thing remains unchanged, no matter who wins that inside struggle, Milov said: “Putin is the central figure who makes the major decisions.”

Is he preparing for Gazprom’s decline? “I would hope they’re thinking about that,” said Greene, at the New Economic School. But it’s difficult to imagine, he said, how you could remove Gazprom from the political and economic system in Russia and still have the system.