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Western Clouds are Looming on Gazprom’s Horizon: Does History Work against Russia?
On  September 4, the European Commission (EC) said it started a formal investigation into Russian gas monopoly Gazprom. The EC said that it is investigating three suspected anti-competitive practices in Central and Eastern Europe (CEE). Antoine Colombani, spokesman for EU Competition Commissioner Joaquin Almunia, listed the EC’s concerns as followings that Gazprom (Reuters):
- may have divided gas markets by hindering the free flow of gas across Member States;
- may have prevented the diversification of supply of gas; 
- may have imposed unfair prices on its customers by linking the price of gas to oil prices. 
Such practices would violate the European Union's Third Energy Package, which was designed to liberalize European natural gas markets.
The EC has concerns that Gazprom may be abusing its dominant market position in upstream gas supply markets in CEE, in breach of Article 102 of the Treaty on the Functioning of the European Union (EU). (RIA Novosti) The probe follows the September 2011 check of 20 companies in Europe having connections with Gazprom. The Kremlin-controlled natural gas provider is suspected of abusing its power in eight EU member countries where it is the dominant supplier - Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. The inspections were made at the offices of Gazprom German partners E.ON and RWE, Gazprom-Germania; Austrian OMV and its branch, Econgas; Czech Republic’s Vemex (whose controlling stake belongs to Gazprom); and Lithuania’s Lietuvos Dujos.
In July, Transparency International (TI) ranked Gazprom among the most non-transparent international companies in the world. Gazprom ranked 98th with 2.8 points in the top 105 rating named “Transparency in Corporate Reporting”, the only Russian company in the rating. (Forbes)
Russia’s EU Ambassador, Vladimir Chizhov told that they were notified about the anti-monopoly investigation against Gazprom, but did not receive any official notification. However, the EC stated previously that it notified Gazprom about its decision. The Gazprom said that it hopes the investigation will respect its “rights and legitimate interests proceeding from EU laws as well as international legislation. It is a fact that Gazprom, set up beyond the EU jurisdiction, is a company, established in accordance with the Russian law, with a status of a strategic organization controlled by the state, should be taken into account”. Because, Gazprom very much concerned that loosing the control of gas pipelines in Lithuania will lead to the lost of monopoly position in country’s gas market in the long run and subsequently loosing the monopoly in CEE region.
Russian President Vladimir Putin warned the EU that it should resolve an antitrust probe into OAO Gazprom, to avoid “losses on both sides”. However, Putin linked the recent investigation to European debt crisis, blaming some of the EC officials in desire to shift internal problems to Russia. President Vladimir Putin does not consider investigation process as a trade war, but he is sorry about those actions caused by complicated situation in the Eurozone. Putin took the gas giant’s side. He emphasized that the gas price formation principles were developed long ago, they were fixed in the long-term contracts and were not contested. (Reuters)
Konstantin Simonov, Head of the National Energy Security Fund (NESF) of Russia in Moscow, claimed that “by accusing Gazprom of trying to prevent the construction of a united European gas market, the EC is trying to put the blame on the Russian company for Brussels’ own failure to diversify its gas supply. If there will be alternative gas, Russia cannot stop it. If you want to construct a united European gas market you need to find money, you need to buy pipes, you need to build new pipelines, you need to connect east Europe with west Europe, and you need to connect the Baltic States with the rest of the EU. It’s not a question of Gazprom. How can Gazprom stop the construction of new pipes? EU probe into Gazprom will increase the misunderstanding between the EU and Russia”. (New Europe)
However, the EU made it clear that Russia’s gas giant Gazprom may avoid penal sanctions within the framework of the antimonopoly investigation launched last week. According to a representative of the European Parliament, all discrepancies can be settled through negotiations.
Russian natural gas giant OAO Gazprom’s troubles in Europe are driven by “political factors” as well that are followings:
- Russian and Iranian support to Bashar Asad’s regime that hindering US and EU’s plans over Middle East;
- Russian support to Iran on the development of Iranian Nuclear Program, including assisting to construction of Bushehr reactor which recently operated;
- Political reaction of Russia toward the implementation of Trans-Caspian Pipeline. Because, Russia does not want to share the European gas market with other energy rich countries;
- Pushing for the implementation of its South Stream pipeline signing agreements with Balkan countries without any consideration of EU legislation; 
- Refusing to ratify EU’s Energy Charter that hinders the monopoly activity of Gazprom in Europe; 
- Recent challenges in the Georgia that some militant groups passed Russian-Georgian border and took hostages (considered that might be triggered by Russia as well);
- The anti-trust inquiry has been actively supported by the Poland and Lithuania, which have long strained relations with the Russian company. Their complaint is about pricing – the price difference between Western and Eastern Europe. Poland and Lithuania say that for 1000 cubic meters of gas they have to pay 50-100 USD more than Germany or Italy;
- The investigation is a continuation of the European Union’s ongoing efforts to liberalize its natural gas markets and reduce European dependency on Russian energy. Consequently, EU deems that antitrust probe could weaken Russian energy dominance in Europe.
- EU deems that recent shale gas discoveries in US, China, Turkey, and some European countries (Ukraine, Romania, Bulgaria, France, Germany, etc) can guarantee the energy security of Europe. In this regard, EU want to feels itself secure without any dependence upon Russia;
- Increasing western pressure on Russian Government because of “Pussy Riot” case that considered in the framework of violation of human rights in the country etc.
Regarding to South Stream pipeline that might be reason for recent investigation, Gazprom is the operator of the South Stream pipeline project and has already signed a number of intergovernmental agreements with participating countries (Croatia, Bulgaria, Serbia, Hungary, Greece, Slovenia and Austria) through which the pipeline will run. Recently, the Republic of Macedonia and OAO Gazprom also prepared the draft agreement ensuring the participation of Macedonia in the South Stream pipeline project; On August 31 it was announced that the engineering phase for the project was underway in Serbia; on August 28 Gazprom signed an agreement with Bulgarian Energy Holding on the connections between South Stream; and, on August 21, it was revealed that Gazprom is in talks with Croatia’s transmission operator Plinarco to re-route South Stream through Croatia rather not Hungary as originally planned. However, Budapest dismissed the news as “some kind of bluff”, but it follows rumours that Moscow has been pressuring the Croatian government to choose South Stream before it formally joins the European Union next year and has to abide by the EU Third Energy Package. This contains anti-monopoly regulations which acknowledge the Gazprom’s strategy of dominating the gas networks in smaller European states. Given that building South Stream through Croatia would violate these provisions, it seems unlikely that Zagreb would risk its EU accession for Gazprom. In other words it is a warning to Hungary that it cannot welcome both South Stream and Nabucco West together. (Natural Gas Europe)
From the other hand, EU countries know that a major preference to the South Stream and Nord Stream would mean Europe ties itself to a Russian project and both pipelines will strengthen the hand of Russia against the alternative gas pipelines from the Caspian Sea to the Balkan countries and Europe. The pipeline connections from North-Africa to Southern Europe, Norway to the UK, and Turkey to the Balkans and to Central Europe will get the highest priority in future against the Russia-led pipelines. Meanwhile, the International Energy Agency forecasts that already during the next decade Russia may finally lose its energy leader status on the global gas market. This will happen, if China, United States and some other states started large-scale gas development of non-traditional sources (renewable energy resources, shale gas etc.).
Furthermore, Brussels and Moscow are also at odds over Russia’s refusal to approve the EU’s Energy Charter. It entered into a legal stage five years ago (September 2007) when the European Commission presented the ultra-liberal Third Energy Package. The document was approved in 2009. It was bound to liberalize the European gas market, in particular, with the mandatory separation of pipeline owners and mineral developers.
Meanwhile, the EU wants to show that it also has leverages over Russia’s position in gas issues. Almost simultaneously with the meeting in Ashgabat, the EC announced about launching the official antitrust investigation over the Gazprom. However, seems EU already forgot about the cold winter memories during 2006 and 2006 (Russia-Ukraine gas crisis). Even if, EU counts on Caspian gas, which will be delivered to Europe after the construction of TANAP and selection of Nabucco West or TAP, that might take a long time, as the construction of TANAP planned to start in 2014 and finish in 2018, while natural gas production from Shah-Deniz-II has been postponed for the end of 2017, i.e. Azeri gas delivery to Europe will begin in 2018.
The investigation is likely received badly in Moscow and could upset relations between Russia and the EU, which imports 80% of its gas needs from Russia. Gazprom cannot be forced to pay anything to anyone that easily. Europe will not survive without Russian gas, and the EC is well aware of that. EU cannot ensure its energy future backing to its shale gas resources. Because, shale gas resources cannot stop the dependence of Europe from Russia. From the other sides, some European countries (e.g France) banned the development of shale gas because of its environmental risks and production expenses. Shale gas drilling poses a high risk to human health and the environment that is worse than that posed by other fossil fuels. It threatens the health of local communities, and the environment, while locking Europe into fossil fuel dependency. The water, air and land-related risks associated with shale gas are high. (EU’s Environment Directorate)
Ilgar GURBANOV - Analyst, Strategic Outlook
13.09.2012 - Hit : 2120

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