1
OUR WORLD IN 2014 ENERGY 81 JANUARY 2014 NEWEUROPE www.neweurope.eu D espite structural problems on the gas market in the European Union and the ongoing crisis in the Eurozone, Gazprom’s standing in 2013 strengthened substantially. The reason is problems of other suppliers, depletion of reserves at European underground gas storages and discounts to major clients made by Gazprom. Meanwhile, by the end of 2013 the Eu- ropean Commission planned to complete antimonopoly investigation against Gazprom suspecting the Russian gas giant of abuse of its dominating position in markets in Eastern Europe, limiting competition and overstating prices. The procedure was overly politicized. It was initiated by Lithuania that, instead of a constructive dialogue, openly confronted the only supplier making radical decisions aimed against Gazprom as bona-fide investor and co-owner of the national holding. Moreover, since initial searches the process has been in- visibly linked to efforts of Brussels on devel- oping the Southern Gas Corridor, especially with pressure on Moscow regarding the unim- peded laying of a trans-Caspian gas pipeline from Turkmenistan to Azerbaijan and further to the EU. With the investigation entering the fi- nal straight it turns out that Europe strongly needs substantial additional gas imports from Russia, especially on the eve of the winter season. The desire to go through the upcom- ing heating season calmly and not to sharpen relations with the largest supplier during the period of peak demand probably is the main hidden motive for postponing announcement of the investigation results until next spring at least. On the other side, the mandate of the current European Commission expires next autumn, and the new commission will be approved by the European Parliament and formed as a result of the May elections. Thus, the team of Jose Manuel Barroso has an incen- tive to slam the door before they leave by pre- senting claims against Gazprom, which may somehow distract attention from the failed energy and ecological policy of the EU during Barosso’s two terms. But this will obviously reinforce distrust between Russia and the EU and create additional risks for partnership development and even for maintaining and implementing the current mutual obligations. As far as the third energy package imple- mentation and functioning of the common gas market that is to be launched in 2014 are con- cerned, it is rather problematic in reality. Out of 12 necessary network codes that are obliga- tory for adoption to form a stable normative and regulatory base of new organization of the market, only two documents were passed at the end of 2013, and only one entered into force. This concerns the network code on regulating the use of contracted but unutilized capacities (congestion management) that was approved in late 2012, as well as on the net- work code on transit capacity at non-discrim- inatory auctions. The EC approved it in Oc- tober 2013, but it will come into force only in November 2015, which again shows that there will be no common gas market established in the EU in the declared period. From the point of view of fundamental parameters in the next few years Gazprom’s standing in the European market will be strong or very strong. The EU seems to be run- ning out of possibilities to restrain the share of gas in the energy balance, as well as to re- duce gross energy consumption amid gradual recovery of the Eurozone after the economic downturn. Decline in domestic consumption, problems with resources in Norway and Alge- ria, political instability in Libya, as well as the LNG deficit on the market caused by a small number of new projects will lead to stable and high imports of Russian gas under long-term projects. Discounts provided to European partners will also contribute to the demand for Russian gas imports. These are ideal conditions to use soft power to settle the antimonopoly investiga- tion launched by the EU against Gazprom. In Europe everybody seems to understand that producing real penalties to Gazprom will lead to worsening of relations with Russia and will deteriorate energy security of the European Union. Whatever big the desire of the Euro- pean Commission headed by Barroso leav- ing next year is, objective reasons for sharp moves are weak currently. No wonder Euro- pean commissioner for competition Joaquin Almunia who conducted the antimonopoly investigation at first declared about postpon- ing promulgation of the claims from the end of 2013 to spring 2014, but in early December said that a possibility of peaceful settlement of the problem with Gazprom was considered. Besides, that day, long before the deadline, the European Commission issued a permit to an asset swap deal of Gazprom and Wintershall that will significantly reinforce positions of the Russian gas giant on the sales market and increase its competitive advantages due to availability of storing capacities. Gazprom being ready to skim the cream off and try to strengthen its positions on the EU market, while the conjuncture is favorable for the Russian gas, seems to be prepared for a compromise. Now the question is about the conditions the sides will withdraw from the process saving the face and not causing sig- nificant financial damage. Lithuania may play the role of token mon- ey for Gazprom and the EU; Vilnius will prob- ably get the long-awaited 15% to 25% discount off gas prices; another option is the sale of gas transportation assets of the concern in Europe (e.g. stakes in Gascade and gas transporta- tion companies in the Baltic States), as well as some minor issues regarding adjustment of long-term contracts that can be portrayed as success of the European energy policy. Moreover, the process of settling antimo- nopoly claims, as we believe, may facilitate removal of disagreements on infrastructural projects of gas deliveries to Europe. The mechanism of releasing the OPAL gas pipe- line is already finalised with European regula- tors and it will probably be verified by the Eu- ropean Commission soon. The fate of South Stream will largely depend on developments in the Russia-Ukraine-EU triangle. Brussels may stop pretending there is a necessity to protect Kiev from Moscow’s pressure, and the Russian side will not have to implement the South Stream project in the shortest time pos- sible and at its full designed capacity. European gas market: Russia is returning? Russia’s gas giant Gazprom CEO Alexei Miller attends the world biggest gas company’s annual meeting in Moscow. Despite structural problems on the gas market in the European Union and the ongoing crisis in the Eurozone, Gazprom’s standing in 2013 strengthened substantially. AFP PHOTO/VASILY MAXIMOV By KONSTANTIN SIMONOV RUSSIA – MOSCOW From the point of view of fundamental parameters in the next few years Gazprom’s standing in the European market will be strong or very strong Director General of Russia’s National Energy Security Fund (NESF)
