EUROPE REJECTS GAZPROM’S ULTIMATUM

The European Union signaled that it was not particularly impressed by Gazprom’s recent statement that it might seek alternative markets elsewhere if it is prevented from developing operations in Europe. Gazprom’s warning came right after British competition regulators proposed changing takeover rules amid market speculation that the Russian energy monopoly might bid for Centrica, Britain’s largest gas distributor. Gazprom’s ultimatum and the EU’s riposte appear to reflect different understandings of what energy security means, analysts say.

On April 20, a spokesman for the EU Energy Commissioner said that Gazprom’s statement confirmed EU concerns about the bloc’s dependency on foreign energy supplies. The European official added that the Russian company’s aggressive stance would only strengthen Europe’s intent to diversify both its gas suppliers and energy channels.

The latest energy row between Moscow and Brussels started last Tuesday, April 18, when Gazprom CEO Alexei Miller met ambassadors of the 25 EU states in Moscow to discuss his company’s relations with Europe. According to press reports, Miller bluntly advised European envoys that the EU should not block Gazprom’s “international ambitions.” Otherwise, he warned, the company could redirect supplies to other markets. In a statement that was posted on the company’s website immediately following the meeting with the ambassadors, Gazprom said, “It is necessary to note that attempts to limit Gazprom’s activities in the European market and politicize questions of gas supply, which in fact are of an entirely economic nature, will not lead to good results.” The statement added, “It should not be forgotten that we are actively familiarizing ourselves with new markets, such as North America and China. Gas producers in Central Asia are also paying attention to the Chinese market. This is not by chance: competition for energy resources is growing.”

Gazprom spokesman Sergei Kupryanov was even more specific while talking to the London-based Financial Times: “We just want European countries to understand that we have other alternatives in terms of gas sales. We have a fast-growing Chinese market and a market for liquefied natural gas in the U.S. If the European Union wants our gas, it has to consider our interests as well.” The response from the EU Commission was likely intended to demonstrate that the Europeans keep their cool: it basically boiled down to a remark that if Gazprom bosses desire to expand the number of the company’s customers, it is their own business.

Gazprom’s ambitions have long been to move into Europe’s downstream gas distribution, including in the United Kingdom, which reportedly gave rise to fears in that country over a possible Gazprom takeover of Centrica, the biggest gas supplier with control over approximately 60% of the local market. It would appear that the preventive measures by British authorities prompted Gazprom’s ultimatum. But the true reason that puts Moscow and Brussels on a collision course lies deeper: Russia and Europe sharply diverge in their understanding of the notion of “energy security.”

The vision of Russia becoming an “energy superpower,” an idea actively advanced by President Vladimir Putin, rests on another Kremlin pet doctrine — namely, the concept of “energy security.” For Moscow, energy security can be achieved if the principal customers (first of all, the EU and the United States) and the major energy supplier (Russia) conclude a political agreement supplemented by a number of long-term contracts regulating the supply of energy resources. It is understood that such accords would protect both the customer and the supplier from the negative effects of the price hikes; to be sure, the contracts would also guarantee a stable and long period of high returns from the energy sales for Russia — and for those happy few in the country who control the money flows in the energy sector.

Put another way, the Russian concept assumes that fuel prices would effectively be regulated on the basis of the “mutually profitable” agreements.

But this directly contradicts Europe’s perception of what “energy security” is. For EU countries, energy security means, above all, diversification of energy supplies, liberalization of the markets, and the presence of competition. Clearly, should Russia’s concept of “energy security” be realized, Europe’s space for maneuver and its diversification options would be significantly curtailed.

Furthermore, one of the key elements of the Russian concept of “energy security,” now actively pursued by Gazprom, is the penetration of Europe’s downstream markets. Brussels earlier indicated that it would be prepared to provide Gazprom access to EU countries’ domestic markets under one condition: Russia must liberalize access to gas pipelines to other countries and independent producers. The Kremlin leadership and Gazprom bosses, however, have ruled out the prospect of losing their stranglehold on the strategic pipeline network.

Some Russian analysts suggest that if Russia and Europe do not reach an agreement soon, the upcoming G-8 summit in St. Petersburg, with its widely advertised focus on energy issues, will likely fail, as it will be devoid of any concrete meaning. According to one commentary, the heated debate between Moscow and Brussels is all but inevitable, since Russia’s January “gas attack” against Ukraine “has radically changed European perceptions.” If no common ground is found, the summit might well end up with the signing of an “empty declaration,” the commentary adds.

(Kommersant, Gazeta.ru, RFE/RL, Financial Times, April 20; Gazprom.ru, April 18)