Publication: Eurasia Daily Monitor Volume: 3 Issue: 55

Even as some European Union authorities in Brussels attempt to formulate a common EU energy policy, major European players seem to be vying for bilateral deals with Gazprom that could lock their countries into long-term dependence before any common policy is in place.

On March 17, Gaz de France announced that it is negotiating with Gazprom on the possibility of being connected to the planned Northern European Gas Pipeline (NEGP) that would carry Siberian gas to Germany across the Baltic seabed. According to Gaz de France commercial director Jean-Marie Dauger, French participation “would make the project more European, not just German.” Whether this statement implies that Gaz de France seeks to elbow its way into the deal or has reached an understanding with the German companies seems far from clear. Gazprom’s deputy chairman Aleksandr Medvedev confirmed that the Russian company is considering possible participation of new partners in this project. The Yuzhno-Russky field is the upstream source of gas for the planned NEGP. The field’s export is earmarked for the German companies, E.ON Ruhrgas and Wintershall, once the NEGP becomes operational (Interfax, Bloomberg, March 17).

On the same day in Moscow, Belgian Energy Minister Marc Verwilgen announced that his government is negotiating with Gazprom on the latter’s entry into the Belgian gas distribution market. To handle that operation, the sides envisage creating a joint company of Gazprom with Fluxys, the operator of Belgium’s national gas transport and distribution network. The Russian giant is already poised to enter into the Belgian distribution system through Wingas, Gazprom’s joint venture with Wintershall. Gazprom required Wintershall to hand over some of its distribution assets in Germany and other European countries, including Belgium, to the joint venture, on top of the price for Wintershall’s 25% stake in the Yuzhno-Russky gas field (Interfax, Bloomberg, March 17).

Italy’s Production Minister Claudio Scajola, a close political associate of Prime Minister Silvio Berlusconi, joined the trek to Moscow. Scajola participates in negotiations between Italy’s state energy conglomerate ENI and Gazprom, whereby the Russian company would acquire the right to sell gas at retail prices on the Italian market. Under the preliminary agreement, such sales would start at 2 billion cubic meters in 2006. A joint company being set up for this purpose, Central Energy Italian Gas, includes: Gazprom with a 25% interest (through ZMB, German-registered subsidiary of Gazprom’s export arm Gazeksport); Italian tycoon Bruno Mentasti Granelli, whom Italian media portray as a Berlusconi friend, with a 33% stake; and Centrex Europe Energy and Gas with 41.6% (Interfax, March 17). Centrex has a Vienna front office, registration in the Swiss town of Zug (like the notorious RosUkrEnergo), and was created by an 80% owned Gazprombank subsidiary (Ekspert, November 28, 2005).

Hungary is also a target of Gazprom’s inroads into the EU’s internal markets. The Kremlin and Gazprom are tempting the Hungarian government with offers to turn the country into a “hub” of Russian gas exports to Europe. Russian President Vladimir Putin made that offer during his March 1 visit to Budapest (see EDM, March 6), and Medvedev elaborated on it shortly afterward (Interfax, March 6). Hungary itself is not a very large market for Russian gas: the country imported 9.5 billion cubic meters annually and transited 2.5 billion cubic meters annually in 2004 and 2005. Hungary’s location as a potential transit country is highly interesting for Gazprom, however.

Moscow’s goal is three-fold: First, to reduce gas transit through Ukraine by re-routing some volumes via Hungary and further to Central Europe, the Western Balkans and Italy. Second, to establish permanent dominance of those markets before Caspian gas can reach them through the proposed Turkmenistan-Turkey-Balkans pipeline and the Nabucco pipeline from Turkey to the Balkans, Hungary and Austria. And, third, to capture the Hungarian and neighboring EU markets through the method of creating joint distribution companies. Russia’s ambassador to the EU, Vladimir Chizhov, anticipates that “at least some” of the gas coming through Nabucco will be Russian (EU Observer [Brussels], March 10).

With Turkey’s gas market oversubscribed, and Gazprom’s Blue Stream pipeline across the bottom of the Black Sea to Turkey severely underutilized, Gazprom intends to extend that pipeline from Turkey via the Balkans to Hungary and acquire assets in Hungary in this process. Moscow offers to “guarantee energy security” for Hungary if the latter consents to “joint” construction of additional storage sites and transit pipeline capacity in the country and long-term supply contracts with Gazprom. Hungary’s Socialist Prime Minister Ferenc Gyurcsany accepted these proposals during Putin’s visit.

In this case as well, Gazprom capitalizes on concessions it received from the German companies that participate in the NEGP and Yuzhno-Russky projects. As Medvedev confirms, E.ON Ruhrgas is offering its assets in Hungary to Gazprom, on top of the price for the German company’s 25% stake in the Yuzhno-Russky gas field. E.ON Ruhrgas had acquired parts of the Hungarian state energy company MOL’s gas transport, storage, and distribution systems as recently as 2005, when hardly anyone in Hungary could have expected a handover of those assets to Gazprom (Interfax, March 13; see EDM, March 13).