The Russian gas monopoly’s initiatives and investment projects are winning support from companies that cooperate with it directly or via mediators. In 2006, Gazprom exported 151.1bn cu m of gas to countries outside the CIS and 101bn cu m to the CIS and Baltic countries. It supplied 316.3bn cu m to the domestic market, an increase of 9.3bn cu m from 2005. The current price for Europe is $263.2 per 1,000 cu m of gas. The company’s revenues from exports to Europe grew by 34%, to RUR754.3bn ($29.77bn, or €21.58bn). This year, it plans to export 157.8bn cu m to countries outside the CIS, with revenues of about $46bn and net profit of $22.8bn.
However, nature itself intervened with the monopoly’s plans: the abnormally warm winter of 2006-2007 visibly reduced consumption of Russian gas in Europe. Supply to the region in the first six months of 2007 equalled 72.7bn cu m, down 14.8% from the same period of 2006. As a result, the monopoly posted $3.3bn less of export revenues.
Gazprom’s management is not too upset about the fact. Its experts believe that export revenues will reach the planned figures by the yearend due to high prices of hydrocarbons (primarily oil and gas). Besides, it is not clear what other surprises nature may have in store. Global warming can quickly turn into a global chill. Hopefully, this will not come true, but everything in this world happens unexpectedly.
In Western Europe, Gazprom acts primarily as a gas supplier, but it is also eager to lay its hands on distribution grids.
This is how it entered the French market this summer. Gazprom’s British distribution subsidiary, Gazprom Marketing & Trading Limited, began trading on the French energy exchange, Powernext.
Practice has shown that the Russian concern is willing to attract such mediators in order to get a foothold on this or other market, despite losses in revenues.
Russian gas will be sold in France in a specialised section of the exchange, which now has ten members, including big European energy companies, such as Total, EDF and Altergas. Powernext, which was set up in 2001, trades also in electricity, electricity futures and carbon dioxide emission quotas.
The gas section at the exchange was founded on the basis of Gaz de France’s transportation arm last April. It was opened in reply to a growing probability of gas supply from the North European gas pipeline, as well as pipelines from North Europe and the Caspian region.
So the Russian gas giant’s involvement was but a mandatory condition for the section’s efficient functioning, experts maintain.
The European Union, however, is trying to ward off Gazprom’s intention to establish control over “European burners.” The EU energy reform plans envisage that the monopoly will have to give up its distribution networks in Eastern Europe.
Gazprom currently owns large stakes in European distributors: 37% in Estonia’s Eesti Gaas, 37.1% in Lithuania’s Lietuvos Dujos, 34% in Latvia’s Latvijas Gaze, and 24.5% in Germany’s BASF and E.ON each.
If the European Commission prohibits Russian gas sellers to own transportation networks, Russian gas supply to European consumers will be put in question, Gazprom’s deputy chairman of the board, Alexander Medvedev, said in Brussels.
He said: “Our strategy was announced several years ago: [we plan] to become a leading global energy company represented in all segments of the chain of value creation, and diversified both in the range of its products and in geographical locations.” This amounts, in fact, to the management’s long-time goal of selling gas in Europe directly, reducing the number of mediators to a minimum. The biggest importers of Russian gas in Europe are currently Germany (about 40bn cu m annually), Italy (22bn cu m), Turkey (18bn cu m), and France (about 14bn cu m).
Liberalisation of the EU energy market may also force Gazprom to sell its stake in the Nord Stream pipeline that is to be laid along the bottom of the Baltic Sea.
Analysts, however, do not believe that political bargaining will change anything and predict that the project will be completed on the previously agreed terms.
However, the situation around the North European gas pipeline is heating up. The new “regulations” oblige all European energy corporations that are members of the Nord Stream consortium to divide their energy and electricity production and transportation assets. The end result should be the emergence of fully independent companies, some of which will produce energy, while others will sell it. In this case, Gazprom will have to abide by the requirement together with all other energy companies working on the European market.
The European Commission has been fighting energy companies, which are thoroughly protected by national governments, for several years, as it believes that they are getting windfall profits from the monopolised market. The draft decree on splitting energy corporations is part of the measures the Commission is developing to ensure further liberalisation of the European energy market.
However, the EU energy ministers voted down the initiative at their meeting in Brussels in June.
The powerful European energy lobby opposed the Commission’s extremely liberal proposal. Countries where energy monopolies are state-owned, including France, resisted it especially hard. The European Commission is not yet ready to take radical steps, although the old agreement between France and Germany on the division of spheres of influence, signed in 1975, was formally abolished in 2004. Besides, their companies have a status of “natural monopolies” in their respective countries, similar to that of Gazprom, although this is not quite typical for Europe.
Press reports citing the European Commission’s documents read that these companies have raised gas prices for end consumers without good reason.
However, there is no sense in these companies’ collusion, as their sales markets are not connected.
Of course, the issue can be taken formally, given that E.ON controls about 60% of the German gas market and Gaz de France 79% of the French one, and that prices grew on both almost simultaneously.
Anyway, active promotion of Russian gas in the West is ongoing. The European Commission is closely watching companies that actively cooperate with Gazprom. Investigation has already been launched against E.ON and Gaz de France on suspicions of a collusion that hinders the liberalisation of the EU gas market.
The only “suspect” in the case, as observers unanimously agree, is Russia’s Gazprom, which supplies gas to France via Germany via the MEGAL pipeline.
That pipeline can be viewed as monopolistic, because it is the only one that supplies Russian gas to France. However, changes are unlikely without significant losses for the parties involved, and no one will agree to shoulder them.
