The timing of the EU’s investigation of Gazprom further exacerbates tensions with Russia, notes Friedbert Pflüger, Director of the European Centre for Energy and Resource Security (EUCERS), King’s College London. Pflüger warns that if the EU and Russia continue to be on a collision course, both sides will lose.
The decision of Ms. Margrethe Verstager, EU Commissioner for Competition, to open an investigation against Gazprom for abuse of its market position in Eastern Europe threatens to exacerbate tensions between the EU and Russia. In particular the timing of this announcement is unfortunate. With Russia having signalled that it is open to addressing the issues, is it wise now of all times to add gas to the fire?
The same is true for the announcement of the British Government to expropriate North Sea oil fields recently purchased by the Russian oligarch Mikhai Fridman from RWE-DEA, should he not be able to resell them shortly. The reason for this threat: potential new sanctions against Russia might make an interruption of extraction from these necessary. This approach has nothing to do with energy security, for which the prerequisite is legal certainty – for Russian investors as well!
But Gazprom also reacted hectically during the Ukraine Crisis. On December 1st, 2014, Putin cancelled, without prior consultations with the German shareholders, the South Stream project. Also overnight, on December 19th, 2014, Russia stopped the long-planned asset-swap with BASF, Wintershall and Wingas. Was it smart to vex some of Russia’s decade-old loyal partners? Gazprom thereby renounced its aim to be active in Europe throughout the entire value chain – from production, over transportation, to retail distribution.
Last week in Berlin, Gazprom CEO Alexei Miller attempted to elucidate this strategy. According to him, Moscow will respect transit agreements that are in place until 2019 with Kiev, but then close the Yamal-Pipeline running through Ukraine. By then, Russia will have completed Turkish Stream, a pipeline that would deliver gas to the Turkish-Greek border. The EU would then be responsible for securing the further transportation to Austria and Italy. Europeans would be well advised to immediately start the construction of a new pipeline; Gazprom would be potentially willing to participate in such a project.
See here the speech given by Alexei Miller, CEO of Gazprom, at the Valdai conference in Berlin on 13 April. You can download highlights of Miller’s speech here.
What was meant as friendly advice by Miller raises more questions than answers:
- Who is supposed to finance the new pipeline project from the Turkish-Greek border to Baumgarten? As yet – given stagnating demand and unclear regulatory frameworks in Europe – nobody is hustling to participate.
- Even if one would find investors, it is unrealistic to aim at finalizing an over 1000km-long pipeline by 2019. Even Nord Stream, a model for an “in time and in money” megaproject, took a decade from planning to completion: the formation of a consortium, securing financing, negotiating with potential buyers, complex permitting processes in multiple European countries, reaching transit agreements and overcoming legal and political resistance.
- Has Russia really reached an agreement with Turkey? Word has it that price negotiations are stagnating. The billions that were promised to Greece as advanced payment for transit fees also maintain the status of rumours.
Should one dwell in Shadenfreude because of these inconsistencies? No! The EU remains, due to the drastic decrease in domestic production and despite all of its diversification attempts, to a great degree dependent on Russian gas. But in the same manner, Gazprom remains, despite all of its own diversification attempts (pipeline to China!), reliant on Europe as a key market. Even Miller admitted this interdependence in his Berlin speech – and even presented it as an opportunity. Rightly so! That is to say, energy security cannot only rest on autarky or the diversity of supply relationships; it can also be based – just as in past decades – on mutual dependency.
It is time to bring the gas dialogue between Moscow and the EU back to an objective level. The new pipeline will not be available any time soon. Thus, we will need to find a solution together. The (realistic) opportunity exists to build a third strand of the Nord Stream Pipeline. But first and foremost: why shouldn’t we be able to reach by then – similarly to the winter deal brokered by EU Commissioner Günther Oettinger between Kiev and Moscow – a lasting solution for the gas transit through Ukraine? Let us correct hasty announcements and changes in strategy resulting from perceived injury. Why should we not be able to achieve now what was possible even in Soviet times in the EU-Russia relationship: a reliable energy partnership!
Prof. Dr. Friedbert Pflüger is Director of the European Centre for Energy and Resource Security (EUCERS), King’s College London. For an overview of all his articles for Energy Post, click here.