Gazprom heats up europe

Russia has quickly learned the rules of neoliberalism. Supporters of EU market protectionism are now noticing this, too

Alexei Miller is one of the most powerful men in Moscow. When he speaks, everyone comes: diplomats, entrepreneurs and politicians. This was also the case last Tuesday, when the chairman of the board of the Russian energy giant Gazprom invited the representatives of the 25 EU countries to the Austrian representation in Moscow. The program included a presentation on international energy cooperation. But it was clear to all present that the relations between Gazprom and the European Union are currently severely strained and the crisis is even preoccupying the Kremlin. There was a political debate that evening.

Gazprom heats up europe

Gazprom’s main pipelines to Europe. Image: Gazprom

The current tensions were triggered by London’s position against Gazprom’s planned entry into the British energy business. After the Russian company announced its plan to take over Centrica, the largest national gas supplier, the government vetoed the deal. According to the Financial Times (FT), British Trade and Industry Minister Alan Johnson called a total of eight meetings to discuss with experts from his department how to prevent the sale of Centrica to Gazprom. FT author Jean Eaglesham based his article – which was not denied by the incumbent Labour government – on information from the parties involved, as well as on government documents obtained through the British Freedom of Information Act.

This news did not go down well in Moscow. Alexei Miller gave his answer to the British government in front of the assembled diplomatic team. Gazprom was and would remain the main supplier of natural gas to Europe, the chairman of the board ared. The company understands its responsibility and will remain a guarantor of a secure energy supply for European consumers in the future. After a series of such diplomatic formulations came the real message of the evening:

If we want to develop cooperation when it comes to new contracts, we cannot satisfy the growing demand by putting sticks between our legs.

Gazprom chief Alexei Miller

"Cold war with new methods"

EU Energy Commissioner Andris Piebalgs reacted immediately by announcing his commitment to "more international agreements" at the International Energy Forum held in Doha last weekend. The International Energy Foundation (IEF) also called on the European Union to avoid dependence on one supplier (state). If it does not do so, the members of the Union will become "dangerously dependent" on Russian gas, said IEF spokesman Fatih Birol. Austrian Economy Minister Martin Bartenstein took a similar position when he urged the search for alternatives to Russian gas. That Vienna has a special interest in such a policy can be seen from its recent experience. When Gazprom cut supplies to the neighboring country at the beginning of January in a dispute with Ukraine (Russia is in the driver’s seat), the prere in the pipelines in Austria, among other countries, dropped.

The gas dispute between Moscow and Kiev had thus brought home to the EU countries not only the technical dependence on the Russian energy market, but also its political implications. For what has been common practice in the industrialized countries in their dealings with the "rest of the world" since the beginning of colonialism is increasingly taking place between exporters and importers of oil and natural gas as energy prices rise: Superiority – be it technical or simply based on the possession of energy resources – can also be exploited politically at any time.

Representatives of German politics dealt with this realization in very different ways. While CSU Economics Minister Michael Glos urged prudence, his CDU colleague in the European Parliament Elmar Brok already saw a "cold war with new methods" approaching. The EU parliamentarian may have been encouraged by another message. A few days after Miller’s warning in Moscow, the head of the Russian pipeline company Transneft declared that in the future he would order less fuel oil to Europe. The market there is oversupplied and the prices are therefore too low. Like Miller a few days earlier, Transneft CEO Semyon Vainshok spoke openly about the alternatives for Russian energy companies:

As soon as we divert the ol to China, Sud Korea, Australia and Japan, this will immediately subtract ol from our European counterparts.

Transneft head Semyon Vainshok

Gazprom is heating up Europe

Esso Mobil ExxonMobil Oeldorado 2004

European Union in gross dependence

The fact is that Russia, with its growing influence on the European energy market, is increasingly able to determine prices. Already 35 percent of German gas comes from Gazprom. When the so-called Baltic Sea pipeline – a joint project of Gazprom, Eon and BASF – comes on stream in 2010, the share of the Baltic Sea pipeline is expected to be around 40 percent. The EU still imports a quarter of its natural gas from Russia.

Regardless of the sensitivities of German politicians, this will not change. Quite the opposite. As the online portal reports, Gazprom already has stakes in the German long-distance gas companies VNG in Leipzig and Wingas in Kassel. Further rough deals are imminent. While the Essen-based RWE Group has been cooperating with the Russian industry giant for some time, RWE’s competitor Eon is now also getting involved in the deal. Today, in the presence of Angela Merkel and Vladimir Putin in Tomsk, Siberia, the company’s entry into the local Yuzhno Russkoye gas field, with its 700 billion cubic meters, will be sealed. The cooperation between Eon and Gazprom is only the latest step in the further networking of the energy markets.

The realization that the European corporations will remain junior partners in the process has prevailed in Berlin. In contrast to Great Britain, which has always pursued a market protectionist line, whether in foreign trade policy or in the agricultural sector, German corporations are expanding their relations with Russia. This has its price: Gazprom is already negotiating direct access to the German market with RWE.

Realism vs. Political sensitivities

The German government’s economic realism is evident in the restraint shown by its leaders in the aftermath of the alleged scandal over the rearances of Gazprom’s boss. After all, the current supply contracts with the Russian energy giant run until 2020, in the case of RWE even until 2030. That "Gazprom threatens to turn off the gas tap to the EU" (Berliner Tagesspiegel) is thus far-fetched. And also the excited reactions of Brok, Bartenstein or Piebalgs are, in the case of the CDU MEP already the choice of words suggests, rather due to political sensitivities.

But one nuance in the reports and statements of the last few days is noteworthy: Apparently, energy supply is increasingly viewed from a security perspective in both the EU and Russia. During the London deliberations on the Gazprom-Centrica deal, the only way to intervene in the market and prevent the deal was to emphasize its security relevance. Elmar Brok echoed the same sentiment, calling for the ie of energy supply to be considered "more strongly from the point of view of security policy". In the Moscow Duma, only a few days ago, a bill from the United Russia faction proposed to punish the siphoning of oil from pipelines as a crime. The motion equated such offenses with extremism, terrorism, bribery and money laundering.