Gazprom and UE, a return to the reason

By Nina Bachkatov and Andrew Wilson

The 13 March provisional agreement between Gazprom and the European Commission represents a return to economics in the complex energy relation between Russia and the European Union.

This agreement came after an almost 2 years dispute between the Russian gas giant and European antitrust regulators accusing Gazprom of abusing its dominant position in eight member states, essentially new EU members which inherited from the Soviet period a quasi-total dependency on Russian deliveries. The complaints by those members led the Commission to file charges against Gazprom in April 2015 accusing it of breaking antitrust rules.

This means that for the moment Gazprom escaped the payment of huge fines it was threatened with throughout this time. Under the agreement, Gazprom undertook some commitments to meet EU antimonopoly rules (such as removing restrictions on reselling gas, ensuring that prices in Central and Eastern Europe are competitive, and not taking advantages regarding gas infrastructures that it had obtained because of its dominant position).

The Commission has now sent the text to the concerned countries and waits for their “observations” – hence the term “provisional” agreement. If it comes into force, in case of violation of the agreement, the Commission would be able to fine Gazprom up to 10% of its worldwide revenues.

But all the signs are that the Commission is satisfied with the text, which reflects all its concerns over artificially inflated prices in some EU members but also the way Gazprom’s dominant position was used by the Kremlin to impose on some of them financial participation in new pipelines. In the meantime, Gazprom is not obliged to fundamentally change its business model and will benefit from a better relationship with its largest consumer.

The European market is still, and for a while, the biggest consumer of Gazprom, despite success in its policy of diversification; and exports of gas are a key element of the Russian budget. At the same time, the consumption of Russian energy in Europe is growing and expected to continue to do so due to a switch from nuclear energy, the depletion of European gas fields, environmental concern over shale oil and gas which were presented as an alternative, the continued instability in Middle East producers countries, and endless discussions about new pipelines.

This agreement, if definitively ratified, may signal a return to the situation of mutually accepted interdependency that existed during the Cold war and that broke down a decade later, mostly for political reasons.

It could still be derailed easily considering the acrimony towards Russia of most of the 8 countries concerned by the agreement, and it leaves open the question of the opposition of EU members (such as Denmark, Poland and the Baltics), essentially for political reasons concerning North Stream 2 and other energy infrastructures.

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