Putin to seek 2050 gas ‘roadmap’ on Brussels visit

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Russian Prime Minister Vladimir Putin, who will be in Brussels on 24 February, will seek long-term special arrangements for his country's gas supplies to the EU, various speakers said yesterday (21 February). Vladimir Chizhov, Russia's envoy to the EU, warned that the talks could be "unpleasant".

Several statements by Russian gas officials appear to indicate that Putin's visit to the EU institutions could mark a turning point in Russia's decades-long relationship with the EU as a gas supplier.

Russia could sign a "road map" of natural gas supplies until 2050 with the European Union, Russian energy monopoly Gazprom's CEO Alexei Miller was quoted by the Russian press as saying yesterday (21 February).

Miller said that the issue was expected to be discussed over Putin's visit to Brussels, including "clarifications" regarding the Commission's 'third package' of proposals to further liberalise the EU's energy market (see 'Background').

'Unpleasant' talks

Speaking to the press yesterday, Vladimir Chizhov, Russia's ambassador to the EU, said that he expected the discussions between Putin and his Brussels counterparts to be "detailed", but also "possibly unpleasant".

"Some EU countries have chosen the most strict version of the energy package," he said, adding that such an attitude could lead to the nationalisation of gas infrastructure and raise new obstacles for Russian business in the EU.

In an article published in Russian media, Valeri Yazev, president of Russia's Gas Society, described three possible versions of the third energy package. According to the most strict of these, suppliers would have to sell their gas transport business. A second possibility is that companies are not split up, but an independent operator is appointed for the transport infrastructure, the activities of which are limited to one country. The third possibility is that the company is not split, but a special board takes responsibility for its 'independent' decision-making.

Risk means higher prices

Reportedly, Lithuania is planning to split its gas company Lietuvos Dujos, in which Gazprom is a shareholder, into a transport and a trade component, with the trade company remaining under the control of the government. Gazprom says the government of Lithuania is only seeking an excuse to nationalise the company.

Yazev, who is also deputy chairman of the Russian State Duma (the lower chamber of parliament), said that such an attitude implied "risks" for Gazprom and therefore gas prices for Lithuania would be increased.

He added that Russia would before the visit send an official letter to the European Commission, asking it to introduce corrections to the "third package".

The Russian Gas Society president told the Russian press that the 'third package', which enters into force on 3 March, would cause Gazprom "direct economic prejudice" and for this reason, Moscow would ask for the "rules of the game" to be changed.

The Russian official said that the loss of the rights of the supplier, Gazprom, were intended for the sake of market liberalisation. However, he added that Gazprom is doubtful that market liberalisation in the EU is something that is achievable in the foreseeable future. He also argued the supplier could not lose its supply network without any compensation.

"As the matter of fact, the Russian company would be deprived of the right to use a gas transport network it had been establishing in Europe for a long period of time for the purpose of achieving the same energy security the 'package' talks about," he said.

Nord Stream loses one pipe

Speaking to the Brussels press in a video conference yesterday (21 February), Yazev also made clear that the new EU rules would disrupt Russian investments both in prospecting and building pipelines. He added that the "third energy package" was in fact undermining energy security in Europe.

Yazev said that the EU rules were demotivating Gazprom from investing in pipeline infrastructure and gas storage. He cited as an example plans for a second parallel pipe of the Nord Stream pipeline project, linking Russia offshore to Germany, which he said had been suspended.

Gazprom would have to reassess its long-term supply contracts with European clients, with regard to the location of delivery and the conditions of delivery, Yazev said. The present practice is that Gazprom sells its gas to European customers.

If Gazprom were to move from long-term contracts to sales on spot markets, in the short term prices may go down, Yazev admitted. Long-term gas supply contracts between Gazprom and European customers are pegged to oil prices within a futures market. Gas spot market sales concern immediate deliveries of liquefied natural gas (LNG).

But Yazev added that under the spot market system, in the longer term, when demand for gas in Europe has increased, Russia would not be able to respond to that demand, as it would have not invested in new gas fields such as Shtockman or Yamal.

He also warned that spot price sales would push Russia to coordinate its gas price policy with gas producers in the Middle East or in northern and western Africa, and as a result prices were more likely to increase. Gas exporting countries, including Russia, already meet in a format known as GASPEC.

"The third energy package must function from the place where pipelines end, instead of covering them. This is one of the fundamental proposals which we must fight for," he said, referring to Putin's visit to Brussels next Thursday.

On the spot

In the meantime, it was reported that German utility E.ON Ruhrgas AG has requested that its Russian gas purchases be linked to the spot price. The Wall Street Journal quoted Sergey Komlev, head of Gazprom's export price formulation department, who strongly objected to the change in the sales practice.

"They [E.ON Ruhrgas] have made a proposal. We don't agree with it," said Komlev. "Our position on this is very firm."

On 19 September 2007, the European Commission presented its 'third package' of proposals to further liberalise the EU's energy market (see LinksDossier).

The proposals sparked much controversy, particularly over the issue of 'ownership unbundling' - meaning the break-up of large vertically-integrated energy firms like EDF and E.ON, which simultaneously control electricity production and distribution assets.

France, Germany and six other member states led resistance to the unbundling plans. Together, they tabled an alternative proposal in February 2008, which they argued would guarantee a similar result without forcing energy firms to split their energy production and transmission businesses.

Energy ministers finally clinched a deal in November 2008, agreeing that energy producers from countries which are not fully open to competition would be forbidden to buy up the transmission businesses of energy companies in European countries where full unbundling has been introduced.

The measure was directed at France, which had been opposed to unbundling, while EDF, the state-owned energy firm, went on a shopping spree across Europe.

  • 24 Feb.: Russian Prime Minister Vladimir Putin to visit Brussels.

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