Russia's Contempt for EU Energy Liberalization
Writing an opinion piece in the Wall Street Journal, Alan Riley professor of law, at City Law School, City University, Grays Inn, London, says that Gazprom should receive no special consideration in from EU policies designed to liberalize the energy market.
Russian officials are openly dismissive of EU energy liberalization and are outraged at the idea that Gazprom's operations within the EU should be subject to EU competition and liberalization law. The deputy chairman of the Duma, Valeri Yazev recently argued that liberalization would inflict on Gazprom "direct economic prejudice," and demanded a change in the rules of the game.
Last month Prime Minister Vladimir Putin was in Brussels seeking a special exemption for Gazprom from EU energy liberalization, brandishing the not-so-subtle threat of higher gas prices for Europe if he does not get his way. Already the prospect of an EU-inspired forced sell-off of Gazprom's pipeline assets in Lithuania has provoked outrage in Moscow.
Riley argues that EU has no need to entertain such demands. Other energy firms have been forced to liberalize, and the same rules should apply to Gazprom. The equal application of the law and the rule of law are fundamental European values.
So why is the EU cringing before Russian demands?
The core reason is that many EU and national officials really believe that Russia is essential to Europe's energy future, and that as the North Sea fields decline, Europe will have no choice but to go, cap in hand, to the Russians for gas.
But Riley says that this argument does not stand up to close examination; Gazprom depends on the EU far more than the EU depends on Gazprom for a variety of reasons.
Firstly, EU gas sales of around 140 billion cubic meters represent approximately two-thirds of Gazprom's revenues (and approximately one-third of total production). Any cut in production would harm Gazprom's revenues.
Secondly, Gazprom should have learned from the 2006 and 2009 Ukraine-Gazprom conflicts that taking aggressive action against its customers only winds up shrinking its market. Since Gazprom's January 2009 cut-off, many EU states—and not just in Central and Eastern Europe—have taken steps to ensure they have access to greater storage facilities and alternative pipeline and liquefied natural gas supplies.
Thirdly, there are now more and more new gas sources coming on stream. The shale gas revolution in the United States has seen the demand for liquefied natural gas collapse in America, causing a major supply diversion to Europe. As a result, the European spot-market price for gas has been below the key German border price for most of this year. Worse still for Gazprom, even more liquefied natural gas is coming onto the market, with global production set to soar to 410 billion cubic meters in 2013 from approximately 240 billion cubic meters in 2008.
In the medium term, shale gas discoveries across the planet, from India to China to Argentina, will likely hurt demand for liquefied natural gas further, which will lead to more liquefied natural gas dumping in Europe. This is all before actual shale-gas production starts in Europe, where well over 100 exploratory licences have now been granted.
Read the Full Article at the Wall Street Journal HERE