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Wednesday, May 10, 2006

Russia-Europe: energy dialogue or squabble?

May 2006 RIA Novosti –MOSCOW – Igor Tomberg - Russian energy giant Gazprom and multinational chemicals manufacturer BASF signed an asset swap agreement during Russian-German consultations in the presence of President Vladimir Putin and Chancellor Angela Merkel in Tomsk ,southwest Siberia. Under the agreement, the Russian concern will increase its share in Russian-German joint venture Wingas GmbH from 35% to 50% minus one share and get a stake in a company incorporated into Wintershall AG, a BASF subsidiary that owns stakes in assets in Libya. BASF/Wintershall will get 25% minus one voting share and 10% non-voting shares (35% minus one share) in Severneftegazprom, a joint-stock company that holds the exploration and development license for the Yuzhno-Russkoye oilfield in West Siberia. These agreements were reached despite a surprise row between Gazprom and the European establishment over the Russian company's role and intentions on the European market. Russia was pained by the European Union's recent attempts to put pressure on it and accuse Moscow of using "the gas weapon" for political purposes. Gazprom was supported by President Putin, who said in Tomsk: "We keep hearing about the danger of becoming dependent on Russia, and about the need to restrict the access of Russian companies to European markets. Please try to see the situation from our angle. What can we do if we keep hearing the same accusations every day? Logically, we can only start looking for alternative markets." European officials are apparently using double standards in relations with Russian business, notably over the situation around British Centrica, which is striving to become a leading supplier of energy and related services in its chosen markets. Newspaper leaks about Gazprom's intention to buy the U.K. company provoked the British public to demand the adoption of a bill limiting the expansion of Russian energy companies to European markets. "When they (foreign companies) come here, it's called investment and globalization, and when we plan to go somewhere, what is it? It's the expansion of Russian companies," Putin said. "We need to agree on common rules of the game." Presidential aide Igor Shuvalov specified the Russian view on such rules in Paris. He said Gazprom did not intend to become a global gas monopolist. "Gazprom is not going to take over the gas business in Algeria, Qatar or anywhere so as to become a global monopolist," he said. "Our ideology is not an association of gas producers but an intertwined and mixed system of asset ownership with consumers and producers as part of a joint business," the Russian G8 Sherpa said. "Without this, there can be no energy security, only diverse interests, with the producer countries never meeting the consumer countries." The recent agreements between Gazprom and its German partners, as well as a high probability of acquisition of energy assets in Italy, the Netherlands, Britain, Hungary and other countries, have strengthened the negotiating stand of the concern in the fight for a foothold on the liberalizing European gas market. Market support is a serious prop for Gazprom. No matter what Brussels may say about the concern's monopolist strategy and the need to quickly diversify gas supplies, the global stock market has again reaffirmed its trust and interest in the Russian company. Gazprom's market value has grown by 12% in the week of the conflict with the EU. From Monday to Friday, Gazprom has risen from the sixth to the third place among the world's top concerns in terms of capitalization, overtaking Citigroup, British Petroleum and Microsoft. This rapid growth of the gas concern's shares was also spurred by the decision of Morgan Stanley Capital International (MSCI) investment bank to increase the share of Gazprom in the MSCI Equity Indices, the most widely used international equity benchmarks by institutional investors. Another growth driver was the asset swap agreement with BASF. As of April 27, Gazprom's capitalization was $266.3 billion. As expected, Gazprom's row with the EU benefited the Russian company. European Commissioner for Energy Andris Piebalgs and Dr. Martin Bartenstein, Austria's Minister for Economic Affairs & Labor, sent an open letter to the Russian government admitting the possibility of long-term gas supply contracts. This can be seen as the EU's concession to Gazprom, because previously Europe insisted that Russian gas should be turned over to gas distributors on the border with the EU. However, Piebalgs and Bartenstein stressed that Russia "and in particular Gazprom" was a reliable supplier of natural gas to the EU. "The EU and Russia are, and must remain, in a position of mutually beneficial interdependence," they wrote. The European Commission issued a separate statement saying that Gazprom is the exclusive exporter of gas from Russia to the EU, which amounts to recognizing Gazprom's principle of a single export channel. The Russian energy giant controls all gas supplies from the Commonwealth of Independent States to Europe, though until recently the EU insisted that Turkmenistan and Kazakhstan should have the right to use Gazprom's pipelines for individual gas supplies. The EU is demanding reciprocity from Russia and pressing Moscow to ratify the Energy Charter Treaty that would oblige it to open its vast gas pipeline network to third-party suppliers. Gazprom is adamantly against signing the charter in its current wording, which means that the parties have many issues to discuss. For now, the unpleasant exchange of statements has shifted to the diplomatic field. The goal is to harmonize mutually beneficial conditions for a multilateral regulation of the European energy market. The Energy Charter Treaty can become the basis for such a system, but all sides have to work hard to turn it into a package of legal documents suiting everyone. Igor Tomberg is a senior research fellow with the Energy Research Center, Institute of World Economy and International Relations (IMEMO) of the Russian Academy of Sciences. The opinions expressed in this article are those of the author and may not necessarily represent the opinions of the editorial board.

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