Gazprom, the Russian export monopoly that delivers a quarter of the European Union’s natural gas, warned the bloc that it was endangering its own security of supply with plans to break up the Continent’s energy giants.

At an annual EU-Russian energy conference, Gazprom’s director for international relations, Stanislav Tsygankov, said proposals being drafted by the European Commission to force the separation of energy production, transmission and distribution would sow “instability and unpredictability” across the sector.
“Which companies will be able to plan long term investments under those conditions?” he asked at the conference, which was organized by Gazprom, the Russian Gas Society and the German Council for Foreign Policy.
Gazprom also sees its own strong foothold in the EU endangered by the commission’s plans - and renewed a threat of reciprocal measures against companies seeking to invest in Russia if it is blocked from expanding in Europe.
By using commission and other EU documents to make his point, Tsygankov made it clear that Russia was taking the EU’s energy policy seriously - and that Gazprom was prepared to challenge it.
More revealing was the tacit alliance among big energy companies in Europe that has emerged to oppose the commission’s proposals.
A major dispute is already taking place inside the commission, the EU’s executive, between those pushing for greater competition as a means to lower prices, and those who think that would weaken energy security by deterring investment.
The proposals, which the commission hopes to finalize in the coming months, are being repeatedly amended under pressure from companies like E.ON Ruhrgas and Wintershall in Germany, Gaz de France, Eni of Italy - as well as Gazprom.
These European companies have forged long-term energy contracts with Gazprom to guarantee supply for new power plants, for example. In return, they have allowed Gazprom to enter the distribution sector in their countries.
The companies claim that plans by Brussels to “unbundle,” or break up, these vertically integrated companies would dry up investments. That, they say, would only undermine energy security in Europe, where demand for natural gas is expected to grow 1.3 percent a year over the next two decades.
Jean-Marie Dauger, vice president of Gaz de France, said the gas sector would require up to $4.24 trillion between 2006 and 2030. But he warned that such huge investments might not be forthcoming with the commission proposals.
“The gas industry is a capital intensive industry,” he said at the conference. “It would be a real strategic error for the European gas sector if the commission succeeds with its proposals.”
Matthias Rute, director general of energy and transport in the European Commission, acknowledged this growing mutual dependence. But at the same time he asked at the conference whether Gazprom itself was investing enough, and if there was enough gas in Russia to meet the growing domestic and foreign demand.
The European companies said there were adequate reserves. The big energy companies in Europe claim that any attempts at unbundling would undermine the relationship these countries have developed over the years with Russia.
Burckhard Bergmann, former chairman of Ruhrgas, said Russia already supplies 37 percent of Germany’s gas imports and 45 percent of the EU’s imports. “Long term contracts are the essential link between security of supply and security of demand,” said Bergmann, who is now deputy chairman of the influential East Committee, which promotes German companies in Russia and eastern Europe.
While the energy giants in Europe want to protect their assets and investments, Russia is worried that its investments in Germany, Italy and other EU countries would be affected.
Tsygankov from Gazprom said the commission’s draft proposals would mean that the assets of companies could even be stripped. And non-EU energy companies, like Gazprom, could be restricted from investing or have its stakes limited in European companies restricted if the commission also pushed through regulations for foreign companies, he claimed.
Gazprom could also be forced to separate its production from its pipelines that cross the Baltic States and Germany. This explains why Gazprom is trying to win support among the other large energy companies in the EU.
So far, however, the commission has yet to present its final proposals for non-EU energy companies that intend to invest in the 27-member bloc.
Russian participants at the conference warned that if the commission did introduce restrictions against Russian companies then Russia would retaliate. Already last month, the Kremlin published a list of companies it deemed were strategic and so off limits to outsiders. And, there are other obstacles. For example, energy companies have to sell any gas they produce to Gazprom.
Alexander Shokhin, president of the Russian Association of Industrialists and Enterprises, likened the energy debate to “table tennis, with one side introducing restrictions and the other side responding right away with restrictions.”
(Source: International Herald Tribune)