EU to limit Gazprom access to Europe

By bne IntelliNews July 13, 2007

Tim Gosling in Moscow -

On Thursday, July 11 the European Parliament passed a resolution that could lead to limits on Gazprom's expansion into the EU's utility markets.

Following the resolution, the European Commission will start drawing up in September amendments to legislation designed to limit incoming investment from third countries that cap investment in their own energy and energy infrastructure sectors.

The resolution itself approves recommendations made in a report by the EU Committee on Industry and Energy Development concerning the continuing liberalisation of Europe's energy markets. Full liberalisation for private consumers came into effect in most countries at the start of July.

As the Russian daily Kommersant reports, the bloc's relationship with Algerian state company Sonatrach gives an indication of the main thrust of the legislation, which eliminates "anti-competitive clauses" in long-term supply contracts that prevent European importers reselling gas to third parties outside designated territories. The issue has been under negotiation with Algeria for years, with the Commission arguing that the clauses allow suppliers to carve up territories.

The resolution and expected legislation could prove a mixed bag for Gazprom. On the one hand, the European Parliament is supporting the preservation of the system of long-term contracts, which was under threat for some time under proposals surrounding the market liberalisation. On the other, it could bar the company from acquiring more of the EU assets it covets.

For the time being that's unclear. As Kommersant reports, the principal of mutual access to energy infrastructure assets does not appear in the main text of the resolution, but as a rather vague footnote which maintains only that: "mutual access means the absence of direct limits on production of natural gas by EU companies in countries that want access to European energy assets." As the paper reports, there are no such limits in Russia. However, it goes on to point out that Gazprom's monopoly over Russia's export pipeline network could potentially form the basis of a formal complaint under the forthcoming legislation.

Open to interpretation

In presenting the original report to the European Parliament on July 10, Alejo Vidal-Quadras, head of the EU Committee on Industry and Energy Development, pointed out that European companies producing gas outside the EU cannot always be guaranteed it will reach the EU because of legislation in third countries.

The European Parliament website says that: "In important upstream gas markets, full economic reciprocity is not currently guaranteed; [and that the Parliament] calls therefore on the Commission to come forward with a balanced proposal allowing EU gas emissions to use new upstream pipeline investments and long-term contracts in order to raise their negotiating power vis-a-vis third countries.

In typical EU style, the eventual form that the principle of mutuality and limitations on the EU gas market will take in new legislation - assuming they appear at all - is anything but clear, Kommersant points out, with the language in Vidal-Quadras' report allowing for wide variety of interpretation.

Gazprom has been pushing to gain direct access, via acquisitions and asset swaps, to European markets - the main target for the company's high-priced exports. Meanwhile, in the face of severe concern over increasing dependence on Russia for energy supplies, the EU has been floundering to present a united front. The Russian gas giant has successfully pursued a strategy of divide-and-conquer, striking deals with a number of individual EU states.

The strength of the new legislation could well depend on the battle between the EU and individual member states - France and Germany in particular - and their energy giants, who have been opposing the push to unbundled and break up markets.

Send comments to Tim Gosling

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