Russia offers EU a backdoor out of gas war

By bne IntelliNews October 30, 2014

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Russia's Gazprom said on October 29 that it will seek to open talks with the new European Commission on expanding its access to the Opal pipeline, which carries gas from Germany to the heart of Central Europe. The move serves as a reminder to member states that, if it wants, the EU can avoid suffering significant gas shortages stemming from any halt of shipments through the main pipeline from Russia through Ukraine this winter. 

Gazprom said it had failed to reach agreement with the outgoing Commission and now plans to open talks with the incoming Commission. "Gazprom is initiating new talks with the newly elected line-up of the European Commission when it is ready," spokesman Sergei Kupriyanov said, according to Reuters. The new executive takes office on November 1. 

Restricted access to the the Opal pipeline -  which runs through Germany to the Czech border to link up with Central European networks - limits the amount of gas Gazprom can send through Nord Stream, the 55bn cubic metre (cm) pipeline it built and launched in 2011 under the Baltic Sea to connect directly to Germany. Nord Stream reduces reliance on transit states for Russian gas exports to Europe, including Ukraine. Brussels is currently fighting Russian efforts to build South Stream under the Black Sea in order to circumvent Ukraine entirely.

The major EU weapon in that fight is the blocs's Third Energy Package, which sets out conditions for a liberalised market, including preventing energy suppliers dominating infrastructure. Gazprom has asked for an exemption to the rules for Opal, on which Gazprom is required to reserve up to 50% of the 35bn cm annual capacity for independent suppliers, but to no avail. 

The Russian side claimed in its application to the European Commission that the capacity it is currently blocked from using could be employed to boost EU energy security. However, according to ICIS, the southern end of Opal is full. Capacity from Germany to Czech Republic has been in great demand in recent months, because of shippers’ interest in the higher-priced markets in Slovakia and Ukraine, the analysts write.

All in the game

It was little coincidence that Gazprom voiced its hopes of expanding use of Nord Stream immediately ahead of tripartite talks late on October 29 with Kyiv and Brussels over restarting gas supplies to Ukraine. Claiming Kyiv owes it billions, Moscow halted gas deliveries in June. That has concern building in countries in Central and Southeastern Europe that they could be shivering this winter because of supply disruptions, as happened in previous "gas wars" between Russia and Ukraine in 2006 and 2009.  

Gazprom will sign no agreements on turning the taps back on until “Ukraine and the European Union reach an agreement on financial guarantees,” Alexei Miller, the CEO of the Russian company, said after the first round of talks, according to Itar-Tass.

"You sense that neither the Ukrainian or Russian sides really want a deal," suggested Tim Ash at Standard Bank. "The real losers, and those pushing for an agreement is the EU which is desperate to avoid supply disruptions this winter. Russia is telling the EU, if you care so much about Ukraine, put your hands in your pocket."

The push to expand deliveries via Nord Stream is the other side of the coin. Moscow is telling the EU that there is an alternative whereby it can raise gas supplies and leave Ukraine to sink or swim. However, the likes of Bulgaria and others to the south that do not have strong connections to northern networks will still feel a squeeze. 

While Moscow's message will gain little traction in Brussels, it is probably actually intended for those CEE states on the frontline, who have shown on several occasions that they are susceptible to Russian efforts to split them off from bloc policy.

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