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Gazprom, EU Mend Pipeline Talk Break

Gazprom seems committed to preserve its lucrative share in the European gas market

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ATHENS –Gazprom and the European Commission appear to be closer to a compromise as the Russian gas monopoly tries to fend off accusations of price-gouging and hindering rivals from entering the region.

Gazprom, which has said that it wants to amicably settle an antitrust case brought by the European Commission that could cost it billions, has revived an asset swap deal with Germany’s BASF and has also signed a shareholders’ agreement on Nord Stream-2 under which the capacity of the planned pipeline beneath the Baltic Sea to Europe will double.

Gazprom seems committed to preserve its lucrative share in the European gas market. “There is a change in attitude from Gazprom. The change is that they are ready to adapt to changing commercial realities as they want to preserve market share in Europe and they understand they are facing significant competition from LNG at least until the early 2020s, but they also know that Russian gas is price competitive with all these alternative supplies,” Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, told New Europe in Athens on November 12.

“In terms of DG Competition inquiry, it is understood that destination clauses (illegal under EU competition law) have been found, but it is also understood that they have since been removed,” she said on the sidelines of a conference on Energy & Development 2015 organised by the Institute of Energy of South East Europe (IENE).

EU Competition Commissioner Margrethe Vestager said on November 10 in Brussels that the current slump in oil prices will not have any bearing on regulators’ case against Gazprom and charges of excessive rates levied against customers in eastern and central Europe in recent years. Gazprom pegs the price of its gas to a number of oil products in a so-called oil indexation.

Asked about the oil price fall and its impact on the Gazprom case, Vestager told an event in Brussels: “No, it doesn’t change the case.” “One of the questions is the way indexation is made, not the principle but the way it is done,” she said.

Currently oil index prices are lower than spot prices and are likely to remain so for at least a year. Yafimava said, “It was clear that it would be extremely difficult and probably impossible to argue that the principle i.e. the price formulae per se is anticompetitive, instead DG Competition argued that the formulae ‘have contributed towards unfairness of Gazprom’s prices’. To assess the strength of this argument one would need to know how DG Competition defines ‘fairness’”.

Meanwhile, European Commission Vice President for Energy Union Maroš Šefčovič helped mediate a deal earlier this fall between Russia and Ukraine for Gazprom to ship two billion cubic metres of natural gas to Ukraine beginning October 1 and ending March 31.

Yafimava, who was an expert at the EU-Russia Gas Advisory Council, said tensions between Gazprom and Ukraine’s Naftogaz are still an issue. “The very fact that one needs a trilateral Winter Package every year suggests that a bilateral Ukraine-Russia gas relationship remains problematic; the EC will need to play an increasingly active role in brokering such packages, effectively underwriting security of Ukrainian transit both politically and financially,” she said.

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