Gazprom has been revising its supply strategy in the EU in response to changes in the gas industry. Gazprom was forced to replace its European strategy of forming direct supply lines from production outlets in Russia to consumers in Europe with an interaction model based on pure diversification of supply sources, routes, and markets.
Gazprom head Alexei Miller declared an intention to assess transformations in the European gas sphere at a forum last fall. In spring of this year, he told the Valdai Club’s international energy security conference in Berlin that Gazprom was forced to replace its European strategy of forming direct supply lines from production outlets in Russia to consumers in Europe with an interaction model based on pure diversification of supply sources, routes, and markets.
It should be stressed that this was not Gazprom’s or Russia’s choice. Close supplier-consumer cooperation based on risk and profit sharing is a time-tested model that balances the interests of all participants and maximally hedges energy security risks.
However, the EU chose a different approach. They claimed they had a common market, free access to infrastructure, and therefore suppliers should compete for consumers. Sounds fine, but there are some buts. Two-thirds of the EU countries are dependent on gas imports and their share is likely to grow as domestic production declines. The number of suppliers is quite limited (only four major suppliers – Gazprom, Norwegian Statoil, Algerian Sonatrach, and Qatari Qatargas – account for over 80% of EU imports); no one asked the suppliers’ opinion; Europe has offered no system to guarantee investment in new gas production and transportation projects.
At the same time, the Third Energy Package was approved as part of the effort to form a common market. This instrument forbade gas suppliers to build new gas pipelines and eliminated their rights to participation in managing gas transportation assets they owned in the EU. No wonder that the corporate gas producers and traders started disposing of their gas transportation assets.
An active investor in European gas transportation and trade infrastructure for 20 years, Gazprom finds itself in a difficult situation. In Germany, it has created, jointly with BASF, a network of alternative pipelines (Wingas) as a basis for competition with the German monopoly, Ruhrgas. In Poland, it has built the new gas transport route, Yamal-Europe. A number of countries hosted joint ventures that worked with end consumers and invested in gas infrastructure development (Austria, Bulgaria) or engaged in wholesale gas trade as part of market liberalization (Italy, France). Gazprom Marketing & Trading, a spot trader, operated in the UK. In the Baltic states Gazprom and its German partners were involved in privatizing local public gas companies and jointly managed these assets.
All these assets are being reviewed as a consequence of the new rules of the game on the market, political pressure in certain countries, and Gazprom’s own desire to optimize. But it is still early to speak of a sell-off. A few individual asset sales have occurred so far in response to lucrative proposals. Specifically, Gazprom withdrew from problem-ridden Lithuania, which had actually redeemed its public gas assets. Since Germany’s E.ON sold its share simultaneously with Gazprom, the redemption price proved quite attractive. In addition, Gazprom sold its minority non-managing shareholding in VNG, Germany. Consultations or even talks with potential buyers are in progress on other assets. But selling off at any price is not yet on the cards.
