Eastern approaches

Ex-communist Europe

Gazprom in trouble

Deflating the gas bubble

Mar 2nd 2012, 17:48 by E.L.

AS regular readers will know, we carry quite a few articles saying that "Eastern Europe" is an out-of-date term. But a new publication in Warsaw is boldly adopting the label. Called New Eastern Europe, it is paid for (in part) by the Polish Ministry of Foreign Affairs (meaning taxpayers). It has had two issues so far, snazzily designed in red and black. Oddly, they are not available online (even for subscribers).

But it also has interesting blog posts, (it also reposts material from the European Council on Foreign Relations)

The most recent offering on the site is about the European Union and Gazprom, by Jonas Grätz of the Center for Security Studies in Zurich, pegged to the lastest wobbles in supply during the February cold snap.

"The premise of stable supplies from Russia is crumbling fast" he argues, as it showed the problems of both bad long-term investment decisions (for example the failure to build proper storage) the fall-out from the quarrels with Turkmenistan and the political decision to favour Turkey over the EU (presumably as a reward for Turkey's flip-flop on South Stream and Nabucco). The EU should reject Gazprom's demands for exemptions from the rules mandating third-party access to pipeline infrastructure and instead demand that Gazprom sorts out its own storage facilities.

He concludes:

Gazprom is not the “reliable supplier” that the Soviets may once have been (in the eyes of Western Europe). Gazprom’s market share in the EU turns out to be already too high for the sort of power play Moscow wants to pull off with the EU. By exploiting irregularities and crises to display and test the EU’s vulnerabilities, Russia strives to derail the EU’s market liberalisation agenda, putting its “pipeline-isation” agenda ahead of the EU’s marketisation.

Meanwhile, many EU member states and institutions have so far rather rewarded Russia’s unreliable behaviour: The 2006 and 2009 gas supply cuts contributed greatly to the acceptance of the Nord Stream pipeline as a bypass. The 2009 crisis was also instrumental in the German decision to grant Nord Stream’s connecting pipeline, the OPAL, exemptions from third-party access. Following Nord Stream, South Stream is set to be Russia’s next Trojan horse for the EU agenda. So instead of rewarding Russia, the EU and its gas industry have to focus on diversifying suppliers which is an essential element of completing an internal gas market. Otherwise, the outlook for gas as the “fuel of choice” for the transition to a renewable power generation looks rather bleak

Readers' comments

The Economist welcomes your views. Please stay on topic and be respectful of other readers. Review our comments policy.


You have the nerve to blame Turkey for flip-flopping on Nabucco. Let's see who flip-flops:
A bunch of pipeline projects to bring natural gas to the EU have been initiated and carried out to differing extents, particularly considering national interests, not the future of EU. Italian ENI is together with Russian Gazprom in the planned South Stream pipeline, which is the main competitor of the EU-backed Nabucco pipeline, supported by German RWE, Austrian OMW and Hungarian MOL. There is also British BP’s South-East Europe Pipeline (SEEP), connecting directly into Azerbaijan’s Shah Deniz gas field. BP, Norwegian Statoil and French Total have bypassed Russian natural gas by building and operating the South Caucasus Pipeline. German E.ON and Wintershall, French GDF Suez and Dutch Gasunie have opted to participate with Gazprom in Nordstream.
EU has NO energy policy. Therefore, national and private interests (aka chauvinism) undermine the interests of the EU when it comes to EU energy policy. The internal EU energy market is a total mess. As in all matters in EU, the energy policy does not aim at integration or equal partnership, but at dominance and control by the stronger members. Unfortunately, that is exactly what the USA policy towards EU aims at.
You talk about flip-flopping?

International Analyst

Another lazy TE article that provides no real analysis just reporting something from another source. Besides, the content of the article directly contradicts the title.

Indeed, a shallow, superficial commentary by TE. Given a multitude of articles in many world journals on Europe's energy issues and on Gazprom's monopolistic ambitions in particular, it is frustrating to say the least to see TE come up with such generalities.


Last year the world’s 12 largest natural-gas exporters, including Russian Gazprom, discussed how to keep natural gas prices based on gas-to-oil price indexation. Given that Gazprom and some EU consumers disagreed about prices of the existing long-term contracts, Russia wanted to secure support from other gas exporters.
However, such talks were miles away from possible creation of a Gas-OPEC. Gazprom is not interested in an agreed global gas price preferring to manipulate its near-monopoly in some EU countries where Gazprom’s price is much higher than global spot market.

Gazprom spokesmen have repeatedly stressed “the supremacy of the long-term gas contracts”. European consumers would like to see more price flexibility than Gazprom is willing to offer. In response to the EU's pressure to abolish the link between oil and gas prices Gazprom has recently lowered gas prices for some European customers.

Gas pricing in the EU markets will depend on cooperation between gas-producers like Russia, Qatar and Algeria as well as the rate at which shale gas will begin to capture a significant market share.


>>> The 2006 and 2009 gas supply cuts contributed greatly to the acceptance of the Nord Stream pipeline as a bypass.

Not much surprising. If "Nord Stream" existed in 2006 -- there weren't any "gas supply cuts".

Amicus_Plato in reply to trilirium

Which transit countries do you mean, trilirium? Look at the gas pipelines map. Poland, Czech Republic and slovakia ARE transit countries and have been during the previous crises. This has not protected them against gas cuts. And do not talk us the old story about the Ukrainians stealing gas. Poland has 50% of its Russian imports through Yamal link which precisely bypasses Ukraine since, I believe, 2004. The most recent bypass which is North Stream has no other immediate reason than giving Gazprom a tremendous leverage over the Polish gas market 60% dependent on Russia. Link through Belarus is 100% owned by Gazprom and Belarus politically is fully controlled by Kremlin. So trilirium be kind revisiting your geography lessons or I'll shall be forced to admit that your geography teacher graduated from the NKVD school at Lubianka.


So many officials in D.C. and Brussels talk with concern about Russia's ambitions and resource tactics. As well NATO always schedules wargames in the Baltics "reacting to an external threat." Instead of attempting a re-run of the Cold War why doesn't everyone adopt the most seriously mitigating and damaging policy conceivable: heavily reduce reliance on Russian energy supplies. Push for new pipelines, integrate the European grid, diversify energy production and build up North African capacity.

MarineCanuck in reply to Yura2009

Most definitely much easier said than done. But considering how long they have been discussing this issue it seems redundant to not have made any progress in any of these areas. Perhaps that will begin to change once the internal disruptions to the EURO become less of a threat.

Didomyk in reply to MarineCanuck

I think you are understating the progress being made, albeit gradual. For example, LNG terminals have been built in Spain, Italy, etc., one is under construction in Rotterdam, another in Poland, even Ukraine has just received quotes for its first LNG terminal at Odessa. These are capital intensive projects that take a long time.

Similarly, progress has been made in Poland in contracting out shale gas exploration in most promising ares. Again, it will take time to build up pipeline connections, storage facilities, etc. but then these are long term projects.

There is no unanimity on support for the Nabucco gas pipeline via Turkey mainly because of disagreements on where the long term gas supplies will come from. But the same supply and financing uncertainties inhibit progress on the rival Gazprom South Stream project under the Black Sea. There are tons of political steam generated in Moscow surrounding the South Stream which at this point is far away from being economically justified.

European Citizen

You forgot to mention shale gas: the Russian lobby has been quite active in emphasizing the negative consequences of drilling for the environment. I don't deny the fact that there are environmental issues that need to be addressed, of course.


In process of sucking up to Russia, EU threw Ukrainian government under the bus, so it is only fair that they deal with the fallout on both fronts: dictatorship in Ukraine, emboldened Lukashenko and Putin who seems to go on the megalomaniac trip in the last few years.

Didomyk in reply to Sherbrooke

Few people in Western Europe know that Ukraine is now paying more for Russian gas than most EU states located hundreds of miles further west. Ukraine wants to renegotiate the existing contract with Gazprom in order to significantly reduce the quantity of Russian gas it is obligated to buy each year. Substantial savings are possible both by reducing gas consumption by the industry and by conserving domestic gas used for fuel. At this stage Russia has indicated it would accept 10% price cut subject to certain conditions. Negotiations will continue after presidential elections in Russia.

Yura2009 in reply to Didomyk

Despite Gazprom's monopolistic ambitions to obtain control over ALL gas transmission systems to Europe, the extensive pipeline network crossing Ukraine, Belarus, Poland, Hungary and Moldova simply cannot be replaced in any practical manner. That's why Gazprom has taken over ownership of the pipeline crossing Belarus and insists on gaining a controlling share of the system crossing Ukraine. There are studies currently underway by reputable European firms to assess the present market value of the Ukrainian system and the investment required to update those facilities ( like compressors, etc.) that were built 30- 40 years ago and are now outdated. Ukraine's government seems to favor some version of a future tri-party ownership of the transmission system ( EU and Gazprom at 30% each, Ukraine balance of 40%). The negotiations will be tied to an urgent need to devise a new gas pricing formula for Russian gas supplies to European countries replacing the current formulas linked to oil market prices. Many Europeans insist that any new pricing formula must take into account competitive spot market gas prices in Europe as well as a growing competition of LNG delivered to expanding number of European LNG terminals.

About Eastern approaches

Eastern approaches deals with the economic, political, security and cultural aspects of the eastern half of the European continent. It incorporates the long-running "Europe.view" weekly column. The blog is named after the wartime memoirs of the British soldier Sir Fitzroy Maclean.


Trending topics

Read comments on the site's most popular topics


Products & events