Putin Intervenes in European-Gazprom Brawl

The Kremlin seeks to shield the energy conglomerate from an antitrust investigation.

Prime Minister Vladimir Putin of Russia speaks at the World Economic Forum in Davis, Switzerland, January 29, 2009
Prime Minister Vladimir Putin of Russia speaks at the World Economic Forum in Davis, Switzerland, January 29, 2009 (WEF/Sebastian Derungs)

Russian president Vladimir Putin decreed on Tuesday that any foreign organization that seeks information or changes in contracts from strategically important companies must first seek permission from the Kremlin. The move shields the Russian energy conglomerate Gazprom from a European antitrust investigation.

The European Commission launched an antitrust probe last week to force the Russian gas company to cut prices and publicize the formula that governs its supply contracts to Europe.

Gazprom delivers about 25 percent of the continent’s gas needs. It is the largest private gas producer in the world and maintains close ties to the Russian government.

Gazprom denounced the European Commission’s effort as an attempt to influence prices at a time of lackluster growth in the West. “This is an attempt to solve the economic problems of [Europe] at Russia’s cost,” said a spokesman.

Alexei Miller, Gazprom’s chief executive, said on Tuesday that the president’s decree would prevent his company from negotiating discounts with major energy companies in Europe, including Germany’s RWE and Poland’s PGNIG. He lamented, “There is no need for them to turn to us anymore.”

European competition commissioner Joaquín Almunia said earlier in the day that Gazprom’s long-term contracts may no longer be justified because of increased supplies of shale gas. He believes that the company may be hindering the free flow of natural gas across Europe and abusing its position as the dominant supplier to Central and European Europe to impose unfair prices on its customers by linking the cost of gas to oil.

The Russian government has intervened repeatedly in recent years to secure the position of its energy exporting companies, whether private or state owned.

American diplomatic cables released by the whistleblowers’ website WikiLeaks revealed that Azerbaijani officials in 2009 worried that Russia would take advantage “of the current poor state of Azerbaijani-Turkish relations and stalled gas transit discussions to kill the prospects for transit of Azerbaijani and Turkmen gas to international markets.”

The European Commission has been in talks with Azerbaijan and Turkmenistan since last year with the aim of importing natural gas from the Caspian Sea region through Turkey which would dilute Russia’s virtual monopoly on gas transit in the region.

The South Caucasus Pipeline, which has been operational since 2006 and carries gas from Azerbaijan’s Shah Deniz field via Georgia into Turkey, is supposed to link up with the planned Nabucco pipeline. Gazprom has proposed to extend its Blue Stream pipeline up through Bulgaria and Serbia as an alternative.

Another alternative supplier of natural gas may be Ukraine. Prime Minister Mykola Azarov told The Wall Street Journal in May that his country will expand domestic gas production by 25 percent in the next three years. Hydraulic fracturing technology holds the key to “covering all of Ukraine’s needs,” he said. The United States Energy Information Administration estimates that Ukraine has the third largest shale gas reserves in Europe at 1.2 trillion cubic meters, some twenty times its annual needs.

Russia backed the election of incumbent president Viktor Yanukovich in 2010 in an attempt to retain its influence in the former Soviet republic and twice in recent years shut off natural gas exports to the country amid price disputes with Kiev. Gazprom blamed Ukraine’s siphoning of gas supplies for shortages in Europe last winter.

Transneft, Russia’s state pipeline company, announced in February that it was in talks with the Czech Republic and Germany to bypass Ukrainian export infrastructure altogether.

By keeping supply below demand and oil and gas sales overpriced, Moscow hopes to force the Ukrainians to trade more of their industrial assets for energy and accelerate a process of economic reintegration that stalled under the previous, pro-Western government. But even the more pro-Russian Yanukovich is reluctant to give his neighbor more control over his gas transit system because it is the only leverage he has against the Kremlin.

Putin’s recent legal move is unlikely to deter the European Commission’s investigation. Gazprom can refuse to comply with requests for information but regulators do have access to all of the company’s competitors and partners in Europe.