Gazprom's New Deals - Trick or Treat?
Two European business transactions have ground-breaking significance for its political unity in the face of the ongoing crisis in Ukraine.
Gazprom has signed a shareholders' agreement on the Nord Stream 2 project together with European Engie, Shell, OMV, E.ON and BASF/Wintershall.
Shell, OMV, E.ON and Wintershall were to receive 10 percent of the shares in the project. French Engie could receive an additional 9 percent. The Russian company would retain a controlling interest in the amount of 51 percent of shares.
The signing of the shareholders’ agreement is something more than the already existing memorandum on an agreement between said companies. In contrast to the memorandum, which is an act of will, the agreement is a form of commitment, which actually commences the cooperation of companies with the implementation of the project.
The decision of the European companies to initiate the expansion of the Nord Stream means the pressure put on the European Commission will increase. The European Commission refuses to accept the release of the overground branches of the Nord Stream from the regulation of the third energy package. The first two threads of Nord Stream with a total capacity of 55 bn m3 per year are partly unused as Gazprom has the permission to exclusively use up to 50 percent of this power. The construction of the third and fourth thread in the Nord Stream 2 project would indicate that this capacity would be doubled, and the shareholders would even more need the approval from the Commission for the release.
Therefore, this is a vote of no confidence against the Ukrainian policy of the European Commission. Brussels insists on the maintenance of the gas transit through the territory of Ukraine in order to stabilise its budget and the economic relations with Russia, which continues its aggression in Donbas and occupies Crimea. Talks on the resumption of supplies from Gazprom necessary for the maintenance of transit in winter, when the right amount of raw material must rest in the storage facilities are announced for the end of September.
Another tragic news piece is the information that Russian Gazprom and German BASF have agreed to end an exchange of assets, which the German company has blocked due to the situation in Ukraine.
In a BASF press release one can read that the companies are to complete the transaction by the end of 2015. It has been agreed and approved by the European Commission in December 2013, but its implementation did not take place in 2014 for political reasons.
Under the agreement, Wintershall – a company that belongs to BASF– passes the gas distribution and storage of this material in Germany to Gazprom. Gazprom acquires 50% of shares in another company, Wingas, under the same agreement. This company runs gas trade having 20% of share in the German gas market. In addition to the transmission network, Gazprom takes over (as the 100% shareholder and the owner) large gas storage facilities which have been owned by Wintershall so far, including the Europe’s largest storage facility – Rehden near Bremen, with a capacity of 4.4 billion m3, which is more or less the amount of the national production of gas in Poland. This constitutes 20% of the entire German gas reserve. Additionally, the Russians will also have shares in two smaller storage facilities: in Jemgum in Lower Saxony and in Haidach in Austria. This storage facility has a capacity of 2.6 billion m3.
In 2014 I wrote that they are gas Mistrals. These assets give Russia a strategic effect as significant as the blocked purchase of the French helicopters. Thanks to the assets in Germany, Gazprom will be able to continue the plan to replace the gas transit through Ukraine with increasing supplies using the German network. This will be an opportunity to deepen the fruitful cooperation in the gas sector between Germany and Russia, undermine the EU policy in this field and the position of Kiev before the upcoming talks of EC-Ukraine-Russia.
Poland and other transit countries, whose interests are undermined by the Nord Stream and the redirection of the gas supply from Russia on the German trail must use all available tools to block the expansion of the Nord Stream 2 in Brussels. The European Commission should also be supported in its efforts to stabilize the supplies through Ukraine. If a German-Russian plan succeeds, our country will also lose its transit position, and hence will have a weaker position in the negotiations of a new agreement on gas supplies from Gazprom before 2022.
Blocking the described system is also crucial for the preservation of the energy solidarity in the European Union and the fulfilment of the provisions of the EU documents, which include the declaration of will of independence of the continent from Russian hydrocarbons. Nord Stream 2 and the exchange of the assets of BASF-Gazprom are moving in the opposite direction. They allow Gazprom for a stronger entry onto the European market and weakening the energy security of some of the EU countries. It is also a blow to the Polish initiative of the Energy Union, which aimed at communitising the policy in the sector. That is why Poland should express clear opposition to such transaction and proceed to gather allies to block the Russian-German plan.
News about auctions of Gazprom's gas is also tricky. It could be a treat - Russians agree to follow the EU rules and sell gas partly on spot markets. But it also can be a trick. Using auctions to fill the rest of OPAL's capacity can serve Gazprom's purpose of acquiring monopoly on it and increase transit through Germany using Nord Stream, thus hitting Ukraine and Poland interests as a present transit states and increasing the volumes imported from Russia. It would undermine EC policy of stabilizing Ukraine's gas system and decreasing dependence on Russia as the main supplier. Is this how true Energy Union should look like?
Wojciech Jakóbik
Wojciech Jakóbik is Chief Editor of BiznesAlert.pl and an Expert at Instytut Jagielloński