How are relations between Russia and Europe in the gas sector changing?

Pavel Zavalny: Unfortunately, our relations in the gas sector today are not only affected by the market, but also by politics –first and foremost the politics of the US and the EU. It is worth recalling that in the EU’s Third Energy Package on gas and electricity [which entered into force in 2009], a number of measures were presented which were aimed at reducing energy dependence on Russia, although the country was not specifically mentioned. For example, the gas pipeline Opal, the overland portion of the Nord Stream pipeline, is loaded only to fifty percent capacity, and it’s obvious that only Russian gas flows through it. But the European Commission does not give us permission to ramp it up to full utilization. Behind these actions is the politics of reducing energy dependence, and the situation is complicated by the events in Ukraine.

It’s worth recalling too the situation with the South Stream, with Bulgaria showing hesitation for many months, and ultimately not permitting the implementation of the project through its territory –also for political reasons. This stopped the construction of a gas pipeline which was necessary for southern and eastern Europe.

All this has led to a situation necessitating a change [of Russia’s role] in the European gas market. Until recently, discussions were held concerning strategic cooperation involving the participation of both consumers and producers. For example, we had allowed companies such as Wintershall, TOTAL and others to participate in the development of fields, create joint ventures and so on.

The South Stream project was also supposed to be implemented with the participation of Western companies. But now we have been forced to return to the old system of trade partnerships, in which gas is sold to the consumer at the border or at so called trade hubs. In this way, the market is forming only in the interests of the consumer, while all the risks remain with the producer. As a result, the question arises: if at some point the consumer and the producer cannot agree on the terms of the deal, the pipelines may simply be left without gas. This then becomes the buyer’s risk, and one that is not insignificant. The circumstances have led to a situation where the market is left with with fewer guarantees of security and predictability. It is precisely this arrangement that is being offered to us by the European Union today.

Read the full article HERE