A feigned liberalisation: Russia is restricting Gazprom's monopoly on exports. OSW Commentary No. 121, 26.11.2013

An act restricting Gazprom’s monopoly in Russian gas exports came into effect on 1 December 2013. Previously Gazprom had had a legal guarantee to its monopoly position. The changes are an effect of consultations between various ministries that had been conducted for many months and were affected by lobbying from Novatek and Rosneft (Gazprom’s competitors on the domestic gas market); they need not, though, be seen as system changes. The ‘liberalisation’ they appear to bring in is feigned. Proof of this are found for example in both the limited material scope of the new law (it concerns only exports of liquefied natural gas, LNG) and the small number of the beneficiaries of the new regulations (the new solutions will be beneficial for Novatek and Rosneft). Contrary to initial announcements, the right to export LNG has not been restricted to South-Eastern Asian markets, which means that Russian liquefied natural gas is also likely to be sold to Europe in the coming years. Although these changes have been motivated above all by the individual interests of Gazprom’s competitors, they are also to a certain extent a response to the processes taking place on regional gas markets. They may, therefore, turn out to be beneficial for the state (increasing Russia’s share on the global LNG market and attracting foreign investors to gas extraction projects being implemented in Russia). The new regulations are probably the first step down the long road to breaking Gazprom’s monopoly in gas exports via the pipeline system.

Security of Russian gas supplies to the EU - the question of infrastrucutral connections. OSW Point of View, February 2005

The energy security of countries importing energy resources depends largely on the shape and quality of operational transport connections. This is particularly important in the case of natural gas supplies. Natural gas is transported mostly by gas pipelines which permanently connect gas producers and consumers. Thus Europe as a consumer is "tied" to certain gas suppliers for anywhere between a dozen and several tens of years. As their own resources are becoming depleted, the EU Member States get increasingly dependent on import of natural gas. The present paper discusses the existing and projected gas transport routes from Russia to the EU. The first part deals with the importance of gas exports to the economy of the Russian Federation, and the second delves into the EU Member States' dependence on gas imports. Then this paper examines the differences in perceiving the energy security issue between the old and the new Member States, those differences stemming from the different degrees of their dependence on Russian supplies. In the third part, two new transport route projects for Russian gas supplies to the EU are compared and it is argued that from the point of view of the Community's interests, the Yamal gas pipeline is a better solution than the North European (Trans-Baltic) gas pipeline.

Nord Stream on the liberalising EU gas market. OSW Point of View, March 2010

Nord Stream increases Gazprom’s flexibility as far its export routes are concerned; it enables them to be changed with regard to the market or political situation. Nevertheless, this expensive pipeline may contribute to a further drop in the price competitiveness of Russian gas. Accordingly, increasing the attractiveness of Russian fuel and ensuring profitable sales is steadily becoming the main challenge for Gazprom in the EU against a backdrop of increasing competitiveness on the market.

Gazprom's expansion in the EU - co-operation or domination? OSW Report, April 2008

The energy sector, especially with regard to natural gas trade, is one of the key areas of co-operation between the EU and Russia. However, the character of this co-operation has given rise to increasing doubts both in Brussels and among the EU member states. The questions have emerged whether this co-operation does not make the EU excessively dependent on Russian energy supplies, and whether Gazprom's presence in the EU will not allow Moscow to interfere in the proces of devising the EU energy policy. This report is intended to present the factual base and data necessary to provide accurate answers to the foregoing questions. The first part of the report presents the scope and character of Gazprom's economic presence in the EU member states. The second part shows the presence of the EU investors in Russia. The data presented has been provided by the International Energy Agency, European Commission, the Central Bank of Russia and the Russian Federal State Statistics Service. Some of the data is the result of calculations made by the Centre for Eastern Studies' experts who were basing on the data provided by energy companies, the specialist press and news agencies.

Gazprom's expansion in the EU: co-operation or domination? OSW Report, October 2009

The energy sector, especially with regard to the gas trade, is one of the key areas of co-operation between the EU and Russia. However, the form this co-operation has taken has been giving rise to some concern, both in Brussels and in the EU member states. Questions arise as to whether the EU has not become excessively dependent on Russia for energy, and whether the presence of the Russian gas monopoly in the EU does not enable Russian interference with the development of EU energy policy. The objective of this series of OSW reports (for the previous edition,see Gazprom’s expansion in the EU: co-operation or domination? April 2008 – pdf 1.2 MB) is to provide facts which will permit an accurat answer to these questions to be formulated.

Shale gas in Bulgaria, the Czech Republic and Romania. Political context - legal status - outlook. OSW Report, September 2012

Despite their initial interest in shale gas exploration, over the past year Bulgaria, the Czech Republic and Romania have become increasingly sceptical about the development of unconventional gas resources. In January of this year Bulgaria introduced an indefinite ban on the exploration and production of shale gas and Romania followed suit in May by introducing a six-month moratorium on exploration work, which it plans to extend by another two years following the country’s parliamentary elections scheduled for December. Similar measures are being planned by the government in Prague. The aim of this report is to explore the reasons why countries which claim to want to improve their energy security have been showing increasing scepticism towards shale gas.

The gas target model for the Visegard 4 Region: conceptual analysis. OSW Report, May 2013

The similarity of issues and geographical proximity have led the Visegrad 4 countries (V4) to undertake closer collaboration in natural gas policy, notably by agreeing on a common security of supply strategy, including regional emergency planning, and a common implementation of the Gas Target Model (GTM) that European regulators have proposed for the medium-long term design of the EU gas market, and which has been endorsed by the Madrid Regulatory Forum. As a contribution to this collaboration, the present paper will analyse how the GTM may be implemented in the V4 region, with a view to maximize the benefits that arise from joint implementation. A most relevant conclusion of the GTM is that markets should be large enough to attract market players and investments, so that sufficient diversity of sources may be reached and market power indicators are kept below dangerous levels. In most cases, this requires physical and/or virtual interconnection of present markets, which is also useful to achieve the required security of supply standards, as envisaged in the Regulation 994/2010/EC.

The tug of war. Russia's response to changes on the European gas market. OSW Study 50/2014

Russia, being aware of the evolution of the EU gas market and the fluctuations in trends that accompany it, and in an attempt to maintain its position on the European gas market, is sticking to a dichotomous strategy. On the one hand, Moscow has taken an offensive approach: it continues its traditionally critical rhetoric with regard to the legal and institutional changes; by negating the legitimacy of the new rules, it has been making efforts to undermine them by employing legal and political measures; Russia has used such traditional economic means as investments in assets and pushing through the implementation of new gas pipeline construction projects. On the other hand, the evolution of the EU gas market has forced Russia to take steps to adapt to a certain extent: partial changes in the operation of the internal gas sector; promises to further curb Gazprom’s dominant position; the concessions made in trade negotiations with European partners; partial adjustments to the EU’s so called third energy package regulations. Hoping that the unfolding situation on the gas markets will contribute to slowing down the recent liberalisation tendencies in the EU and that EU member states won’t make progress in decreasing their dependence on Russian gas, Moscow is thus preparing itself for the ‘long game’ in gas with its European partners.

The resource wealth burden - oil and gas sectors in the former USSR. OSW Study 12/2003

The former USSR area plays a great role in the international oil and gas market. Russia is a real gas giant, with the richest deposits of this material in the world. Russia is also the main exporter of natural gas to many European countries. Keeping a strong position in this market remains a priority for the Russian Federation's economic policy. Europe is a very attractive region because its demand for gas is expected to grow steadily, while its own gas production keeps decreasing. In the long term, the Far East will be an important market for Russian exports, too. According to estimates, demand there will grow even faster than in Europe. Caspian gas producers, for the time being, can not really compete with Russia in this field, and this status quo will most probably be preserved in the nearest future.

The declared end of South Stream and why nobody seems to care. CEPS Commentary, 5 December 2014

More than seven years after the South Stream pipeline project was first announced in June 2007, it finally seems to have been dropped by Russia’s President Vladimir Putin on his visit to Turkey this week. This CEPS Commentary looks at the ostensible reasons for President Putin’s decision as well as on what’s potentially behind them. It concludes that the EU may actually benefit from this decision in being able to secure more gas with less political interference from Russia.

The eastern ‘partnership’ of gas. Gazprom and CNPC strike a deal on gas supplies to China. OSW COMMENTARY No. 139, 2014-06-16

The CEOs of Gazprom and China’s CNPC signed a contract concerning Russian gas supplies to China on 21 May 2014 in Shanghai. The contract had been under negotiation for many years and was signed in the presence of the two countries’ presidents. Under this 30-year deal, ultimately 38 billion m3 of natural gas will be exported annually from eastern Siberian fields (Chayandinskoye and Kovyktinskoye) via the Power of Siberia pipeline planned for construction in 2015–2019. The lengthy negotiation process (initial talks regarding this issue began back in the 1990s), the circumstances surrounding the signing of the contract (it was signed only on the second day of Vladimir Putin’s visit to Shanghai, and the Russian president’s personal engagement in the final phase of the talks turned out to be a key element) and information concerning the provisions of the contract (the clause determining the contract price has not been revealed) all indicate that the terms of the compromise are more favourable for China than for Russia. This contract is at present important to Russia mainly for political reasons (it will use the future diversification of gas export routes as an instrument in negotiations with the EU). However, the impact of this instrument seems to be limited since supplies cannot be redirected from Europe to Asia. It is unclear whether the contract will bring the anticipated long-term economic benefits to Gazprom. The gas price is likely to remain at a level of between US$350 and US$390 per 1000 m3. Given the high costs of gas field operation and production and transport infrastructure development, this may mean that supplies will be carried out at the margin of profitability. The Shanghai contract does not conclude the negotiation process since a legally binding agreement on gas pipeline construction has not been signed and not all of the financial aspects of the project have been agreed upon as yet (such as the issue of possible Chinese prepayments for gas supplies).

Gazprom’s expansion in the EU: co-operation or domination? OSW Report, October 2009. Second edition, revised

Introduction. The energy sector, especially with regard to the gas trade, is one of the key areas of co-operation between the EU and Russia. However, the form this co-operation has taken has been giving rise to some concern, both in Brussels and in the EU member states. Questions arise as to whether the EU has not become excessively dependent on Russia for energy, and whether the presence of the Russian gas monopoly in the EU does not enable Russian interference with the development of EU energy policy. The objective of this series of OSW reports (for the previous edition,see Gazprom’s expansion in the EU: co-operation or domination? April 2008 – pdf 1.2 MB) is to provide facts which will permit an accurat answer to these questions to be formulated. Over the course of last year, two new factors strongly affected Gazprom’s capability to operate on the EU market. One was the ongoing global economic crisis, which has depressed demand for gas both in Russia and in Europe. Gazprom has cut both its own production and the quantities of gas it purchases from the Central Asian states, and the decrease in export revenues has forced the company to modify some of its current investment plans. Less demand for gas and the need to reduce production are also having a positive impact – the Russian company is likely to avoid the difficulties in meeting all of its export commitments which, only a year or so ago, it was expected to experience. The other factor affecting Gazprom’s expansion in Europe is the observed radicalisation of the rhetoric and actions of both the company itself and of the Russian authorities with regard to the gas sector as broadly understood. The gas crisis between Russia and Ukraine in January 2009, which resulted in a two-week interruption of gas supplies from Russia to Europe via Ukraine, was the most prominent example of this radicalisation. The hardening of rhetoric in the ongoing energy talks with the EU and other actors, and increased political and business activities designed to promote Russian gas interests in Europe, in particular the lobbying for the Nord Stream and South Stream projects, are further signs of this shift in tone. These issues raise the question of whether, and to what extent, the current condition of Gazprom’s finance will permit the company to implement the infrastructural projects it has been endorsing and its other investment plans in Europe. Another important question is whether the currently observed changes in how Gazprom operates will take on a more permanent character, and what consequences this will have for the European Union. The first part of this report discusses Gazprom’s production and export potential. The second comprehensively presents the scope and nature of Gazprom’s economic presence in the EU member states. Finally, the third part presents the Russian company’s methods of operation on foreign markets. The data presented in the report come mainly from the statistics of the International Energy Agency, the European Commission and Gazprom, as well as the Central Bank of Russia and the Russian Statistical Office. The figures presented here also include proprietary calculations by the OSW based on figures disclosed by energy companies and reports by professional press and news agencies.

No other choice but co-operation. The background of Lithuania's and Latvia's relations with Belarus. OSW Commentary No. 99, 2013-01-04

For years now Belarus has been a key economic partner for Lithuania and Latvia. These two Baltic states have well-developed port infrastructure and thus provide what are the geographically closest and also the cheapest exit to international outlets for Belarusia’s petrochemical and chemical industries, both of which are export-oriented. As a result, the transit of Belarusian goods is one of the major sources of income for the state budgets of the two countries. This economic interdependence has affected the stance Riga and Vilnius take on Minsk at the EU forum. When in February and March 2012 the Council of the European Union was resolving the issue of imposing economic sanction on selected Belarusian companies which backed Alyaksandr Lukashenka’s regime, this triggered a discussion on what the point of such measures is and on possible economic losses in Lithuania and Latvia. As a result of firm resistance from Latvia (which was backed by Slovenia), the Council removed those companies which were most strongly engaged in co-operation with Latvian partners from the list of those to be covered with economic sanctions. Lithuania, which is more critical of the political situation in Belarus, did not express its official opposition to the sanctions. Despite some differences in the policies adopted by Riga and Vilnius, it turned out that Minsk could count on strong support from local business groups in both of these countries, as these groups fear impediments in this highly profitable co-operation and also retaliation from the Belarusian government. The existing economic bonds mean that neither Vilnius nor Riga have any other choice but to co-operate with Belarus. They must therefore adopt a carefully balanced policy towards Minsk. At the same time, being EU member states, they do not officially deny that a problem exists with the violation of human rights by Alyaksandr Lukashenka’s regime. It is for this reason that the governments of Latvia and Lithuania will be interested in maintaining the status quo in relations with Minsk. On the other hand, Belarus in a way also has no other choice but to use the ports in Lithuania and Latvia, and this will prevent it from excessively escalating tension in relations with these two countries.

At any price: Russia is embarking on the construction of South Stream. OSW Commentary No. 98, 2012-12-07

Gazprom is determined to continue its efforts to build the South Stream gas pipeline regardless of the slump on the European gas market and the fact that there is sufficient capacity already in the existing transport infrastructure. The official inauguration of the maritime section of South Stream was held on 7 December this year, but the construction itself will commence in 2014. The agreements concluded so far, both intergovernmental and between corporations, are necessary for the launch of the construction of the new pipeline, but still do not guarantee that the project will be completed on time. First of all, some legal problems have yet to be resolved, such as the evaluation of the compliance of the planned actions with the ‘third energy package’ or the fact that ecological surveys required under European law need to be carried out. Secondly, given the present situation on the European gas market and medium-term forecasts, the high cost of implementation of this project and the maintenance expenses of existing pipelines – which are not being used to full capacity – the new project seems to be unfeasible. However, Gazprom’s determination in its efforts to build the pipeline proves that Russia is ready to take a high economic risk to maintain its dominant position on the European gas supply market; it will restrict the possibilities of alternative infrastructural projects being implemented (above all, the EU’s Southern Corridor) and use the construction of new pipelines as an instrument of political pressure on the present transit countries (especially Ukraine).

The natural resources deficit: the implications for German politics. OSW Commentary No. 46, 2011-02-08

Falling amounts of natural resources and the ‘peak oil’ question, i.e. the point in time when the maximum rate of extraction of easily-accessible oil reserves is reached, have been among the key issues in public debate in Germany on all levels: expert, business and – most crucially – the government level. The alarming assessments of German analysts anticipate a rapid shrinkage of oil reserves and a sharp rise in oil prices, which in the longer term will affect the economic and political systems of importer countries. Concerns about the consequences of the projected resource deficit, especially among representatives of German industry, are also fuelled by the stance of those countries which export raw materials. China, which meets 97% of global demand for minerals crucial for the production of new technologies, cut its exports by 40% in summer 2010 (compared to 2009), arguing that it had to protect its reserves from overexploitation. In 2009 the value of natural resources Germany imported reached €84 billion, of which €62 billion were spent on energy carriers, and €22 billion on metals. For Germany, the shrinkage of resources is a political problem of the utmost importance, since the country is poor in mineral resources and has to acquire petroleum and other necessary raw materials abroad1. In autumn 2010, the German minister of economy initiated the establishment of a Resources Agency designed to support companies in their search for natural resources, and the government prepared and adopted a national Raw Material Strategy. In the next decade the policy of the German government, including foreign policy, will be affected by the consequences of the decreasing availability of natural resources. It can be expected that the mission of the Bundeswehr will be redefined, and the importance of African states and current exporter countries such as Russia and China for German policies will increase. At the same time, Germany will seek to strengthen cooperation among importer countries, which should make pressure on resource-exporting states more effective. In this context, it can be expected that the efforts taken to develop an EU resource strategy or even a ‘comprehensive resource policy’ will be intensified; or at least, the EU’s energy policy will permanently include the issue of sourcing raw materials.