Russia's state-owned Gazprom, the world's largest natural gas supplier, has become quite adept in manipulating European nations and its former Soviet republics, making sure it keeps the upper hand and cuts the best deal possible.
The EU usually makes energy decisions as a group to consider the best overall strategy for its members. However, Gazprom's "divide and rule approach" has so far worked quite well by hauling in "the European Union's (EU) largest founding members" as key customers—Germany, Italy and France, suggested the Moscow office of the Economist Intelligence Unit of The Economist, a provider of country intelligence, in its recent country risk article "Russia-EU Economy, Gazprom's French Connection."
Other analysts appear to hold the same sentiments as The Economist. Paul Dunay, senior researcher at Stockholm International Peace Research Institute was quoted in an International Herald Tribune article, "Each EU country has its own bilateral relationship and special deals with Russia [and Gazprom] over energy."
Gazprom is the sole natural gas supplier of many former Soviet states as well as Finland. It is also one of the biggest suppliers of gas to France, Italy, and Germany. On the whole, the EU receives around 15 percent of its gas from the Russian giant.
The European Commission met last Thursday to discuss how to deal with Russia and the possibility of any delivery disruption to EU countries. The Commission admits that Gazprom already has a head start—it has negotiated and signed contracts with European companies individually and has already become a major player in the European market.
Leaving no Stone Unturned
As the EU took note of Gazprom's intentions, Gazprom negotiated contracts quietly with a number of energy related companies, including Austria's OMV Aktiengesellschaft, Italy's Eni S.p.A., and the Gaz de France (GdF).
GdF announced last month that it renewed its gas contract with Gazprom until 2030. GdF will receive annually 2.5 billion cubic meters of natural gas. Delivery will be through the Nord Stream pipeline and beginning in 2007 it will be delivered directly to GdF's end-users.
"It is a fine example of the success of Gazprom's strategy," said Alexei Miller, Chairman of Gazprom's Management Committee in the press release."
Germany's leading energy company E.ON Ruhrgas did not cow down and "give the Russian gas company access to its sector of the German market," claimed Igor Tomberg, chief researcher of Russia's Center for Political Technologies.
That didn't prevent Gazprom from gaining a piece of the German pie. It signed agreements to swap assets with individual German companies. In return it pledged a portion of its interest "in the Yuzhno-Russkoye deposits" (a natural gas deposit) for the rights to have "access to [the] European gas distribution network."
Negotiations and contractual agreements continue with many European energy companies. Gazprom wants to make sure it is involved in most, if not all of Europe's energy undertakings, including being a contractor of the Baltic under-water Nord Stream pipeline.
N.V. Nederlandse Gasunie has had strategic relationships with Gazprom for a number of years. Gasunie invited Gazprom to be a contractor in the construction of the under-seawater BBL gas pipeline that stretches from Belgium to Great Britain.
Huddling With Former Soviet States
Ukraine has ambitions to join the EU someday and seeks to implement more pro-Western policies, including those related to procuring energy supplies. However, due to its close proximity to Russia, it couldn't avoid a tie-up with Gazprom.
Both Ukraine and Gazprom benefited from their union. Gazprom got a 5-year fixed "transit price" for its gas shipments into Ukraine over existing pipelines to Western Europe. In return, Gazprom is selling gas at close to cost to Ukraine.
Negotiations for the delivery of gas were finalized near the end of 2006 with other former Soviet republics. Belarus signed a five-year contract and got steep discounts. It will pay $100 per 1,000 cubic meters of gas, which is below Gazprom's cost. In return, Gazprom received a 50 percent stake in Georgia's Beltransgaz, an energy transport enterprise.
Three of Georgia's energy companies, including Mtkvari Energetika, signed contracts with Gazprom.
Serbia's state owned gas company Srbijagas signed an agreement to build a pipeline that will deliver gas to surrounding countries, making Serbia a transit country for Russian gas deliveries.
Anti-Competitive Intentions?
Radio Free Europe does not believe that Gazprom and the Russian government will change tactics in the near future. They are not sure if Gazprom is willing to take any other than its own counsel, especially since it has its government on its side. "The Kremlin will remain intransigent, believing that strong-arm tactics have worked to Russia's benefit—and will continue to do so," said Roman Kupchinsky of Radio Free Europe.
Robert R. Amsterdam, senior partner at the Dutch law firm Amsterdam & Peroff in his 2007 article "Get tough with Gazprom," published in the International Herald Tribune, speculates, "Gazprom deploys three strategies: cooptation—cultivating partnerships with certain countries, political leaders and corporations as levels of its interests: pre-emption—using upstream [involved in exploration and extraction] power and Russian diplomacy to manipulate situations downstream [corporations that process the raw material] and to scoop up assets and disaggregation—splitting the EU through bilateral deals."
Amsterdam explains that Gazprom entered the markets of its choice by dealing with German energy companies. Its "extensive lobbying" of Europe's regulators helped move roadblocks to long-term supply contracts, which lead to the demise of competition in the area.
The company's pre-emptive strategies included purchasing stocks and interest in energy companies at any cost. Such tactics allowed Gazprom to "flood the market in Turkey with gas, withhold gas from [the] Ukraine and oil from Belarus [while] offering preferential market access to Italy," according to Amsterdam.
Also to stay in the driver seat in Europe and to eliminate any possible competition, Gazprom, with the help of the Russian government, is doing all in its power to prevent Iran from establishing a presence in the Caucasus and Algeria from bringing its gas and oil to Spain and Italy.
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