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Russia has a significant role in the European energy sector as the largest exporter of oil and natural gas to the European Union. In 2007, the European Union imported from Russia 185 million tonnes of crude oil, which accounted for 32.6% of total oil import, and 100.7 million tonnes of oil equivalent of natural gas, which accounted 38.7% of total gas import.[1]

Contents

Natural gas supplies

Russian natural gas as a % of domestic consumption.

In 2007, 38.7% of the European Union's natural gas total imports and 24.3% of consumed natural gas originated from Russia.[1][2] Russian natural gas is delivered to Europe through 12 pipelines, of which three pipelines are direct pipelines (to Finland, Estonia and Latvia), four through Belarus (to Lithuania and Poland) and five through Ukraine (to Slovakia, Romania, Hungary and Poland).[2]

The largest importers of Russian gas in the European Union are Germany and Italy, accounting together almost half of the EU gas import from Russia. Other larger Russian gas importers (over 5 billion cubic meter per year) in the European Union are France, Hungary, Czech Republic, Poland, Austria and Slovakia.[3][4] The largest non-EU importers of Russian natural gas are Ukraine, Turkey and Belarus.[3]

According to the European Commission, the share of Russian natural gas in the member states' domestic gas consumption in 2007 was the following[2]:

The shares of Russian natural gas in the domestic gas consumption in non-EU countries in Europe were in 2006:[3]

According to the assessment by the European Commission, Baltic countries and Western Balkans gas route are identified to be vulnerable to the Russian gas disruption.[2]

According to Pierre Noël, Research Associate and Director of Energy Policy Forum of the University of Cambridge, the perception that Russian dominance in the European gas market is growing is not confirmed by data.[4] At the same time, the different national policies and stances of larger exporters versus larger dependents of Russian gas, together with the segmentation of the European gas market, has become an extremely divisive issue in European politics toward Russia.[5] Therefore, creation of the integrated pan-European gas market would significantly reduce the European energy security and foreign policy implications.[4]

Russian companies

Gazprom is the Russian state-owned company that exports natural gas to Europe. It also controls a large number of subsidiaries, including key infrastructure assets. According to the study published by the Research Centre for East European Studies, the liberalization of the EU gas market has driven Gazprom's expansion in Europe by increasing its share in the European downstream market. It has established sale subsidiaries in nearly all its export markets as also gained direct access to industrial and power generation sectors in Western and Central Europe. In addition, Gazprom has established joint ventures to build natural gas pipelines and storage depots in a number of European countries.[6] Transneft, a Russian state-owned company responsible for the national oil pipelines, is another important Russian company supplying energy to Europe.

Gazprom has been criticized for lack of transparency in its structure. According to the risk analysis firm AZEast Group partner Roman Kupchinsky's testimony given to the United States Senate Committee on Foreign Relations, "Gazprom, with the silent support of the Kremlin has set up 50 or so middlemen companies, silently linked to Gazprom and scattered throughout Europe - such as the Centrex group of companies and the Gazprom Germania network - which do not add any value to the price of Russian gas being sold on European markets; yet they earn enormous sums of money which appears to simply vanish through shell companies in Cyprus and in Lichtenstein."[7] According to the study published by the Research Centre for East European Studies, Gazprom uses subsidiaries such as Gazprom Germania, Gazprombank, Gazprom-Media, or shell companies to avoid resistance to its investments. However, some acquisitions like an attempt to take over British gas company Centrica in 2006 have been rejected by the hosting governments. These actions has been called by Gazprom discriminatory.[6]

A paper by Keith C. Smith noted that Russian firms have demanded foreign joint venture partners to agree to funnel profits through offshore accounts and well-known havens for "confidential funds" or to intermediary firms that bring no added value to the venture.[8] Money laundering is used in "backdoor financing" for companies that want to conceal their Russian links and for key individuals in the West who hide the origin of their "consulting fees".[8]

Russian strategy and tactics

According to Ariel Cohen's paper "Europe's Strategic Dependence on Russian Energy" (2007) Russia is consolidating its grip on oil and gas in Europe utilizing the following strategies and tactics:

  • Locking in Demand - Moscow is attempting to use long-term contracts with European countries to lock in demand. By dealing separately with countries rather than as a group, Moscow can discriminate countries on prices.
  • Locking in Supply - Moscow attempts to consolidate its control of strategic energy infrastructure throughout Europe and Eurasia, including supply, sale, and distribution of natural gas as well as as pipelines, refineries, electric grids, and ports.
Map of the planned Nabucco and South Stream pipelines.
  • Derailing Competition - For example, Moscow has pushed South Stream which competes against the EU's Nabucco pipeline as well as the proposed extension of the EU-backed South Caucasus Pipeline.
  • External Consolidation - Moscow is consolidating control of supply outside Russia, particularly by signing long-term exploration and supply agreements with Turkmenistan, Uzbekistan, and Kazakhstan.
  • Internal Consolidation - Moscow is consolidating Russia's oil and gas sector in the hands of state-controlled entities. Major international entities are pushed out of Russia.
  • A Gas OPEC - Russia is "stealthily and steadily" developing a "gas OPEC" cartel to control the output and price of gas. The cartel would include major producers, including Argentina, Bolivia, Venezuela, Iran, and Qatar.[9]

Moscow signed the Energy Charter Treaty in 1997, but it has refused to implement it.[8]

Despite calls for European energy diversity being recently amplified, doubt has been cast on whether diversification away from Russia is actually possible, as Russia's European customers have long term legal contracts for gas deliveries despite the disputes, most of which stretch beyond 2025-2030.[10]

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Russia's interest groups

Germany's Gerhard Schröder and Russia's Vladimir Putin in Moscow on 9 May 2005.

According to Keith C. Smith's Russia and European Energy Security - Divide and Dominate (2008), the Kremlin has systematically created or cultivated "friendly" interest groups in both Central and Western Europe. These groups "benefit financially from their formal and informal ties to Russian state energy companies". He asserts that:

There is serious political risk to Europe from its growing dependency on Russian energy resources. However, the greater danger is that this dependency is making a significant portion of Europe’s political and economic elite reliant on nontransparent financial payments that erode national sovereignty and distort national decisionmaking.[8]

In Germany, members of the SPD have ties with Kremlin and Gazprom, including posts at company boards or party donations.[11] For instance, Gerhard Schröder signed Germany into an agreement to build the Nord Stream pipeline and after losing elections[citation needed] Schröder received a post at Nord Stream AG. Former Foreign Minister Frank-Walter Steinmeier has been similar to Schröder.[12][13]

In addition, Germany's policies have been accused of undermining human rights in Russia. Oleg Orlov, head of the Memorial human rights group in Russia, says that Schröder's and Steinmeier's policies on Russia have been "extremely bad for civil society, democracy and the country as a whole".[14] An article published by the Financial Times Deutschland stated:[15]

If the new Ostpolitik becomes a reality, the world may begin to view Russia’s human rights violations as Germany’s human rights violations. Every time a political party is outlawed, Germany’s signature will be on the paper; every time an opponent of the state is imprisoned without fair trial, Germany’s hand will be on the key; and every time an outspoken journalist is savagely murdered, there will be blood on Germany’s hands. Is drawing these connections the only way to awaken the ethics among the blindly pro-Russian Social Democrats?

In Poland, Russian agent Vladimir Alganov was recorded discussing bribery of Polish officials in Vienna.[16][17] Marek Dochnal was caught bribing officials on behalf of a Russian client.[18]

In early 2009 the Swedish prosecutor's office began to investigate a bribery case where a person had received a $574,000 donation from the Nord Stream project of Gazprom.[19] Swedish TV 4 also revealed that Gazprom's subsidiary Nord Stream AG has hired several former Swedish officials.[20] In Finland, Paavo Lipponen first backed Gazprom's pipeline plans as Prime Minister and was then was hired by the consortium.[21]

In Italy, parliamentary investigations alleged that Prime Minister Silvio Berlusconi's friend was a major beneficiary in a Eni-Gazprom deal which involved Central Energy Italian Gas Holding.[22]

In Serbia in October 2008, signing of the an annual protocol to the Russia-Serbian gas agreement was criticized as non-transparent. The critics alleged that YugoRosGaz, a joint subsidiary of Gazprom and Yugoslav government is redundant and introduced in the supply scheme under pressure from Gazprom .[23][24][25]

GPlus Europe is one of the PR agencies used by Gazprom.[26] GPlus specializes in recruiting former EU officials and eminent journalists.[27] Hill and Knowlton, another PR company used by Moscow, has given Members of European Parliament private jets flights to Siberia.[27]

Russian foreign policy

Swedish Defence Research Agency's Robert L. Larsson's 110-page study Nord Stream, Sweden and Baltic Sea Security (2007) counted over 55 incidents (cut-offs, explicit threats, coercive price policy and certain take-overs) since 1991, most with "both political and economic underpinnings".[28][29]

Robert L. Larsson's 362-page study Russia’s Energy Policy: Security Dimensions and Russia’s Reliability as an Energy Supplier (2006) concluded:[30]

From Europe’s perspective, Russia is moving in the wrong direction. Russia has largely ignored criticism, and has been unwilling to change its behaviour. Dependence on Russian energy would not be a problem if Russia played by the same rules as other energy players or European states. In conclusion, the core problem is the combination of Russia’s perception, intentions, capabilities and track record along with lack of real stability, a high degree of unpredictability and a development away from democracy, rule of law and market norms.

Janusz Bugajski's book "Cold Peace: Russia’s New Imperialism" states that through targeted foreign investments and strategic infrastructural buyouts in Eastern Europe Russia is building monopolistic positions and substantial influence over any country's economic, financial, trade, and investment policies. Also,[21]

Moscow aims to convert East Europe’s overwhelming dependence on Russian energy supplies and economic investments into long-term, constant, and predictable intergovernmental influence. Close connections between the Kremlin and the largest Russian companies, whether through executive appointments, through the promotions of overseas operations, or through financial, legal, and police instruments, demonstrate that foreign policy is closely coordinated. Russian enterprises have been encouraged to gain political influence through involvement with officials, parties, and media outlets in targeted East European states.

Proposed countermeasures

Enforcing existing competition laws

Several authors have recommended legal action. Antitrust and anticompetitive behavior by European and foreign companies doing business inside the European Union is prohibited by Article 82 of the Treaty Establishing the European Community. Neither Transneft or Gazprom has yet faced anti-trust charges.[8]

Keith C. Smith recommends that both Article 82 and the Energy Charter Treaty are used to prosecute Gazprom. In addition, "Western firms should petition the European Union, DG COMP, and national governments to enforce vigorously existing antitrust and competition policies".[8] The European Union has previously prosecuted Microsoft. Keith C. Smith states that the price tag of Microsoft's behavior is a just small fraction of "the cost paid by Germans, Czechs, Hungarians, Italians, Greeks, and Austrians for Russian oil and gas as a direct result of the state-dictated export monopolies of Transneft and Gazprom".[8]

Marvin Baker Schaffer suggested that the European Union could prosecute Gazprom and Eni under Article 82.[31]

A panel in a seminar organized by Chatham House and Transparency International said that "These anti-trust and anti-competition practices are a clear violation of Article 82 of the EC Treaty and of Article 45 of the Energy Charter Treaty" and asked "How many Western leaders can really negotiate well with the seasoned KGB-ers who make energy policy?"[32]

Other

Claude Mandil, the former head of the International Energy Agency, has said that "We need more energy efficiency, more liquefied natural gas, more renewable energy, more nuclear energy".[33]

Keith C. Smith proposed that the Union demands the right to immediately investigate the causes of disruptions of Russian or non-Russian oil or gas to any EU member state. When disruptions appear designed to pressure a member state, the European Union should apply economic sanctions on the assets in Europe of Transneft and/or Gazprom. Both companies should be forbidden to buy assets in EU member states until the companies become more transparent in their accounting and operating practices.[8]

Keith C. Smith recommends that if EU investors in Russia can not own more than 25 percent of Russian enterprises, then Russian enterprises should not be able to own more than 25% of European energy facilities and energy marketing companies.[8]

Many authors have called for common European foreign policy on energy.

The European Union has made proposals to diversify energy supply. One of them is the Nabucco pipeline.

See also

References

  1. ^ a b (PDF) Energy Dialogue EU–Russia. The Tenth Progress Report.. European Commission. November 2009. pp. 4–6. http://ec.europa.eu/energy/international/bilateral_cooperation/russia/doc/reports/progress10_en.pdf. Retrieved 2010-01-24. 
  2. ^ a b c d (PDF) Commission staff working document–Accompanying document to the Proposal for a Regulation of the European Parliament and of the Council concerning measures to safeguard security of gas supply and repealing Directive 2004/67/EC. Assessment report of directive 2004/67/EC on security of gas supply {COM(2009) 363}. European Commission. 2009-07-16. pp. 33; 56; 63–76. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=SEC:2009:0978:FIN:EN:PDF. Retrieved 2010-01-30. 
  3. ^ a b c (PDF) Country analysis briefs: Russia. Energy Information Administration. May 2008. p. 11. http://www.eia.doe.gov/emeu/cabs/Russia/pdf.pdf. Retrieved 2010-01-30. 
  4. ^ a b c Noël, Pierre (May 2009) (PDF). A Market Between Us: Reducing the Political Cost of Europe's Dependence on Russian Gas. University of Cambridge Electricity Policy Research Group. p. 2; 38. EPRG0916. http://www.eprg.group.cam.ac.uk/wp-content/uploads/2009/06/binder13.pdf. Retrieved 2010-01-30. 
  5. ^ Noël, Pierre (2008-11-07) (PDF). Beyond dependence: How to deal with Russian gas. European Council on Foreign Relations. p. 2. ISBN 9781906538088. http://ecfr.3cdn.net/c2ab0bed62962b5479_ggm6banc4.pdf. Retrieved 2010-01-30. 
  6. ^ a b Koszalin, Andreas Heinrich (2008-02-05). "Gazprom's Expansion Strategy in Europe and the Liberalization of EU Energy Markets" (PDF). Russian Analytical Digest (Research Centre for East European Studies) (34 Russian Business Expansion). http://kms2.isn.ethz.ch/serviceengine/Files/RESSpecNet/46810/ipublicationdocument_singledocument/EBEB560D-319D-4A6E-BB93-25DB57792AC9/en/Russian_Analytical_Digest_34.pdf. Retrieved 2008-02-23. 
  7. ^ Kupchinsky, Roman (2008-06-12) (PDF). Russian Energy Sector Opaqueness. Testimony before the Senate Foreign Relations Committee. United States Senate Committee on Foreign Relations. http://foreign.senate.gov/testimony/2008/KupchinskyTestimony080612p.pdf. Retrieved 2010-01-24. 
  8. ^ a b c d e f g h i Smith, Keith C. (October 2008) (PDF). Russia and European Energy Security–Divide and Dominate. Center for Strategic and International Studies. pp. 7; 9; 11; 22–23. ISBN 9780892065554. http://csis.org/files/media/csis/pubs/081024_smith_russiaeuroenergy_web.pdf. Retrieved 2010-01-24. 
  9. ^ Cohen, Ariel (2007-11-05) (PDF). Europe's Strategic Dependence on Russian Energy. The Heritage Foundation. http://www.heritage.org/Research/Europe/upload/bg_2083.pdf. Retrieved 2010-01-24. 
  10. ^ Pirani, Simon; Yafimova, Katja (February 2009) (PDF). The Russo-Ukrainian gas dispute of January 2009: a comprehensive assessment. NG 27. Oxford Institute for Energy Studies. p. 59. ISBN 9781901795851. http://www.oxfordenergy.org/pdfs/NG27.pdf. Retrieved 2009-10-13. 
  11. ^ Die SPD lässt sich von Russland erpressen Stern 20. November 2007
  12. ^ Anti-Americanism in Europe EVRO intelligence 21.03.2007
  13. ^ Russia, Georgia and the European Union - The Creeping Finlandization of Europe Marcel H. Van Herpen September 2008
  14. ^ German Vote Raises Hopes in Russia. Moscow Times. 29 September 2009.
  15. ^ A Different Ostpolitik By Robert R. Amsterdam, Financial Times Deutschland, October 11, 2006 (English translation)
  16. ^ "From Poland to Hungary, Gazprom takes stealth route to domination". The Independent. 8 January 2006. http://www.independent.co.uk/news/business/analysis-and-features/from-poland-to-hungary-gazprom-takes-stealth-route-to-domination-522003.html. Retrieved 2009-10-17. 
  17. ^ "Oil scandal rocks Polish leadership - Some fear Moscow gaining influence". The Boston Globe. 2004-12-05. http://www.boston.com/news/world/europe/articles/2004/12/05/oil_scandal_rocks_polish_leadership/. Retrieved 2009-10-17. 
  18. ^ How tycoon went from polo lawns to Polish jail The Times November 27, 2004
  19. ^ "Nord Stream gift prompts bribery probe". The Local. 2009-02-19. http://www.thelocal.se/17680/20090219/. Retrieved 2009-04-19. 
  20. ^ Tommie Ullman (2009-02-16). "Former political employees now on other side in the hot 'pipe line question'". The Local. http://www.stockholmnews.com/more.aspx?NID=2700. Retrieved 2009-04-19. 
  21. ^ a b Mariusz Nogaj, Russia - A New Empire under construction: the Russian policy towards former communist satellites - mechanisms of exertion of influence, Naval Postgraduate School, 2008
  22. ^ Berlusconi, Centrex, Hexagon 1 and 2 and Gazprom. Eurasia Daily Monitor Volume: 5 Issue: 228. December 1, 2008
  23. ^ YugoRosGas—Another Gazprom Scandal. Eurasia Daily Monitor Volume: 5 Issue: 212. November 5, 2008
  24. ^ Serbia rocked by gas price scandal. The Sofia Echo. Oct 22 2008
  25. ^ Business Secret Kommersant Oct. 25, 2008
  26. ^ Russia's Hired Lobbies in the West. Eurasia Daily Monitor Volume: 6 Issue: 148. August 3, 2009
  27. ^ a b Russia hones new image among EU elite Euobserver 09.02.2009
  28. ^ Bendik Solum Whist (November 2008). "Nord Stream: Not Just a Pipeline". http://www.fni.no/doc&pdf/FNI-R1508.pdf. 
  29. ^ Nord Stream, Sweden and Baltic Sea Security. Robert L. Larsson. March 2007
  30. ^ Robert L. Larsson (2006). "Russia’s Energy Policy: Security Dimensions and Russia’s Reliability as an Energy Supplier". Swedish Defence Research Agency. http://www2.foi.se/rapp/foir1934.pdf. 
  31. ^ The great gas pipeline game: monopolistic expansion of Russia's Gazprom into European markets Marvin Baker Schaffer 2008
  32. ^ Transparency in Russia and Eurasia and Energy Security in Europe Chatham House
  33. ^ Europe must end energy dependence on Russia, says ex-IEA chief EUbusiness 05 July 2008,

Further reading

  • Cold Peace: Russia's New Imperialism. Janusz Bugajski (November 2004). ISBN 0-275-98362-5
  • Petrostate: Putin, power, and the new Russia. Marshall Goldman. Oxford University Press US, 2008 ISBN 0195340736
  • The New Cold War: Putin's Russia and the Threat to the West. Edward Lucas. Palgrave Macmillan; Second Edition, Revised and Updated edition (March 17, 2009) ISBN 0230614345
  • The New Cold War: Revolutions, Rigged Elections, and Pipeline Politics in the Former Soviet Union, a 2007 book by Mark MacKinnon ISBN 0786720832
  • Russian energy politics in the Baltics, Poland, and Ukraine: a new stealth imperialism? Keith C. Smith (2004) ISBN 0-892-06456-0
  • Russian Energy Power and Foreign Relations: Implications for Conflict and Cooperation. Taylor & Francis, 2009. ISBN 0415484383

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