EU Commission, Gazprom Square Off

EU Commission, Gazprom Square Off


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There is little love lost between Russia and the EU these days. Tension has already been heightened by disagreements over Syria, with Moscow warning Britain and France against exporting arms to rebels fighting Bashar Assad and Russia reportedly providing the Syrian President with S-300 missiles.

Throwing oil on fire, ahead of an EU-Russia summit that is scheduled for 3-4 June, Gazprom’s Deputy Chief Executive Alexander Medvedev on 30 May accused the European Commission of a politically-motivated attempt to bring down EU gas prices.

The Commission opened an investigation last September into Russian gas monopoly Gazprom, the world biggest gas company, concerned Russia was abusing its position in central and eastern Europe and imposing unfair prices. EU member states such as Lithuania, which are almost totally dependent on Russian gas supplies, complain that they pay much higher prices for it than other EU countries.

The cost of energy is an issue for the EU as a whole. On 21 May, EU leaders meeting in Brussels vowed to bring down energy prices. The Commission has also questioned Gazprom’s business model and its preferred method of pricing gas – via expensive oil-pegged contracts.

“We have doubts about the motivation,” Medvedev told industry and EU officials, asked if the Commission's move was an attempt to “depress gas prices by artificial means” as opposed to through commercial negotiation.

A European Commission spokeswoman told New Europe on 31 May that as far as she knows the issue of oil-pegged gas prices will not be discussed at the EU-Russia summit this week. “However, competition and the anti-trust investigation into Gazprom will quite likely be discussed,” she added.

The European Commission has the authority to fine companies up to 10% of annual turnover if they are found to be in breach of EU competition rules.

Konstantin Simonov, head of Russia's National Energy Security Fund (NESF) in Moscow, told New Europe on 31 May that the EU, which is not satisfied with Gazprom’s prices, thinks Brussels’ policy of diversification is successful and therefore it can increase pressure on the Russian company. But he added that Gazprom, which is offended, will not compromise. “Gazprom can change some contracts and Gazprom already did it, Gazprom can pay some retroactive payments and Gazprom already did it, but we have some limit of these compromises and it’s also the position of [Russian President Vladimir] Putin: ‘Yes, we can be flexible, but we have limit of this flexibility.’ That is why I’m absolutely sure Gazprom will never abolish long-term contracts, Gazprom will never abolish correlation of gas prices and oil prices,” Simonov said.

On 31 May, Gazprom again defended its long-term contracts, saying they are fair, offer security and can be cheaper than buying on immediate-term, or spot, markets, which spike during supply shocks. Gazprom told New Europe it believes that long term contracts with oil-linked pricing can ensure the stability and reliability of gas supplies.

“We remember the situation at gas markets during this winter when only Gazprom contracts could provide the necessary volumes of gas at the reasonable prices, which were indicated in the contracts,” Gazprom said. “At the same time the spot prices were much higher than Gazprom prices and the spot trading platforms could not delivery enough volumes of gas to the European energy market. In any case, the price issue should be discussed on the commercial negotiations in strict observation of the supplier’s interests,” Gazprom said, asked if it was going to bring up the issue of pricing in the upcoming negotiations with the European Commission and if the Russian company was willing to lower prices.

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