The Empire Strikes Back (Journal of Energy Security, U.S.) European energy and the return of Gazprom

The Empire Strikes Back ("Journal of Energy Security", U.S.) European energy and the return of GazpromCompared with municipal money euro European energy policy looks amazing. In store power is great, the prices are low, and even the near-term emissions are reduced. "Third package" of reforms gas and energy market of the EU, which came into force in March, should further strengthen security in terms of supply, konkurentnst strengthen, expand consumer choice and range of services provided by him. This all sounds very good, but the problem is that such "political hits" are based on a very limited basis, which can not be called neither strong nor encouraging. Because of the research and development of shale gas markets liquefied natural gas turned upside down. And because of the depth of monetary instability and economic decline that foundation even more weakened, while the growth rate in the 27 EU countries are suffering from anemia. That is why energy policy looks so perfectly, and political populism seems to be so common and easy.

But the growth rate showed the first signs of healing, and climate policy as before gives preference to gas instead of coal, and therefore for complacency power populism have to pay. This is most noticeable in the area of natural gas and for the 158 billion cubic meters of Russian supplies to the EU dole swallow in the current year. After falling in 2009 to the level of 2002, the level of gas consumption in the EU in 2010 increased by 7.2%. And many analysts expect that by 2013, demand is expected to recover to pre-crisis levels. Increasing the supply of LNG to Asia has led to increased pressure on prices in the direction of their growth, and Germany's unexpected decision to withdraw in 2022 from the operation of nuclear power plants has provided its latest growth in demand for the foreseeable future. Meanwhile, the European Commission has torn off, after all, a private eye from Asia and began to wonder what to do with Russia, which is naikrupneyshim energy supplier to Europe. If the second in terms of electricity production in Germany energy company RWE and naikrupneyshaya the world's natural gas company "Gazprom" will realize their own not long ago signed a memorandum of understanding to form a joint venture and management fueled by coal and gas power plants across Germany, England and the Benelux countries, the third package of EU fully may share the fate of the German nuclear power plants and to go to the dustbin of history.

Thanks to European politicking in Moscow in the energy game all the cards. Berlin's decision to accelerate the decommissioning of nuclear power plants, and although popular, but because it only German gas imports could Strength by as much as 20 billion cubic meters a year. France's ban on drilling for shale gas is also unlikely to help reduce energy dependence. A brand new European commitment to democracy and responsible municipal management in its geographic environment and let the corresponding European values, but hardly comforting authoritarian rulers who control the sources of supply in Central Asia and the Middle East, as they begin to think that European countries are not credible as reliable buyers. Those European countries that follow the example of Germany in question NPP will emulate France, to the neglect related to the extraction method hydraulic fracturing, or begin to think, that will be able to gently and courteously defeat the undemocratic neighbors just will strengthen the position of Russia.

They do not understand?

What we are extremely dramatize? Could be. European commonplace wisdom says that Gazprom severe failure. The main reason is the low prices on spot markets that are building up liquidity. Tied to oil prices gas from Russia is very expensive for the euro by consumers to gain access to him. Preference is given beyond basic prices in the centers of Western Europe. Consumer loudly trumpeted: to reduce prices or lose market share. Today the gap between the prices of British wholesalers and prices tied to oil gas right on the border of Germany shows specifically for this line of thought. Naturally, manufacturers started yelling that they robbed. In 2010, Gazprom agreed to reduce the correlation of payments on certain long-term contracts with an index of oil prices by 85%, while insisting it all on the fact that the 3-year-old did not benefit in any way alter its system of long-term contracts. Algeria went into this case further and called to do a full gas cartel. So far, only Norway has agreed to a price adjustment, is rapidly revising contractual obligation to maintain its share of the total supplies to Europe.

Appears impression that now that Gazprom is knocked down, and shale gas starts to punch myself way beyond the U.S. borders, the European capital of the Russian Federation will not give a chance to regroup. But it is not. In June, the German government just shocked generating companies, and who do not have enough money to pay tied to oil prices of gas, and carrying the burden for yourself tax on nuclear fuel, when the repeal of October 2010, extends the service life of nuclear power plants by an average for 12 years in exchange for a "tax on the fuel rods" with the benefit of annual sum of 2.3 billion euros. Faced with the need to scale finansovlozheny, falling ratings and negative forecasts, RWE took off his cap and went to the bow to Gazprom, offering a large share of Russian companies in their own assets. It was a rare and very dangerous mix of commercial and political risks.

In commercial terms RWE gamble could pay off, if Gazprom entered the game in the sector of processing and marketing, will exhibit a great suppleness, going for a fall in prices. This will allow to narrow the gap between contract prices and spreads on spot markets. If the Russian partner will show more flexibility, he can also increase the pressure on the opponent's head RWE in Germany, the company E.On, whose supply contracts come in 2012. To do this, it will need to state that he prefers "wide spot". But the event that the head of Gazprom Alexei Miller talks about the prospects of cooperation with RWE, and E.On, indicating faster on his quest to push their heads against German rivals, if the willingness to make concessions. If price discounts and will be offered, give them in exchange for the exact realization that bind to the oil price remains the mainstay of Russian pricing on all long-term contracts for the purchase with the payment of penalties in case of failure. In short, Gazprom wants to use RWE and E.On as a "sledgehammer" to crack a nut with its euro spot market even before he really gets busy.

It will be a real shame. Of course, the spot markets in terms of prices may prove unpredictable, but the steps in the direction of basis-independent gas prices correspond to the long-term interests of the market and all — at least, in Europe. Here Germany with its own policy of Gazprom gave a chance to the last moment, with which he is able to keep its market share in Europe and the Russian "market prices". Certainly, RWE politicians accused that she is using Gazprom as a fallback in their own struggle for the abolition of the Berlin nuclear ban. But it should be understood that the energy company has lost about 20% of its market capitalization, when the German parliament decided to accelerate the decommissioning and that has destroyed about 30% of the installed capacity of RWE. So Makarov, as clear political signal. Chance
llor Angela Merkel has to reconsider its decision on the nuclear power plant, on the other hand over to Gazprom RWE door keys to the European sales and power generation. This is a traditional double trick: RWE uses Gazprom for the salvation of their own nuclear power plants, and Gazprom uses RWE (and perhaps E.On), to save their pricing policies.

With the passage of time someone has to give. If the German government will not give up their own solutions to eliminate nuclear power plant, RWE learns that her gamble does not leave her no choice, not counting the reincarnation of a memorandum agreement with Gazprom in real contractual obligations. In the interests of consumers, the energy industry and taxpayers situation should not go so far, though it is very controversial. If the German courts will agree that the government violated the rights of supplies of energy companies, or if Berlin senses and restore the amendment of October 2010, extends the service life of nuclear power plants until 2036, then everything will be fine. But as shown by the eurozone debt crisis, German politicians can be reincarnated as stubborn defenders of the preferences of their own voters, despite the costs. And to pay for power Populism is necessary. Even if Berlin will retain part of the nuclear power generating capacity in operation in Germany still have to go to the gas formed to plug the hole. Specifically for it and puts Gazprom. The German decision on the nuclear power plant of the Russian Federation has given a beautiful opportunity to increment export volumes and maintain firm prices. If all goes according to plan, our home will be able to apply gas to Europe at a discount — but on their own criteria for their own joint ventures.

Russian arms

Since the running game is a very difficult character, at the moment impossible to say something or you do not get the memorandum RWE and Gazprom. But then the usual event that the electricity companies dreaming of weasel in the embrace of the Russian bear, causing much anxiety in Brussels and outside the EU. And in other words a good reason. German balancing on the edge of the abyss bared severe and deeply entrenched shortcomings of European energy policy in matters of pricing, supply diversification and multi-functional separation. RWE cooperation with Gazprom not only threatens to return to the gloomy times of the binding gas prices to oil, it could deal a fatal blow to one of the few infrastructure of EU values in terms of supply: via Nabucco.

RWE has long and quite intensively promoting the project, and do not need to be a visionary to realize that he "synergy" that appears as a result of cooperation will force RWE obediently trail behind the initiative Gazprom's "South Stream", and do not fight with Russia out of Forces for the strategic control over the "southern corridor". No matter how much lauded Brussels, calling the "European" project pipelines TAP, AGRI and ITGI (Trans, Azerbaijan-Georgia-Romania, Turkey-Greece-Italy), not including the "South Stream" is hardly a different pipeline will see the light. The current rates for "South Stream" and Nabucco with the involved countries and companies demonstrate how low the level of confidence in the "project of European interest" of those who thinks that the commercial viability allows the existence of only the 1st pipeline project.

And here comes a more profound European discrepancy. Even if Nabucco plans are carried out, even if Azerbaijan will count on the EU, not Russia, from Gazprom will still be entitled to vote in crucial markets and generation. He already is in control of 20% of the gas market in Germany thanks to the connections with BASF, Wintershall and Wingas, and the firm wants to due to the "Nord Stream" to increment its role in the capital of joint stock companies the Netherlands, France and Britain. More importantly, the event that Gazprom owns 50% of the gas distribution station Baumgarten company OMV. This node must join Nabucco and the European pipelines. Finally, in order, but not least, Russian company increases the storage capacity in almost all countries, including Austria, Hungary and the Netherlands, also wants to expand the storage facility in Serbia, France, Belgium and Britain.

This also explains why so basically a bunch of RWE-Gazprom. Although this cooperation will have to overcome political resistance in Germany and meet the constantly growing pile of legislative acts in the framework of the Third Energy Package, it will be very difficult to lock the floodgates "vertical integration", when Gazprom will require a larger share in the German manufacturing and rassredotachivanii energy. Russian company is already in talks with the French GDF-Suez (partner "Nord Stream"), and there is no hesitation that Gazprom's list There is Italy. And as the countries of Central and Eastern Europe will have to bother about yourself, the third package can only be remembered by historians as the "tradition of the legal niceties." German-Russian political and commercial realities will prevail. As the small print in the footnotes European legislation, national regulatory authorities should "take into account the possible" conditions and presenting the European Commission. But it is unlikely to compel heed energy companies whose profits and the very existence will depend on the counter agreements with Gazprom or to Moscow, where Gazprom will get the right to vote on issues of power generation and distribution.

Transforming from a regional supplier to a global player

Vertical and traceability — is exactly what dreams of at least some principled government, mining energy resources. And the bad announcements for Europe consists in the fact that the situation could be exacerbated. While the EU is mired in its own limited quarrels and disputes over energy efficiency, renewable energy, "smart" networks rassredotachivaniya and control of the power lines, Gazprom turns to the east. According to the available disk imaging, it is close to signing a deal with China to 68 billion cubic meters of gas per year. Yes, we've been through. Gazprom and CNPC signed a memorandum of understanding in 2006, but he ran into a reef because of problems with the pricing. But the logic of putting together bundles of the 1st of the world's largest energy consumers and large gas fields only strong and presentable, and Beijing has already moved in this debate off the ground, offering a future down payment of 25-40 billion dollars in exchange for 30 billion cubic meters of gas to the price discount.

Gazprom will be desperate to argue and fight for an increase in prices, which is now (typical) 300 dollars per million cubic meters. But Moscow knows that it needs Chinese money to support its own programs from the eastern gas, as these additional funds will allow the Russian Federation to upgrade linking East Siberia and the Far East an integrated system of gas production, transportation and marketing. Gazprom also knows that although China is not willing to pay for gas at European prices, it can not accept some binding to crude oil prices. Beijing is very cautious and attentive to miss their market chances. Not least due to the fact that both Sakhalin and Shtokman field should be used for the production of LNG by 2030, these projects will be able to create nothing less than 62 million tons a year. Even before the tragedy in Fukushima has led to an increase in demand in the Land of the Rising Sun, open a discussion promising Gazprom LNG deal with countries such as South Korea, India, Vietnam, Thailand and Singapore to provide a presence for themselves in the market and it accounts for a far outside of the usual hunting grounds in Western Europe.

There is no point in pretending as if European politicians wake up and react to these actions. We are not even talking about what they think about the "doom
sday scenario" in which Our homeland will link its oil fields in Eastern Siberia with a unified system of gas supply so makarom that it will allow her one-click switch to LNG or pipeline export routes to change supplies from west to east. Even if the project because of money problems and even long-Jamal will fuel its gas to Europe, the EU must realize that the force of gravity shifts the commercial delivery to the east, and because Gazprom and our home in your own strategy is unlikely to agree to a compromise.

Regrouping

The Return of Gazprom pushes plan to wheel a number of mistakes and wrong turns, the European Union admitted that lulled the tranquility of the natural gas market. Investments in storage are not sufficient reforms to lower the price burden weak and indecisive, and the integration of the EU pipeline network is treated as a regional, if not as a local dilemma. In the near future the European plans to diversify supplies were disrupted due to the apparent failure of the EU to show its military power in the Middle East and North Africa. And Germany's decision to abandon nuclear power just at the moment when the rise in demand in the markets had predicted golden age of gas, was at best imprudent. And whatever the results of the local elections demonstrated, "preference" of voters in Germany did not overshadow the growing Asian demand, energy demand in the European economic recovery step, the potential prepyadstviya with the proposal even as the danger of unconventional gas production through hydraulic fracturing are becoming more manifest beforehand.

Europe because of their own demonstrative poses not only adds egg supply to a greater extent in the Russian basket. It also urges Gazprom to resume attempts to go downstream of the gas flow to the area of processing and marketing. If our homeland will be fixed in positions of supplies to the east and vpribavok this will increase its internationalization strategy in the markets of North Africa and Central Asia, the prospects for the European energy sector will be very gloomy, and they are even worse, if the demand in the market will grow. Who knows, maybe by then we will be truly happy with the fact that retained the binding of gas prices to oil, not allowing their rapid growth. Maybe we applaud those who have transformed the political failure in the "ultimate success." But as in the case of the eurozone debt crisis, as before, we will be asking for myself the question: was it worth paying such a price to appease German voters?

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