Daily Telegraph: How the UK will reap the benefit from Kroes control

EXTRACT: Frankly, no energy company – however large – is immune from Russia’s influence. Our very own Royal Dutch Shell is just the latest oil major to feel the full force of Russia’s determination to dictate terms in energy deals.

Business comment
By Damian Reece
Last Updated: 12:26am GMT 11/01/2007

Neelie Kroes, the EU competition commissioner, announced that Europe’s energy giants, which include the likes of RWE and E.ON, must be broken up. Gas imports into the UK are likely to become cheaper but the implications for Britain are rather more subtle – and beneficial – than at first glance.

Kroes’s determination to improve the competitive landscape within the EU is to be applauded. But any discussion about the future of Europe’s energy industry is pointless without considering Gazprom, the Kremlin’s client company controlled by Vladimir Putin and through which he exercises his own brand of muscular diplomacy.

Putin is using the power of Russia’s vast oil and gas reserves to pressure all those who come into contact with the country’s natural resources. Just ask Belarus or Ukraine.

Russia supplies 20pc of Germany’s oil and all of Poland’s. In light of this, Kroes’s determination to break up Europe’s energy giants might appear perverse in the extreme. Surely countries such as Germany need all the commercial might they can muster to stand up to Gazprom and Putin. Breaking up these companies can only weaken western Europe’s bargaining power.

Frankly, no energy company – however large – is immune from Russia’s influence. Our very own Royal Dutch Shell is just the latest oil major to feel the full force of Russia’s determination to dictate terms in energy deals.

Kroes must plough on and prosecute energy companies guilty of perpetuating the “serious competition problems” in Europe. She did not name names yesterday but that should not be seen as a sign of weakness. Regulators have to get their due process right and are well aware that directors of large companies are just as capable of claiming victimisation and hiding behind Europe’s human rights law as anyone.

That said, Putin won’t care two hoots whether Russia is dealing with a reformed European energy industry or not. But European countries worried about Russia’s power might yet have an alternative to consider – the UK.

We are moving to a point where the UK can look forward to having surplus energy in years to come, energy that can be exported to mainland Europe. Extra gas storage facilities at sites such as Milford Haven, the Isle of Grain and Canvey will give us sufficient capacity to become a crucial strategic source of non-Russian gas. Our geographic position and storage facilities should make us the perfect dropping off point for liquified natural gas coming in from places as far afield as Norway, Qatar and Nigeria, among others. I’m willing to bet mainland Europe will pay a security premium for gas bought from the UK, compared with gas pumped from Russia.

Mainland Europe needs a gas and electricity industry like ours where companies that generate power are separate from those that transmit the power which are in turn separate from those that sell power to consumers. It is this structure that will allow the UK to become of crucial strategic importance to Europe in the years to come – if we fulfil our potential as a gas exporter. Of course that will only increase Russia’s own interest in UK energy assets and those companies operating storage facilities here. So when Gazprom comes knocking with a takeover bid, the UK must be ready with an answer.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/01/11/ccom11.xml

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