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Sunday Telegraph: Gazprom flexes its muscles in Europe

By Sylvia Pfeifer,

Gazprom, the Russian state-owned gas giant that provides a quarter of Europe’s gas needs, is to make its first foray into electricity generation in continental Europe in a move that underlines the scale of its ambitions in the West.

The company plans to build a combined cycle gas turbine station in Germany to supply industrial customers and trade power in what will be one of its first major projects outside Russia. It has teamed up with Soteg, Luxembourg’s main power supplier, to build the €400m (£270m) plant in the eastern German town of Eisenhüttenstadt. The plant will generate 800MW from 2010 but the two companies still need to get approval to build it.

The move is likely to fuel concerns over Gazprom’s increasingly dominant role over energy supplies. The European Union reckons that half of all the gas it imports comes from Russia and concerns have been growing that Russia could at some stage use its leverage over western Europe for political ends.

Some of these concerns have focused on Gazprom’s approach to supply in former Soviet states. The company cut off gas supplies to Ukraine in January last year over a price dispute. The move was seen by many as a warning shot by the Kremlin to the country not to stray too far from its connections with Moscow.

Gazprom has always insisted its move was commercial but it nevertheless disrupted gas deliveries to western Europe and sent wholesale prices soaring. Countries such as Germany get 40 per cent of their gas from Russia.

In Europe, Gazprom is already involved in projects such as a Latvian utility and power trading in France as well as Germany. In Britain, Gazprom has opened a Gazprom Marketing and Trading subsidiary, based in Kingston-upon-Thames, which has built up a trading portfolio in gas, LNG, power, oil and even carbon. As part of an effort to increase its influence in Britain, it recently began targeting landmark buildings as customers; it has started to supply power to York Minster and Headingley cricket ground.

More recently, Gazprom has caused unease in the West because of the way in which it took control of a lucrative Shell gas project on Sakhalin Island in the east of Russia. Shell had come under repeated attack for alleged environmental violations of its operating licence and agreed to reduce its stake in the project last December. Reports from Moscow last week suggested that the company could sign a final agreement with Gazprom as early as this week.

Talks have so far stumbled over Gazprom’s reluctance to take on any potential liabilities that could arise from the allegations of environmental damage, which are estimated at $5bn (£2.5bn).

BP is facing similar attacks over its giant Kovykta field in Siberia amid speculation that Gazprom will take a stake there too.

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