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International Herald Tribune: Gazprom seeks further expansion in Europe

By Judy Dempsey

BERLIN: After entering the lucrative distribution sector in major European Union countries, Gazprom, the Russian state-owned energy monopoly, said Monday that it was expanding even further by building large storage facilities across the Continent.

The new strategy, outlined by officials from Gazprom and its European partners, involves establishing joint ventures to build large natural gas storage depots in Hungary, Germany, Belgium, Serbia and Romania.

Once in operation, analysts say, Gazprom could have an unassailable lead in production, distribution and storage systems throughout Europe, using the lure of long-term contracts for natural gas deliveries to establish a firmer foothold in European Union countries.

Such diversification would enable Gazprom to earn more from its operations and help insulate it from fluctuating gas prices.

Gazprom said the storage facilities were designed as an insurance policy against unusually high demand during cold snaps. They also would help Gazprom ensure continued supplies to Western markets in case of new disputes involving the pipeline transit countries of Ukraine or Belarus. Stand-offs over pricing occurred in 2006 and 2007, threatening supplies to countries farther west.

We are always on the lookout for storage depots,” said Philip Dewhurst, a spokesman for Gazprom Marketing & Trading in Britain. “It helps our trading. It means you can optimize the value by being able to switch the gas around. Gas prices in Britain, for example are very low compared to some other European countries.”

So far, business executives and even government leaders seem unconcerned about Europe’s increasing dependence on Gazprom and Russia, despite mounting worry about the continuing crackdown on the political opposition in the country. Just Sunday in St. Petersburg, the police beat peaceful demonstrators protesting President Vladimir Putin’s policies.

“Of course one can criticize Russia,” Reinier Zwitserloot, the chairman of the German energy company Wintershall, said in Berlin last month. “But we shouldn’t measure it with a different yardstick that we use for other supplies. One thing is clear. Those who fear energy dependency on Russia should not look to Iran of all places.”

Russia supplies over a quarter of Europe’s gas needs, with more than 60 percent of Russia’s exported natural gas going to Europe. Wintershall is involved in several joint ventures with Gazprom.

Gazprom’s entry into the storage facility sector was speeded up last month during a visit to the Kremlin by Prime Minister Guy Verhofstadt of Belgium. Even though the EU is trying to create a common energy policy, the European Commission has complained that individual member states are undermining attempts at unity by striking their own deals with Russia.

In the case of Belgium, Verhofstadt and Putin agreed that Belgium should become a hub for the storage and transit of Russian natural gas. They also agreed to quickly complete a feasibility study for building a large underground gas storage unit. Fluxys, Belgium’s largest gas transporting company, is conducting the study with Gazprom.

“It is too early to say how much gas the facility would hold,” Bérénice Crabs, a spokeswoman for Fluxys, said Monday. “The point is we are completely dependent on gas imports so we need storage and flexibility.”

When asked whether the company was concerned about the political developments in Russia, she replied that it was very important for a small country like Belgium to be a transit country and a hub. “At the moment, we buy 5 percent of our gas from Russia,” she said. “I could see that amount increasing.”

MOL, Hungary’s largest oil and gas company has already agreed with Gazprom to build a storage facility holding 10 billion cubic meters, or 353 billion cubic feet, of natural gas. Like Belgium, Hungary is dependent on gas imports and has ambitions to become a hub in Central Europe.

“We have the infrastructure and the government is already building its own strategic gas storages,” said Zoltan Hernadi, MOL’s chairman. Hungary also wants to insulate itself against cold winters or disputes between Russia and the transit countries.

Aware of Putin’s reputation in Europe, Hernadi said his main concern was to keep Hungarians supplied with energy.

Gazprom has been busy in Germany too where it has forged a close relationship with Wintershall and with E.ON Ruhrgas, which holds a 6 percent stake in Gazprom and is the only foreign company with a seat on Gazprom’s board.

Gazprom purchased an abandoned mine from the German government last year and intends to turn it into a storage facility with a capacity of several billion cubic meters at a cost of up to €300 million, or $407 million. Once constructed, Gazprom said it would provide storage capacity for Nord Stream, the joint Russian-German pipeline which is being built under the Baltic Sea to allow Russia to send its gas directly to Germany, bypassing Poland.

Russia already has a huge storage facility in Germany with Wingas, a division of Wintershall, which holds four billion cubic meters of gas in addition. It also has a joint venture with Wingas to distribute gas directly to German consumers.

Gazprom has been active in Southern Europe as well. This year, the director of Srbijagas, Serbia’s largest gas company, announced that Gazprom would be involved in constructing a strategic gas depot that would store about 800 million cubic meters of gas, or about a quarter of Serbia’s total annual consumption.

Gazprom is also negotiating with Romgaz, the Romanian gas company, to establish a joint venture to build a storage facility to hold up to two billion cubic meters of gas.

The Russian Natural Resources Ministry has approved a plan by Royal Dutch Shell and Gazprom to resolve environmental violations at their Sakhalin-2 liquefied natural gas venture, Bloomberg News reported Monday from Moscow.

Inspectors from the ministry uncovered what they called a raft of environmental violations at Sakhalin-2 last year, just as Gazprom was negotiating with Shell and its Japanese partners to take a stake in the project.

Shell ceded control of the development to Gazprom in December for $7.45 billion.

Once a final agreement is reached, Shell’s holding will fall to 27.5 percent, with Mitsui retaining 12.5 percent and Mitsubishi 10 percent.

Published: April 16, 2007 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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