Royal Dutch Shell Plc  .com Rotating Header Image

Daily Telegraph: Gazprom: Russia’s ‘pipeline troops’

Gazprom Daily Telegraph photograph

(Gas guzzler: Soon Gazprom will supply up to 15pc of the UK’s gas and is weighing up British energy companies such as Centrica)

EXTRACT: Gazprom’s – and Moscow’s – problem is the tarnished image created by the way Russia handled the claw-back of energy assets and disputes with other countries. Royal Dutch Shell lost control to Gazprom of the Sakahlin-2 gas field after an avalanche of allegations about breaching environmental rules.

THE ARTICLE

By Russell Hotten, Industry Editor
Last Updated: 1:12am BST 23/05/2007

Two words you won’t hear during ministerial announcements on today’s Energy White Paper are Gazprom and Russia. But they are the proverbial elephants in the room that no one wants to discuss.
 
Britain needs the White Paper – urgently – to help resolve an energy shortage in the next decade. And which company is most likely to fill that gap? Gazprom, the world’s largest natural gas producer.

In fact, getting supplies from the state-owned Russian giant is essential if Britain is to meet its needs until new nuclear power stations and renewable energy plants come on stream.

With North Sea oil and gas in decline, imports from Norway will pick up some of the slack, but in the longer term Britain and much of western Europe will become increasingly dependent on Russia.

This has put Gazprom in a powerful position. So influential has Gazprom become that critics talk of Russia’s “pipeline troops” or “gas guerillas”. Moscow is no longer a military superpower. But this resource-rich country is fast becoming an energy superpower.

Mark Spelman, head of global strategy at the consultancy Accenture, says: “I don’t think that we recognise the pace at which things are going to move over the next four to five years.

“In the middle of the next decade we will suddenly wake up and say to ourselves: wow, look at how many assets Gazprom owns,” he said.

The company is already targeting the UK. Gazprom owns 10pc of the interconnector pipeline between Belgium and Britain, ensuring it can get gas into the UK. And the proposed Nord Stream pipeline through Germany and Holland into the UK, will provide even more gas.

Last year, Gazprom bought a UK energy retailer, Pennine Natural Gas, which supplies industrial users such as Headingley Cricket Ground, and is it now targeting NHS hospitals.

Gazprom also has a thriving UK-based trading arm, dealing in gas, oil, and emissions credits. According to one source: “There was a time when Gazprom seemed to be in Ofgem’s office [the regulator] every other day trying to understand how the UK energy market worked.”

Gazprom’s expansion in mainland Europe is moving far faster than the UK. The company has done asset swaps in Italy, Hungary, and Germany with the likes of Eni and Eon. Similar asset swaps are expected in the UK.

Infrastructure restrictions mean that Gazprom supplies about 2pc of UK gas, but this will rise to 10pc and then 15pc in the short to medium term.

Ahead of this expansion, Gazprom has considered the acquisition of a UK gas supply business. Centrica was a Gazprom target, and the Russian company is also thought to have looked at Scottish and Southern Energy. Britain’s deregulated energy market means a foreign takeover should in theory attract little political opposition. But ministers are uneasy about Gazprom’s interest in Centrica. Gazprom’s – and Moscow’s – problem is the tarnished image created by the way Russia handled the claw-back of energy assets and disputes with other countries. Royal Dutch Shell lost control to Gazprom of the Sakahlin-2 gas field after an avalanche of allegations about breaching environmental rules.

There are echoes of this dispute in a growing row over BP’s share of the huge Kovykta gas field. And then there were the gas supply disputes with Ukraine and Belarus. They created an impression that Russia is bullying companies and countries into submission.

Yet, Britain and the rest of Europe may not be in such a weak position. While the West needs Russian gas, Gazprom also needs markets outside Russia. As Spelman puts: “Europe is preoccupied with security of supply, but Russia is preoccupied with security of demand.”

In Russia, energy prices are subsidised, reducing revenues for Gazprom. Poor infrastructure and storage facilities mean it’s simpler and cheaper to push gas beyond Russia’s borders. This gives Britain leverage when dealing with Gazprom’s growing power. But, says Spelman, it would work better if Britain operated in unison with its EU partners.

“Countries are doing bilateral deals. They should work together. What is needed is a rapid dialogue between Gordon Brown, Angela Merkel and Nicolas Sarkozy on how they can deal with Gazprom’s dominance,” he said. Read

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/05/23/cngazprom23.xml

royaldutchshellplc.com and its also non-profit sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

0 Comments on “Daily Telegraph: Gazprom: Russia’s ‘pipeline troops’”

Leave a Comment

%d bloggers like this: