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Financial Times: EU behind the curve on Russia energy matters

By Tim Reilly
Published: September 5 2007 03:00 | Last updated: September 5 2007 03:00

From Mr Tim Reilly.

Sir, Katinka Barysch’s article “The best answer to Gazprom is faster reform” (September 3) reveals more about European Union energy policy than it does about Gazprom. At every turn the views are incomplete, outdated or plain wrong. It is not in any Russian political group’s interest to damage Gazprom; to be used somewhat around election time, yes, but to suffer collateral damage, no.

In the late 1990s the Russian Federation government appealed to “big oil” working in Russia to invest in non-oil capital projects to develop the Russian far east. They did not respond. However, some US oil companies did recognise the new deal in Russia: allow Russian energy companies into downstream ventures in the US/west in return for equity oil and gas in Russia (and help with national development projects). To suggest that the EU has now “come up with a possible solution” along these lines a decade later only illustrates how worryingly behind the curve it is regarding Russian energy matters.

Nor has BP or Shell been “pushed out” of Russia, as Ms Barysch asserts; Russia/Gazprom knows very well about the criticality of booked equity oil/gas for international oil companies, and this explains partly why neither Shell nor BP has chosen to leave Russia following recent events.

As to foreign cash and western technical investment being reduced as a result of events at Sakhalin and Kovytka, I suggest the EU energy folk take a look at the buoyant share prices in the oil services sector, with chief executives such as Schlumberger’s publicly attributing a large part of their share price success to Russian activities.

Meanwhile, is the EU not aware of the deals President Vladimir Putin has agreed now with important central Asian countries to deliver oil and gas to Russia, and Gazprom’s moves into its own coal sector (for domestic power generation, and in order to free up Russian/CIS-delivered gas to the EU)? This is one reason they can delay (but not avoid) upstream/infrastructure investment. Gazprom’s ventures with the likes of Algeria’s Sonatrach, which has already got liquefied natural gas infrastructure and gas contracts in place, is another typical reason.

To lecture Gazprom on EU/market principles and EU transparency takes some gall; the French government’s principal reason for pushing the Suez/Gaz de France merger is to prevent a foreign takeover by another EU member. As Ms Barysch points out, the main opponents of unbundling (and, de facto, open competition) are France and Germany! The comment “given [Gazprom’s] supposed shoddy management, asset grabbing and political meddling, Europeans may be forgiven for asking whether it understands market principles” is just plain wrong.

It occurs to me that Gazprom knows only too well about market principles, and the EU does not like that at all.

Tim Reilly,

Chief Eexecutive,

C2G Energy,

London SW1P 1SB, UK

Copyright The Financial Times Limited 2007

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