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    Five Views On the EC's Case Against Gazprom: Any Repercussions?

Summary

The five written answers of the experts could not be any different, but it seems that almost everybody agreed on the fact that it will not be a game changer.

by: Sergio

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Five Views On the EC's Case Against Gazprom: Any Repercussions?

The European Commission gave Gazprom 12 weeks to answer its Statement of Objections (SO) for alleged abuse of dominant market positions in Central and Eastern European gas markets. We asked five experts to answer a simple question: will the move of European Commissioner for Competition Margrethe Vestager escalate tensions between Europe and Russia, and between Russia and Ukraine?

The five written answers from experts could not be more different, but it seems that almost everybody agreed on the fact that it will not be a game changer. In one way or another, Vestager’s decision is part of a broader change already taking place in the ties between Brussels and Moscow.  

Gilles Darmois, Independent Consultant

This move is not in the interest of the European gas consumer. It will not improve the safety of supply, nor it will decrease the price. It will therefore increase the tensions between Russia and the EU. I suspect that it is one of the objectives behind this statement of objections. The EU has always put a lot of politics in this subject (remember Nabucco for instance), much more than useful. The EU does not act as an honest broker in the gas negotiations between Ukraine and Russia. This Statement of Objection will just feed a little more Russia's paranoia. The legal ground on which any procedure could be started against Gazprom is extremely shaky. Reading the comments made by the Commissioner, the move looks more like a personal promotional strategy than a case based on solid legal texts. But that does not change very much from the practice of previous holders of that position (remember Mario Monti for instance).

Irina Mironova, ENERPO Program, European University at Saint Petersburg 

The Statement of Objections, in my view, is not a game-changer in Russian-EU relations. The investigation has been going on for a few years and, together with other factors affecting Russia’s position in the European gas market, have already caused a change in Russia’s perception and vision of its role in international gas markets and the strategic outlook for gas exports. The factors that I am talking about include, among others, EU gas supplies diversification policy; the regulatory difficulties Gazprom was running into under the provisions of the Third Energy Package; and definitely not least important factor is stagnating gas demand in the European market. The cancellation of the South Stream is one other event in the same range of changing nature of Russia-EU gas relations, which have been apparent throughout that past several years. Considering that the decision we are referring to is not a cause but rather a result of an ongoing process in Russia-EU gas relations, I would say it illustrates the tensions that exist in relation to the traditional format of long-term supply contracts, rather than provides a push toward new round of tensions. What spill over it might have on the Ukrainian case: Ukraine is party of the Energy Community Treaty and thus is expected to apply EU TEP regulations on a national level. As argued by Andrey Konoplyanik in one of his 2014 articles, “public law obligations were established for Ukraine after the 2009 Gazprom-Naftogaz gas supply contract has come into effect. This is a specific legal conflict between two pieces of international legislation (contractual and public law) which have provided conflicting obligations with different enforcement dates for the parties”. Therefore, there definitely are possible implications for the Russian-Ukrainian mutual contractual obligations in case the Objections are taking the form of a court ruling (similar to the ruling concerning destination clauses) – but not before that. 

Stephen Blank, Senior Fellow, American Foreign Policy Council

While the EU's Statement of Objections certainly increases tensions between Moscow and Brussels, I doubt it is a game changer. Ukraine is the game changer and will continue to be one, and the repercussions will spill over into energy because it is one of the few avenues open to the EU to register the desire to heighten pressure on Russia. Moreover the EU's charges are quite justified as virtually every student of these issues knows. The spillover is thus the reverse of what you suggest, energy relations are more contentious due to Ukraine not vice versa. But it is also possible that an intelligent response on this issue by Gazprom to offer a settlement might prevent this form dramatically increasing tensions over the long run. But what you must grasp is that Moscow has no interest in placating the EU. Fascism and Putin are in fundamental opposition to  European integration and democracy and Putin's project in all of its ramifications threatens not just Ukraine but European security as whole as well as international order more generally.

Matteo Verda, Research Fellow, Italian Institute for International Political Studies (ISPI)

I don't think that the Statement of Objections could be a game changer. Between Gazprom and its European customers there is a long term relationship, based on structural factors: huge Russian reserves of natural gas, existing infrastructure system, unavoidable European dependence on imports. Indeed, a large base for a common interest. In any case, Gazprom's business practices have already been changing for more than a decade. Destination clauses have been scrapped from contracts with Eni in 2003, for instance. And since the beginning of the economic crisis, intense renegotiations involved Gazprom and all its majors customers in Europe, leading to the introduction of a partial indexation to spot prices, in several cases. The EC's action will accelerate an already existing pattern of inevitable evolution in the business model of Gazprom, at least in Europe. The case is politically sensitive, of course. And in the short term it may significantly raise tensions between Bruxelles and Moscow, but long-term common interests are larger than short-term incidents. I think that a palatable solution for all the parties involved will emerge, eventually. As regards Ukrainian situation, at the moment I don't see a significant risk of a spillover effect, since there is no connection between the two issues. By the way, Eastern European countries are already re-exporting Russian gas in Ukraine. However, if the situation worsens significantly, every issue may become more politicised. But this is another story.

Sohbet Karbuz, Director of Hydrocarbons, Mediterranean Observatory for Energy (OME)

To me, the EC is, in a way, extending the sanctions by other means. The EC investigation, which started in September 2012 pushed by countries known to have an anti-Russian policy, came to a verdict just after charges against Google. Does Gazprom and Google have a real competitor in Europe? EU could have diversify gas supplies and create competition in the market, not shooting itself in the foot over and over again. Remember sanctions on Iran, cancellation of Nabucco and further South Stream. Gazprom will think even more seriously to cut gas transit through Ukraine as much as possible after 2019 and will also be very flexible not to renew the expiring contracts with European buyers to see what they will do. Russia may take revenge in other areas. For instance, forget about trans-Caspian gas pipeline as Russia will make the Caspian legal framework discussions even tougher.

Sergio Matalucci 

Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci