European antitrust regulators are expected on Wednesday to charge the Russian energy giant Gazprom with abusing its dominance in natural gas markets, a move that could escalate Western tensions with Moscow.
Heavily reliant on Russia for their energy needs but deeply suspicious of Moscow, some Eastern European countries have argued that the state-controlled Gazprom has inflated prices and has quashed competition. Along with imposing fines, regulators could force the company to make its business more transparent or to give individual countries more leeway to sell the gas to other places, like Ukraine. But any concerted push to alter Gazprom’s business model will be seen by Moscow as a new front in what it views as the West’s “economic war” against Russia, following the imposition last year of sanctions over the Ukraine crisis. The Kremlin earns significant sums from the company. The move by antitrust regulators was confirmed by two people with knowledge of the case, who spoke on the condition of anonymity because such decisions are confidential. Gazprom said it “cannot comment before any documents are received.” A spokesman for the regulator declined to comment.
Europe is Gazprom’s most important and lucrative market, accounting for half of the company’s revenues. Russia has been trying to shift its focus to Asia, striking a major 30-year gas deal with China last year. But that deal is years from producing real revenues, and the price China will pay is believed to be far below the European rate. A case against Gazprom would represent the second major move of late by Europe’s powerful antitrust chief, Margrethe Vestager. Last Wednesday, she filed formal charges accusing Google of abusing its dominance in the market for online search in Europe. The European antitrust investigation began with surprise raids in 2011 on Gazprom offices and those of several of its customers, as investigators sought information on pricing and contracts. A year later, in September 2012, Joaquín Almunia, Ms. Vestager’s predecessor, opened a formal antitrust case.
Gazprom’s willingness to wield its power was on display during midwinter “gas wars” in 2006 and 2009. When the company stopped providing fuel to Ukraine, it created shortages in Europe. Lithuania is among six European Union member states that have long been dependent on Russia for all their gas — although Lithuania has established a gas-import terminal to break that monopoly. The others are Finland, Latvia, Estonia, Slovakia and Bulgaria, according to the European Commission. Over all, the European Union depends on Russia for about one-third of its natural gas. While Brussels and Gazprom have been in negotiations over the case, they failed to produce a settlement. And the European Commission had been wary of bringing formal charges. One European concern was that an antitrust action could prompt Moscow to harden its line on Ukraine, as the West sought to resolve the fighting between Russian-backed separatists and the government in Kiev. The sanctions against Russia have only made penalizing Gazprom an even more diplomatically fragile issue.
Although there are no Western sanctions on Gazprom’s natural gas exports to Europe, both the European Union and the United States have limited some financing to Russian finance entities like Gazprombank. They have also limited the export of some energy exploration technologies to Russia. Nobody wants an exhumed USSR less than Beijing. I’d love to know more about their gas deal. They spent the Cold War calling each other. Russia is currently a regional power run by a dictator who thinks Russia is a global power.It’s well on its way to becoming China’s cut-rate. So, Russia is a veto member of the UN, but doesn’t have to abide by anti-trust laws? Silly for Europe to ‘charge’ Russia. Russia does what. The formal charges against Gazprom could result in a fine. Theoretically, it could run higher than 10 billion euros, or $10.7 billion, although European Union antitrust penalties have never gone that high. The larger worry for Gazprom would be the prospect of being forced to allow more competition in markets it has long controlled. The company, for example, could eventually have to drop conditions in its contracts that restrict those utilities’ power to share the gas with other countries. That would give individual countries more control over whether they consume all the gas themselves or sell some of it on to other countries, including Ukraine, something Gazprom has opposed.
The charges would just be a first step. Gazprom would then have the chance to lay out its defense, and it could even still settle the case. The company has proffered commercial arguments for securing long-term contracts with national utility companies and controlling pipelines to deliver the gas. Gazprom has argued that such deals are necessary to obtain bank loans to finance its long-term and sizable capital outlays for developing gas fields in Siberia and shipping fuel to Europe. Any effort to unravel this model, the company has warned, will inevitably result in diminished investments in the gas-rich regions of Russia, and ultimately to a smaller supply of energy to Europe. “The unified export channel is a backbone of Gazprom’s export strategy,” a company has said on its website of its business. Still, Russia’s leverage in European gas markets has been dwindling for years, whittled away by lower global gas prices from new shale fields in the United States and big liquefied-gas export projects in Qatar. The European Union has also been trying to encourage diversification of energy supplies, in part to ensure that giant gas producers like Gazprom do not control transport and sales. Consider the development of the South Stream pipeline.
In recent years, Gazprom’s plan to build the pipeline from Russia — under the Black Sea to Western Europe, bypassing Ukraine — became a focus of dispute. Gazprom insisted that the pipeline would enhance Europe’s energy security. The European Commission, seeing it as an effort to further tighten Russia’s market hold, would not give its blessing to the project without major concessions from Moscow. Bulgaria was to be the point of entry to Europe from the South Stream pipeline. But the European Commission and the United States heavily pressured Bulgaria to back away from the plan. With little chance of a resolution in sight, Mr. Putin said in December that he would bring gas through Turkey instead. While negotiations between Ankara and Moscow are proceeding behind closed doors, it is still unclear how a Turkish pipeline would overcome European objections.