Gazprom counts on Western lobby to soothe EU fears
Amie Ferris-Rotman and | Saturday, 26 July 2008
Dmitry Zhdannikov
Russia's Gazprom is working on turning its Western partners into a lobby network to try to overcome the European Union's worries about its aggressive expansion plans.
Companies working with Gazprom in its Siberian fields may be happy to oblige, analysts say, keen to strengthen their positions in Russia and in turn help the world's largest gas producer gain assets in Europe to achieve its dream of becoming a one trillion dollar company.
"Gazprom is creating a lot of lobby groups in the form of its partners. Instead of Gazprom having to knock on the door of the European parliament, Total and BASF will do it on their behalf," said Chris Weafer, Chief Strategist at UralSib.
Last week, Gazprom and German chemical group BASF started production at their Achimgaz joint Siberian project, which will ultimately produce 7.5 billion cubic metres per year -- almost a tenth of Germany's gas consumption.
Although Gazprom is set to remain Russia's gas export monopoly, domestic sales of gas are increasingly attractive as power prices become fully freed from 2011, an added allure for Western partners.
Earlier this month Italian energy firm Eni signed a deal with a Russian power generator to sell gas it will produce from Arctigas, its future venture with Gazprom, becoming the first European player in Russia's downstream gas market.
"It may be a paradox, but Gazprom's top lobbyists in Europe are its competitors such as ENI or GdF. They suffer themselves from gas markets liberalisation and understand Gazprom better than government officials," said Valery Nesterov from Troika Dialog brokerage.
"For Gazprom, one of the benefits of the cooperation is access to downstream assets in Europe," said Tanya Costello, Director of Europe and Eurasia at Eurasia Group in London.
MUTUAL SUSPICIONS
The ambitious head of Gazprom, Alexei Miller knows better than anybody the importance of cross-border ventures to open the door to the EU in return.
"We believe that success rests in organising vertically integrated chains that run from the point of production to the end user, with each link in the chain representing a joint business between energy resource producers and consumers," Miller said this week in an opinion piece written for Reuters.
But he has a long way to go before he manages to soothe European concerns once described by former president and now prime minister Vladimir Putin as fears of a Red Army comeback.
Those fears reached their climax when Gazprom cut supplies to Ukraine in a pricing dispute and reduced exports to Europe in 2006, prompting the United States to call on Russia to stop using gas as a tool of intimidation and blackmail.
"The level of mutual suspicions is still very high. I don't see a breakthrough any time soon," said Troika's Nesterov.
In early July, Gazprom said it will begin supplying Ireland in the fourth quarter, taking the number of European countries it supplies to 23. Such a wides supply network has sent alarm bells through the European community, where some believe the bloc relies too heavily on Russian-dominated gas.
European Union efforts to diversify its energy supply away from Russia have taken major blows in recent months, as more countries joined the South Stream pipeline, which aims to take 30 bcm of Russian gas to Europe per year.
Analysts say the South Stream project will pose a challenge to the rival U.S.- and EU-backed Nabucco pipeline scheme, which would take gas from the Caspian Sea to southern Europe.
Weafer said Gazprom's ambitions in Europe were far larger than what European companies could do in Russia: "There's the fear that Gazprom could become too dominant".
Russia's Gazprom is working on turning its Western partners into a lobby network to try to overcome the European Union's worries about its aggressive expansion plans.
Companies working with Gazprom in its Siberian fields may be happy to oblige, analysts say, keen to strengthen their positions in Russia and in turn help the world's largest gas producer gain assets in Europe to achieve its dream of becoming a one trillion dollar company.
"Gazprom is creating a lot of lobby groups in the form of its partners. Instead of Gazprom having to knock on the door of the European parliament, Total and BASF will do it on their behalf," said Chris Weafer, Chief Strategist at UralSib.
Last week, Gazprom and German chemical group BASF started production at their Achimgaz joint Siberian project, which will ultimately produce 7.5 billion cubic metres per year -- almost a tenth of Germany's gas consumption.
Although Gazprom is set to remain Russia's gas export monopoly, domestic sales of gas are increasingly attractive as power prices become fully freed from 2011, an added allure for Western partners.
Earlier this month Italian energy firm Eni signed a deal with a Russian power generator to sell gas it will produce from Arctigas, its future venture with Gazprom, becoming the first European player in Russia's downstream gas market.
"It may be a paradox, but Gazprom's top lobbyists in Europe are its competitors such as ENI or GdF. They suffer themselves from gas markets liberalisation and understand Gazprom better than government officials," said Valery Nesterov from Troika Dialog brokerage.
"For Gazprom, one of the benefits of the cooperation is access to downstream assets in Europe," said Tanya Costello, Director of Europe and Eurasia at Eurasia Group in London.
MUTUAL SUSPICIONS
The ambitious head of Gazprom, Alexei Miller knows better than anybody the importance of cross-border ventures to open the door to the EU in return.
"We believe that success rests in organising vertically integrated chains that run from the point of production to the end user, with each link in the chain representing a joint business between energy resource producers and consumers," Miller said this week in an opinion piece written for Reuters.
But he has a long way to go before he manages to soothe European concerns once described by former president and now prime minister Vladimir Putin as fears of a Red Army comeback.
Those fears reached their climax when Gazprom cut supplies to Ukraine in a pricing dispute and reduced exports to Europe in 2006, prompting the United States to call on Russia to stop using gas as a tool of intimidation and blackmail.
"The level of mutual suspicions is still very high. I don't see a breakthrough any time soon," said Troika's Nesterov.
In early July, Gazprom said it will begin supplying Ireland in the fourth quarter, taking the number of European countries it supplies to 23. Such a wides supply network has sent alarm bells through the European community, where some believe the bloc relies too heavily on Russian-dominated gas.
European Union efforts to diversify its energy supply away from Russia have taken major blows in recent months, as more countries joined the South Stream pipeline, which aims to take 30 bcm of Russian gas to Europe per year.
Analysts say the South Stream project will pose a challenge to the rival U.S.- and EU-backed Nabucco pipeline scheme, which would take gas from the Caspian Sea to southern Europe.
Weafer said Gazprom's ambitions in Europe were far larger than what European companies could do in Russia: "There's the fear that Gazprom could become too dominant".