Russian President Vladimir Putin (left), German Chancellor Angela Merkel (center) and French President Jacques Chirac at Compiegne
Photo: Dmitry Azarov
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You Can Have Gas
// Vladimir Putin proposes that Europe give in to Gazprom
Russia is ready to rechannel up to 45 billion cu. m. of natural gas from the Stockman deposit from the U.S. to the EU in exchange for its softening conditions for gas trading in Europe. That proposal Russian President Vladimir Putin to the heads of Germany and France will be main topic in world energy policy for the next six months and the cause of a political conflict with the U.S.
No one expected major developments to come out of Putin's visit to France, much less the proposed solution to the European Union's energy problems that was announced on Saturday at his meeting with German Chancellor Angela Merkel and French President Jacques Chirac. The change in Gazprom's position on the European market was the main outcome of the summit at Compiegne, but the Russian monopoly refused to comment on the situation yesterday. The Russian president stated that between 20 billion and 45 billion cubic meters of natural gas from the Stockman deposit could be redirected to the EU market, mainly to Germany, where Gazprom is already supplying 55 billion cu. m. per year.
Putin stated that “Gazprom may make a decision in the near future” on its partners in the Stockman project. That was an obvious business proposal, and Putin was not shy about self-promotion. “Can you image that volume?” he asked at the final press conference of the summit. “And what that means for the economy of Europe and the economy of Germany, since supplies from just that deposit may last 50-70 years? It will create an absolutely stable situation in the European economy and in its energy.”
Putin's proposal isn't purely Russian. Merkel was the first to propose redirecting the resources from Stockman, as Putin acknowledged yesterday. On Friday, French Prime Minister Dominique Villepin announced at a conference in Berlin on Germany's chairmanship of the EU that an EU-energy suppliers conference. Apparently that summit will be devoted to Putin's proposal.
All that was left for Putin to explain was what Russia wants from Europe in exchange for the Stockman gas. That, Putin said, was a new format for the Energy Charter Treaty. Russia will accede to it, but “with amendments.” The contents of those amendments are not being made public, but the sense of Russia's proposal is clear. Russia has refused to be part of the Conference on the Energy Conference since 2003 because of two irreconcilable problems with the document. Those issues should obviously be resolved in the new charter, in exchange for Stockman gas.
The first problem with the current charter is that the EU now refuses to provide Gazprom and its affiliates with advantageous conditions for the use of intra-European pipelines to supply gas to EU consumers (the so-called right to first refusal). First refusal would allow Gazprom to make short-term transit agreements with EU countries that receive gas on long-term contracts, avoiding competition with European traders in auctions for pumping quotas.
The second problem is that the EU declared itself in the charter a “regional economic integration organization” in which there is no fuel transit procedure. All gas transit in the EU is implemented under rules set by the European Commission. Russia does not believe that the European Commission will take its interests into account when changing the rules and is insisting that Gazprom have the right to reach an agreement with every EU country separately.
Essentially, Russia needs a guarantee in the charter that the system of long-term agreements that Gazprom works under will not be compromised by the liberalization of the EU gas market next summer. The system may even by developed with the countries Gazprom is able to reach agreements with (especially Germany). France and Germany are not very pleased with the upcoming gas market liberalization. Their eco0nomies are based on the companies E.ON, RWE, GdF and EdF, which are closely linked with the political elites of those countries. Liberalization threatens the stability of those businesses. Russia has directly offered those countries an alliance against the European Commission, which is insisting on liberalization and the earlier version of the charter.
Putin never mentioned the United States at the meeting at Compeigne, but Russia obviously wants to conclude the “gas pact” with Europe contrary to the interests of the U.S. So far, it has been assumed that the gas from Stockman would be processed into liquefied natural gas and supplied mainly to the North American market. Putin's proposal only makes sense if European companies, the Norwegian Statoil or Norsk Hydro or the French Total, are included in the final list of partners for the development of the deposit. The portion of gas that will be directed to Europe will automatically come out of the U.S. share from Stockman.
Putin is unlikely to settle all the issues involved just at Compeigne. The situation may change before the Berlin energy summit in March, as has happened before. The Stockman partners were originally supposed to be chosen before the end of 2005.
Dmitry Butrin
All the Article in Russian as of Sep. 25, 2006
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