Why the EU needs Russian energy giant Gazprom | News | DW
In January, Gazprom CEO Alexey Miller said 2021 had been a record year for the Russian energy giant, both in terms of production and profits. Thanks to the increase in demand and the explosion in the price of gas and oil, the company earns rubles.
It is the Russian state that controls most of the shares and decides the direction of the company. But various German companies, such as power company E.ON, also own shares of Gazprom, which is the world’s largest natural gas producer. It has nearly 500,000 employees and claims to hold the largest gas reserves in Russia.
Miller is an old friend of Russian President Vladimir Putin, who almost always sits at the supervisory board and board table.
Gazprom is the largest gas supplier in the EU
Gazprom’s market power in Europe is the result of a monopoly. Russian law stipulates that only Gazprom is allowed to operate the pipelines used for export. It has been the largest supplier to the European Union (EU) for decades.
About 43% of the natural gas consumed in the EU comes from Russia. According to the EU statistical office Eurostat, the rest comes from Norway, the Middle East, the United States and North Africa.
But within the EU, the market share of Russian gas varies considerably from one member state to another. The general rule is that the further east a country is, the more likely it is to depend on Russia, and Germany, the EU’s largest energy consumer, gets around 55% of its gas from Russian energy giants.
“Gazprom uses its market power by influencing prices by the amount of gas it supplies to Europe,” energy expert Georg Zachmann of Brussels-based think tank Bruegel told DW.
Competition between EU regulators and Gazprom
Over the past 10 years, the EU has attempted to establish a relatively unified gas market in the bloc by introducing regulations under which Gazprom is supposed to supply gas across the external borders, which member states can then trade.
Germany can buy gas in Russia and then resell it to Poland or Ukraine. But it is in Gazprom’s interest to enter into direct contracts with gas recipients, in order to maintain high dependence.
A subsidiary of Gazprom owns this storage facility in Germany
“There is a kind of competition between European regulators trying to create a market with unified prices and Gazprom trying to impose different prices in different countries,” Zachmann explained.
While Gazprom insists it has honored all of its long-term supply commitments, Zachmann said the company was actually supplying less gas to the market with short-term contracts.
Zachmann said the short-term market had become increasingly important in recent years because there was an attempt to become less dependent on Gazprom in the long term.
“Gazprom fulfills its contracts, it’s true, but only at the lowest level of its commitments”, underlined recently the President of the European Commission, Ursula von der Leyen. She said other suppliers had increased deliveries given the rapidly rising demand and record prices.
Von der Leyen added that Gazprom was behaving in a strange way, considering that more gas was not being supplied despite strong demand. She also told the German daily Handelsblatt that the company’s Russian state ownership raised doubts about its reliability.
Gazprom has stakes in local and regional energy suppliers in almost all EU states. In Germany, for example, its subsidiary Astora has the largest underground gas storage in Western Europe. Located in Rehden in Lower Saxony, it acts as a buffer in the event of fluctuations in supply and demand.
Could Russia turn off the tap?
If Gazprom were to receive instructions from the Kremlin to stop supplying gas to the EU, there could be significant shortages.
Von der Leyen said she didn’t believe it would come to this. Since the Russian economy is so dependent on energy exports, it would make no sense to jeopardize its relationship with its biggest customer and investor.
But she said Handelsblatt that the EU and the United States were trying to increase supplies of liquefied natural gas from Qatar or the United States. Negotiations are due to take place next Monday in Washington DC.
Germany could become even more dependent on Russia
Energy expert Claudia Kemfert of the German Institute for Economic Research (DIW) predicted that the Nord Stream 2 gas pipeline, through which Gazprom will pump gas, would make Germany even more dependent on direct supplies from Russia.
“Europe has a strategy of diversifying gas purchases, whereas Germany has chosen the opposite path and has further increased its dependence. This is backfiring on us,” she told DW.
According to her, the sale of gas storage facilities should not have been approved, or at the very least should have been regulated. She said that strategic reserves were needed for gas, just as they are for oil.
The EU is now considering building up such reserves and acting as a joint buyer of gas, more so than in the past, a strategy that Gazprom is trying to undermine by courting individual member states. Hungary, for example, has just signed an exclusive contract with Gazprom and will benefit from advantageous treatment in terms of price.
Former German Chancellor Gerhard Schröder has just joined the board of directors of Gazprom
Zachmann isn’t optimistic that the EU can do much to oppose Gazprom’s power: “You can negotiate as much as you want with a person who has all the power. If the gas tap can be turned off from Moscow, we are simply in a worse negotiating position.”
For Miller, trade with Europe is only part of Gazprom’s success. The company says it wants to become the world leader in energy. After all, it not only trades gas, but also oil, and it also generates electricity.
Meanwhile, President Putin has just unveiled a major gas deal with China at the start of the Winter Olympics in Beijing. The United States is also a Gazprom customer and in 2020, 8% of the country’s oil imports came from Russia, more than from its ally Saudi Arabia.
This article has been translated from German.