April 14, 2015, 00:27 / Business

Gazprom delivers an ultimatum to Europe

The Russian concern threatens to reorient the capacities created for the EU to export to Asia Mikhail Serov Gazprom Chairman Alexey Miller promises to unite the European and Asian markets / M. Japaridze / TASS

If by the time the construction of the Turkish Stream is completed, capacity for further transportation of Russian gas to Europe does not appear on the Turkish-Greek border, Gazprom “will hold a pause [in supplies],” the concern’s chairman of the board, Alexey Miller, said on Monday in Berlin. Through this gas pipeline it is planned to redirect gas that currently flows through Ukraine (half of Gazprom’s exports to the EU). A decision was made not to renew the transit contract with it, which will end at the end of 2019, recalled Russian Energy Minister Alexander Novak. Europe blocked South Stream to preserve Ukrainian transit, Miller is sure. But if someone thinks that by blocking the Turkish Stream they will be able to achieve the same goal, then “this is a very big mistake,” he said: “We warned: if the capacities are not created, then we are not to blame.”

Europe itself is pushing for this, Miller believes. The EU aims to create an energy union, the main ideas of which are diversification of supplies and uniform pricing. This model shifts all risks to the supplier (price, regulatory, transit, demand risks), although previously they were shared with consumers. Until now, Gazprom has built relationships with Europe based on a model of interdependence. European partners participated in Gazprom’s production and transport projects – and vice versa: security of supplies was based on this. South Stream was also built according to this model. But now it's becoming a thing of the past, Miller said. Miller made similar statements a year ago. But now he has developed an idea. The diversification model that replaces the interdependence model concerns not only consumers, but also suppliers. From now on, Gazprom will adhere not to a European strategy, but to a Eurasian one. The company began construction of the Power of Siberia gas pipeline from Eastern Siberia to China. And the construction of the Altai gas pipeline from Western Siberia to China, from where gas goes to the EU, will create a common mega-market with a single resource base. Its appearance will negate the discussion about pricing in Europe, since the Asian market will become its determining factor. And the European idea of a single price does not mean that it will be the lowest price - it will be the highest cut-off price, Miller assured. However, there is no energy security model for the Eurasian market yet, he admitted. Previously, Vedomosti's interlocutors at Gazprom repeatedly said that the concern does not want to allow Chinese companies into production in Russia and pipeline systems. And this approach will not change, a source close to Gazprom assured.

New incentives

Turkish Stream has given impetus to new projects in the region, Miller said. This is not only a gas pipeline through Greece, Macedonia and Serbia, but also the Eastring gas pipeline (through Bulgaria and Romania) and a gas pipeline through Italy to Baumgarten. If invited, Gazprom is ready to participate, but according to European laws.

But in Europe there is a chance to maintain the previous model. Miller recalled that it is the interpenetration model that allows Germany to have the lowest price for Russian gas in Europe. Gazprom, focusing on the EU, has created production capacity of 617 billion cubic meters. m of gas per year, but in 2014 it produced only 444 billion cubic meters. “This means that we can double gas exports to Europe at the click of a button,” Miller said. But Europe must give a clear answer whether it needs these capacities or not. Otherwise, they may be redirected to other markets, particularly Asian ones. True, Miller assured that Gazprom is ready to strictly follow the standards of the Third Energy Package, including in the issue of extending the Turkish Stream through the EU (see inset).

It is important for Gazprom to preserve the European market; it will certainly remain more profitable than the Chinese one, says Vitaly Kryukov, director of Small Letters. But now Europe is in an advantageous position, it sees opportunities in Iran and Turkmenistan, but its weak point is long-term planning, as Gazprom points out, saying that in the future everything may change and it may reorient itself to China, the expert summarizes.