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. Outside View: Russia-EU energy fight thaws

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by Oleg Mityayev
Moscow (UPI) Oct 30, 2007
Russia-EU energy relations saw a sudden warming last week, as both Russia and the EU made clear that they were ready to make mutual concessions.

The previous excessive politicization of the energy issue has given way to pragmatism.

The last bone of contention was a package of bills published by the European Commission on Sept. 19, requiring European companies to "unbundle" their electricity and gas production businesses from their distribution activities, i.e., control of power grids and gas pipelines.

Since the new legislation applies not only to European companies but also foreign companies investing in the EU energy sector, it directly affects the interests of the Russian gas monopoly Gazprom, which is not only the largest supplier of gas to Europe but also an active investor in the European gas infrastructure.

No surprise then, that Russian Fuel and Energy Minister Viktor Khristenko told the Financial Times, in an interview published Oct. 19, that the EU should not "fear money or rank it depending on the country of its origin," adding that Russia could diversify its industrial and energy cooperation by turning to Asian and Pacific countries if an "energy curtain" closes around Europe.

Yet just a few days later, the minister's tone changed. At the Moscow Energy Dialogue on Oct. 23, Khristenko said that Russia and the EU had begun to discuss amendments to European energy legislation and agreed with EC Energy Commissioner Andris Piebalgs on the establishment of a working group on the issue.

Two days later, prior to the Russia-EU summit, the dialogue advanced still further. Speaking in Lisbon, Portugal, Khristenko expressed certainty that Russia would come to terms with the EU on access for Russian investments to the European market (though he made it clear that under no circumstances would Gazprom be broken up).

There is plenty of time to find agreement. The procedure for putting the new EU energy bills into effect has not yet been finalized; it will be discussed for another year. European companies will be given at least 18, and up to 30, months grace to divide their businesses. Furthermore, the legislation allows for exceptions for new projects, and the Nord Stream gas pipeline, which will run beneath the Baltic Sea between Russia and Germany, may be exempted from the new rules.

Simultaneously, a session of the European Commission's gas coordinating group settled the issues arising from the latest gas dispute between Russia and Ukraine, which erupted in early October over Ukrainian payments for Russian gas. Following the group's session the European Commission issued a statement saying it was no longer worried about Russian gas transit to Europe via Ukraine.

On the same day, Oct. 25, it was officially announced that Norway's StatoilHydro had received a 24 percent stake in the company that will develop the Shtokman gas field in the Barents Sea. It was a welcome piece of news for Norwegians and it came after Russian President Vladimir Putin's telephone conversation with Norwegian Prime Minister Jens Stoltenberg (in the same way French oil giant Total gained a 25 percent stake in the Shtokman project after French President Nicolas Sarkozy spoke with Putin in July 2007).

The warming of relations is thus not confined to the EU -- it also affects relations with Ukraine, and Norwegian investors. But though the thaw has been sudden, it should not be surprising: Russian gas accounts for 26 percent of Europe's total consumption. Europe needs guaranteed fuel supplies, and Gazprom needs the European market.

For the foreseeable future, up to 80 percent of Russian gas exports to Western Europe will continue to be delivered via Ukraine; and the development of the Shtokman gas field will require Western investment and technology.

(Oleg Mityayev is an economic commentator for RIA Novosti. This article is reprinted by permission of RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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