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Putin hits EU energy market reforms
by Staff Writers
Moscow (UPI) Oct 19, 2011

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The European Union is seeking to force lower natural gas imports prices by "destroying" the current system that ties them to oil prices, Russian Prime Minister Vladimir Putin says.

Putin, speaking to state television channels last week in Moscow, accused the EU of attempting to wring lower prices from the state-owned natural gas supplier Gazprom through the market liberation reforms called for in the Third Energy Package.

Putin, who has announced he will seek to regain the country's presidency next year, contended the energy package is essentially a "unilateral" move by Brussels to "reduce the (gas) price, to destroy the market pricing formula that depends on the oil price," the Russian news agency RIA Novosti reported.

Gazprom links the price of its natural gas exports to the price of oil, using the mechanism to guard against a feared long-term downward trend in natural gas prices, which are predicted drop relative to oil in coming years.

The oil price-linkage also seen as a Russian hedge against pressure on gas prices caused by the tapping of shale gas resources in Europe.

The EU's Third Energy Packages, adopted in 2007 and now being slowly implemented across Europe, is aimed in part at "unbundling" gas and electricity production from ownership of transmission networks. It targets vertically integrated companies such as the state-controlled gas monopoly Gazprom, which both produces and supplies gas.

Putin said the EU is unwise to seek a decoupling of natural gas from oil prices because European customers would miss out on savings when oil is cheap, the Russian news agency RIA Novosti reported.

"(The Third Package) is not really a very long-sighted approach, because … today oil is selling at a decent price but tomorrow it may fall, so Gazprom will endure losses and those who buy gas will, on the contrary, win," Putin said.

Thus the basis for implementing the reforms, he said, is "unsubstantiated." Instead, he asserted, cheaper gas prices could be had by allowing Gazprom to compete directly in the EU market without having to sell to intermediaries.

Those companies "buy our gas, then supply it to their own energy stations and receive the profit margin on the first stage," Putin said. "Let Gazprom directly supply gas to the energy stations, so there will be neither an intermediary nor an additional price margin, the price of the product will fall."

His comments came less than a week after Russian President Dmitry Medvedev also took a swipe at the EU third package, warning it could cause a rupture in Russia-EU relations.

Medvedev told reporters he has repeatedly asked Brussels for information on "the consequences of the direct implementation of these rules," adding, "a number of developments have occurred recently that will cause problems for gas cooperation."

The European Commission this month carried out antitrust raids at the offices of natural gas companies in central and eastern Europe while investigating alleged breaches of EU price competition rules. Subsidiaries of Gazprom, Germany's E.ON and RWE as well as Austria's OMV were targeted, The Wall Street Journal reported.

Some in Russia see the raids and the EU's desire for a free flow of gas into Europe as contradictory.

"Nobody really believes that the EU has a strong case for proving their point," Chris Weafer, chief strategist of Troika Dialog Bank in Moscow told RT Television. "We see this more as a measure to increase pressure on Gazprom and Russia."

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