Russia’s Complete Gas Victory in Europe: Operation “Capitulation”

Translated by Ollie Richardson & Angelina Siard


On March 13th, 2017, the press service of the European Commission reported that the Russian company “Gazprom” is ready to make a global deal with Europe. Thus, Russian experts consider this deal as favorable, focusing their attention on the changed situation in the gas market of Europe. It’s just that the Russian monopolist refuses some important positions of contracts, but on the other hand it wins in terms of money and prospects. But in this story there is one more very important point, which will become apparent in a few months.

Historical background

In 2011, at the initiative of European Commission (EC), searches were carried out at offices of several “subsidiaries” of “Gazprom”. Already the following year the EC also initiated an antimonopoly investigation against the actions of the Russian gas company.

The main accusations were as follows. The EC considered that “Gazprom”, by means of “subsidiaries”, created in the market for itself monopolistic conditions by “hindering free gas supplies to EU countries”. And it also allegedly imposed on them unfair prices and conditions of deliveries (“take or pay”, for example).

Legal proceedings went on for five years. The European press created an information wave, making its readers believe that the issue was resolved and that “Gazprom” were not able to escape a large penalty and a loss of a part of the European market. But writing articles is one thing, while the facts speak something completely different.

The fight for the European market of gas

In 2010-11, “Gazprom” delivered to Europe (without Turkey) 120-130 billion cubic meters of gas. Thus in 2011, despite the insignificant growth of volumes of deliveries, there was a sharp growth of revenue of the company from gas exports to foreign countries (approximately a third). It is clear that Europeans became jealous, especially against the background of a sharp decrease in the spot prices at Liquefied Natural Gas (LNG) terminals. And it is from that both the “investigation” of the EC and the sharp growth of consumption of Liquefied Natural Gas in Europe from the Middle East came.

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“Gazprom” and the Russian State correctly understood the risks, and that’s why they together started realizing the comprehensive program of the reconquest of gas to Europe. At the start it was necessary to destroy competitors in the Middle East, who at that time began the “Arab spring” by, took Egypt, and quite strongly had a grip of Syria.

Why was it necessary for them? Everything is very simple. LNG is still relatively expensive (liquefaction and regasification greatly raise its price) and its much cheaper to deliver LNG via such a small length of gas pipe. It is in fact for the right to lay a pipe across the territory of Syria that Qatar and Saudi Arabia were at war, creating with the blessing and help of the US the so-called Syrian opposition, and then ISIS.

The return to power of an adequate government in Egypt and support of the government of Bashar al-Assad by the Russian Federation thus became a part of a big strategic gas war for the European market. During 2014-2016 Russia managed to radically turn the situation in its own favor. Today nobody doubts that Qatar gas won’t reach Europe by pipelines. Bashar al-Assad strongly sits in Damascus, and Turkey became, albeit temporary, an ally.

During this time, also on the economic front some notable blows were landed on competitors. “Gazprom” applied price flexibility in the European market, thereby dragging into its camp of friends many European companies and even whole countries. As a result, against the background of a sharp drop in import of LNG in Europe and the gradual exhaustion of stocks in the North Sea, Russia started to quickly increase export volumes, having brought them in 2016 to 180 billion cubic meters (34% of all the market).

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And it managed to reverse the situation also with foreign currency revenues. The conclusion of an agreement on oil (as you may recall), which pushed the world prices for oil up (and this is the third component of the great success of the Russian military/diplomats/industrialists) were positively reflected in the gas prices too. There is every reason to consider that in 2017 Russia will earn from gas supply, maybe not a record sum (38 billion dollars, with change), but a quite acceptable sum (about 35 billion dollars).

Where did you hide yourself, faultfinders of the Kremlin’s actions in the Middle East?

So, on the example of gas battles of the last years we saw that Russia did nothing in vain, but everywhere, on each area, forged its future success, which we already see.

In this story it is necessary to continue for one more page (as was promised at the beginning).

Ukrainian trace

In 2014, in Kiev a state coup was made. It is clear that the issue was not only about gas, which nevertheless had a role to play. From the first days the new regime vigorously started getting rid of the gas dependence on Moscow, and therefore, using the example of the EC, initiated legal proceedings against “Gazprom”.

The claim of Kiev is almost a full copy of the argument of the claim of Europe. The regime hoped that Brussels, having won a gas dispute with Moscow, will create a precedent that Kiev will use, having received from Russia huge sums as compensation (oh this desire of “patriots” to live on freebies). But … today everything changed. There will not be a decision on the claim of the EC. And the precedent with the OPAL gas pipeline, when contrary to European power legislation “Gazprom” received preferences, shows that Europe isn’t going to clash in the gas sphere with Russia, that it will recognize it’s defeat and … doesn’t want to remain without gas.

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And that’s why the hearing of the Stockholm arbitration on the case of Ukraine-Russia with high probability will result in nothing, which will be a new victory of Moscow. And this we will see in a few months. And then, at the end of 2019, “Nord Stream-2” and “Turkish stream” will enter into this system, and maybe also “South Stream” will be in time too (I think this year we will hear about it again) and then the gas victory of Russia in Europe will become full and unconditional.

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