Competition headache for Russia

Date: 05/09/02

AMBITIONS to liberalise the EU gas markets and ensure cheaper gas prices were given a boost in July following an agreement with Norwegian companies to free up gas exports.

A settlement of the so-called 'GFU' case meant that two companies, Statoil, which is state-owned, and Norsk Hydro, will sell their gas to EU customers on competitive terms.

Other gas producers in Norway, such as TotalFinaElf, BP and Shell, will be able to do the same. Norwegian gas was previously marketed through a state cartel, the Gas Negotiation Committee (GFU).

Russia, which supplies 24 of EU gas, could be persuaded to follow the Norwegian example, EU negotiators hope. The two sides launched talks on the subject in July. Major gas suppliers such as Russia and Algeria sell on the basis of long-term contracts which ban any re-exports. This contractual hurdle conflicts with EU competition policy as well as gas market liberalisation.

But Russia and Algeria have argued vehemently against such a contract renegotiation, noting that it would damage their exporters' earnings as well as new developments upstream. Gazprom depends on high gas exports prices because domestic prices in Russia are capped.

Algeria and Russia were instrumental in creating an as yet informal gas producers grouping, Gas Exporting Countries Forum (GEC), three years ago. The Norwegian agreement means that plans expressed in March for Russia, Algeria and Norway to create a joint working group to interact with the EU on the gas issue probably will not materialise.

But this could be replaced by a Eurasian alliance which could include Russia and former Soviet states of Turkmenistan, Kazakhstan and Uzbekistan, all of which hope to export into the EU gas market.

Gazprom is being cautious in the negotiations, with its spokesmen stressing that the company is seeking options to guarantee a stable income if the current long-term contracts are changed. Multinationals investing in Russia are also worried. Royal Dutch Shell chairman Phil Watts said that the supply of gas from Russia to the EU would be endangered if the current long-term contracts are abolished.

Jean-Marie Chevalier, Paris-based director for European Gas and Power at consultants Cambridge Energy Research Association, said: 'Europeans are surrounded by a sea of gas.'

He refers to current supplies from Norway, the Netherlands, Russia and North Africa, as well as future supplies from Central Asia and liquefied natural gas from North Africa, the Caribbean and Nigeria.

But Chevalier rules out any imminent agreement with Algeria about long-term gas contracts. 'The Algerians are the most opposed to any renegotiations,' he says, explaining that Algerian state energy company Sonatrach has long-standing cooperation agreements with current and former state entities in Europe such as Gaz de France, Italy's Snam and Spain's Enagas. Sonatrach hopes to develop downstream projects with these partners and boost its own gas exports to some 80 billion cubic metres annually.

Algerians are also angry at what they perceive to be EU interference. Nordine Ait Laoussine, president of Geneva-based consultants Nalcosa and a former Algerian energy minister, says the EU is trying to 'impose changes' on Algeria.

'The Algerians don't like the EU to come down to Algiers and argue about liberalisation,' notes Chevalier.

Article is part of a European Voice survey on energy.