Eu-Russia Gas Blues

EU-Russia gas relations have come under the spotlight following the annexation of Crimea and the eruption of civil war, with direct Russian involvement, in Eastern Ukraine. Yet tensions in gas relations have been building up for the last two decades, and are primarily related to Europe's strategic decision to unify the gas markets of the member countries and enforce competitive and transparent trading conditions. Gazprom, Russia's state-controlled natural gas company and the largest extractor of natural gas in the world, forcefully opposed this strategy in association with its traditional partners, incumbent gas importing companies. Following a long war of attrition that has evolved over the better part of the last twenty years, it now appears that Gazprom is on the verge of accepting the transformation of the European gas market, and is behaving competitively to preserve its market share. The Ukrainian conflict has been instrumental in precipitating this shift, facilitating the task of the European Commission in coalescing consensus on the need to rein in Gazprom's excessive market power. Whether European dependence on Russian gas is bound to dimmish, however, is less clear. Russian gas remains an essential component of Europe's gas supply, and abundant Russian reserves guarantee that the European Union will be able to continue relying on Russia for the foreseeable future. ********** Russian-European gas relations have always been politically sensitive. Russian gas exports started in the early 1970s (Germany in 1973, Italy in 1974), and were largely commercially motivated: Put simply, Russia discovered a lot of gas, much in excess of its own domestic needs; and the major European countries were motivated to diversify away from oil following the price increases of 1973 and subsequent years. (1) Europe was eager to avoid excessive dependence on Middle Eastern oil, especially from the Persian Gulf. Importing contract with Russia in 1960, it met strong criticism from NATO allies. (2) But gas imports were even more controversial, as the United States imposed a ban on sales of turbines and parts needed to pressurize the gas for long-distance transport; and the European allies developed their own technology to bypass the ban. Throughout the 1980s, the idea that dependency on Russian gas supplies might undermine the resolve of key European allies such as Germany, France or Italy was a recurrent theme in NATO debates. Yet, dependence on oil supplies from the Middle East remained the primary European preoccupation. Thus, when the Soviet Union collapsed, the EU was quick to engage in energy diplomacy with the Russian Federation and the other former Soviet Union republics, with the aim of establishing a close partnership centered on energy trade and investment. Europe's preoccupation with stability of gas supplies was the main motivation for launching the idea of a European Energy Charter. (3) Eventually, the United States, Canada and Japan became involved in the negotiations, and the European focus of the initiative was partially lost. But it was always clear that the Charter and the subsequent Energy Charter Treaty were expected to be the foundation of an innovative kind of energy partnership, which would be reserved to the countries of the former Soviet Union (and not extended to those of the Middle East and North Africa). But, as it turned out, the Russian Federation maintained reservations on the Energy Charter Treaty's stipulations concerning investment and transit: Although the Russian government, under Boris Yeltsin, had signed the treaty, the Duma never ratified it. The EU insisted for years that Russia ratify the treaty, to no avail--until Vladimir Putin formally issued a decree terminating Russia's involvement with the Energy Charter in August 2009. (4) Among other important provisions, the Treaty enshrined the principle of Third Party Access (TPA) to transport infrastructure, notably gas pipelines, and prohibited transit countries from interrupting the flow. …

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