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Post by Sapphire Capital on Dec 17, 2008 5:35:20 GMT 4
Gazprom's Export Strategies Under the Institutional Constraint of the Russian Gas Market Catherine Locatelli University of Grenoble 2 OPEC Energy Review, Vol. 32, No. 3, pp. 246-264, September 2008 Abstract: The strategy of the Russian gas company Gazprom is today at the centre of the debate surrounding the security of the European gas supply. The European gas market liberalisation is changing the industrial and commercial (that is to say, contractual) strategies of Gazprom in order to deal with the institutional changes in its main export market. In this context, to secure its market shares Gazprom try to acquire a presence downstream, which will give it access to final consumers. However, exports to Europe are affected by conditions in the Russian domestic market, not only in terms of supply and demand, but also in terms of prices. Russia's internal market can hardly be viewed as a genuine market where supply and demand are regulated by price fluctuations. papers.ssrn.com/sol3/papers.cfm?abstract_id=1294996
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Post by Muriel Akaba on Dec 17, 2008 10:37:23 GMT 4
IP/03/1345 Brussels, 06 October 2003 Commission reaches breakthrough with Gazprom and ENI on territorial restriction clauses The European Commission’s competition services have reached a settlement with the Italian oil and gas company ENI and the Russian gas producer Gazprom regarding a number of restrictive clauses in their existing contracts. Under the settlement, ENI will no longer be prevented from reselling, outside Italy, the gas it buys from Gazprom. The latter will be free to sell to other customers in Italy without having to seek ENI’s consent. ENI also committed to offer significant gas volumes to customers outside Italy, which will be beneficial for gas competition in Europe. Finally, ENI agreed to increase capacity on the pipeline that transports Russian gas to Italy via Austria. It will also support the introduction of a regime, which will facilitate access to this pipeline for third parties. The settlement marks an important milestone towards the enforcement of competition rules in the sector and the creation of a European gas market. It is expected that similar clauses in a few other Gazprom contracts as well as in contracts between Algerian company Sonatrach and its European customers will soon be eliminated to the benefit of competition and gas users in the EU. Competition Commissioner Mario Monti welcomed the settlement saying: “I am pleased that we were finally able to bring this issue to a good end. We hope that Gazprom will soon bring its contracts with a few other European importers in line with EU law. We also encourage Sonatrach to follow the same path. The Commission’s action aims to increase competition between European gas suppliers to the benefit of European consumers. It has no impact on the producers’ ability to sell their gas in the Union under long term contracts. To the contrary the settlement strengthens the legal certainty of these contracts ». The Commission’s Competition Directorate General has been investigating territorial sales restrictions in supply contracts between gas producers and European wholesalers for some time. The clauses prevent wholesalers from reselling the gas outside the countries where they are established, which represents a breach of European competition law and undermines the on-going creation of a European gas market. The investigations concern the Russian company Gazprom, Sonatrach of Algeria and a large number of their European customers. In December 2002, the Commission settled a similar case concerning the Nigerian gas producer Nigeria LNG Ltd (see IP/02/1869). The settlement of the Gazprom/ENI case is very significant because of the huge volumes of gas involved. ENI is one of the biggest European customers of Gazprom with approximately 20 billion cubic meters of gas bought every year and the first of the European importers to have reached a settlement with Gazprom, Europe’s largest external gas supplier. The following arrangements were agreed upon either between the companies directly or between the companies and the Commission services: - To delete the territorial sales restrictions from all of their existing gas supply contracts. The amended contracts provide for two delivery points for Russian gas, as opposed to one only in the past. ENI is free to take the gas to any destination of its choice from these two delivery points. - To refrain from introducing the contested clauses in new gas supply agreements. To this extent ENI committed not to accept such clauses or any provision with similar effects (e.g. use restrictions and profit splitting mechanisms) in all its future purchase agreements, be they for pipeline gas or gas in liquefied form (LNG). Gazprom had already agreed last year not to introduce the clauses in future contracts with European importers. - To delete a provision that obliges Gazprom to obtain ENI’s consent when selling gas to other customers in Italy, even if ENI claims that it never relied on this provision. The companies already implemented the amendment allowing Gazprom to sell to ENI’s competitors in Italy. In addition to these contractual issues, ENI also agreed to offer significant gas volumes to customers located outside Italy over a period of five years. The primary beneficiaries are likely to be customers in Austria and Germany, where ENI recently acquired – together with Energie Baden Württemberg (EnBW) - a controlling stake in the Southern German company GVS (see IP/02/1905) and ENI might use this company for its German expansion strategy. If ENI has not sold sufficient volumes during the first half of the commitment period, which started on 1 October 2003, it will organise an auction offering certain gas volumes at Baumgarten, the border point between Austria and Slovakia, where Russian gas is delivered to a number of European customers. All these measures should enhance liquidity in the European gas market. ENI also undertook to promote an increase of the capacity in its majority-controlled Trans Austria Gasleitung (TAG) pipeline, which runs through Austria and is used to transport all Russian gas destined for the Italian market. The expansion has to be completed between 2008 and 2011 depending on certain Italian market developments. ENI finally offered to promote an improved third party access regime (TPA regime) facilitating the use of the TAG as a transit pipeline. This commitment includes amongst others the introduction of one-month transport contracts, an effective congestion management system, the introduction of a secondary market and the regular publication on the Internet of the available capacity. The new TPA regime will be inspired by the Guidelines for Good Practice developed by the European Commission, European Regulators and European gas industry (“Madrid Forum”). In view of these benefits for European gas consumers, the investigation into territorial sales restrictions contained in the gas supply contracts between Gazprom and ENI has been closed. Other cases At the same time, the competition services decided to close their probe into the gas supply relationship between Gazprom and Gasunie of the Netherlands after verifying that their contracts do not contain territorial sales restrictions and after Gasunie explicitly confirmed it was free to sell the gas delivered by Gazprom wherever it wishes. In this respect it is important to note that the gas is delivered to Gasunie at the German Dutch border. The competition services continue, however, their investigation regarding other contracts involving Gazprom. But they are confident that Gazprom and the importers concerned, most prominently two companies in Germany and Austria, will soon find an agreement with Gazprom leading to the deletion of the contested clauses. The Algerian Energy Ministry and Sonatrach recently informed the Commission services that Sonatrach will no longer introduce any provisions limiting cross border sales into its future gas supply contracts with European importers. The Commission services welcomed this constructive step. It is the Commission’s services’ understanding that this commitment includes territorial sales restrictions as well as so-called profit splitting mechanisms, which oblige the customer to share part of the profit with Sonatrach when reselling the gas outside its traditional supply area. Sonatrach also indicated its readiness to discuss the modification of the existing contracts with its European customers, but progress has been until now rather slow. The Commission services therefore called on the parties to intensify negotiations in good faith and to establish an ambitious timetable in order to reach an agreement soon.
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Post by Mashaba on Dec 17, 2008 10:40:55 GMT 4
Stratfor Analysis:
After months of on-again, off-again negotiations, Russian natural gas giant Gazprom and Italian energy firm ENI revamped their commercial relations Oct. 6, setting the stage for a greater penetration of Russian gas into the European market and stimulating that market with a healthy dose of competition.
Under the terms of the deal, all third-party clauses will be removed from ENI-Gazprom supply contracts. This will allow ENI to resell Russian gas for which it is contracted to anyone -- in Italy or not -- at its own discretion. Previously, ENI was forced to take shipment of all contracted gas itself, could not sell it to others and was forced to pay for the gas even if low Italian demand meant ENI couldn't sell it domestically. The European Commission blessed the deal and announced an immediate end to its investigation into the "anti-competitive nature" of the third-party clause in the pre-existing contracts.
In exchange, ENI has agreed to expand the infrastructure Italy uses to import Russian natural gas via Austria, and to permanently abandon its current veto over any new Gazprom supply deals with other Italian firms.
All in all, the deal marks a great day in European energy markets. Many of the benefits from the new development will take years to manifest, but nearly all of them are positive.
Gazprom's willingness to leave the third-party clause behind represents a sea change in the Russian mentality. Gazprom has always been wed to the idea of long-term, locked-down supply deals, as the firm needs the guaranteed income in order to finance the development of its technically difficult, geographically remote fields. In the past, Gazprom has fought tooth and nail to keep the third-party clauses within the contracts in order to maximize long-term revenues and income security.
The change of heart is rooted in three rationales. First, the EU is about to expand into 10 new states, all but two of which -- Cyprus and Malta -- already count Russia as their primary energy supplier. That security helped convince Gazprom that no matter what Brussels's intention, Europe would never be able to treat Russia badly.
Second, Gazprom's natural gas production -- and throughput from Central Asia that Gazprom controls -- is steadily rising. This allows Gazprom to capture even more of the European market, where it is already the largest single supplier, giving company executives even more reason to sleep well at night. Earlier in 2003, Russia began supplementing gas shipments to Europe with an additional 18 billion cubic meters over the 2002 export levels -- enough to supply nearly all of Spain.
Europe as a whole mostly has made peace with the idea that it is dependent upon Russian energy. In fact, most EU states are working to tighten links. Russian and British officials are engaged in a series of high-level consultations about building a $5.7 billion pipeline under the Baltic Sea to Germany and then on to Britain. A Stratfor source within German Chancellor Gerhard Schroeder's office indicates that Berlin plans to provide political risk coverage for the project and help German utility Ruhrgas -- which owns 6.8 percent of Gazprom shares -- to finance it. Initial documents likely will be signed at the Oct. 8 German-Russian summit, followed by more formal endorsements in November. Meanwhile, Gaz de France President Pierre Gadonneix was in Moscow on Oct. 6 to discuss a potential French role in the same project.
The net effects of this blossoming energy partnership are huge. It is almost a foregone conclusion that Gazprom's third-party concession to ENI will be replicated on its other European contracts; the Russian firm already has removed the clauses from its new deals.
Freeing up the buying and selling of gas has been an EU goal for more than a decade: EU leaders know it would help to secure more flexible supplies. But a nice -- and not entirely unintentional -- side effect is that a plethora of buyers, sellers and resellers will exert a steady downward push on European natural gas prices. This is no small development for a region that historically has paid dearly for imported energy, and where inflation has been a chronic problem for years.
The price drops should be sustained and widespread because the EU will approach other suppliers -- such as Algeria's Sonatrach -- from a position of strength and will not be afraid to demand similar changes. Should the other suppliers refuse, the Europeans can simply take less gas from them in the future and let Russia fill the gap.
This is a credible threat to those suppliers. The rising torrent of Russian natural gas into Europe already is filling the gap being left by declining German, Danish and Dutch production. Russian ramp-up time is proving much shorter than that of Norway -- northern Europe's traditional supplier -- or Algeria, the primary supplier of southern Europe. That is letting Russian gas spread rapidly into the French, Swiss and Italian markets, even as it expands its market share in Germany, Europe's largest natural gas importer. A new major ENI-Gazprom contract-- in addition to the 20 billion-cubic-meter deal the two already have -- is likely to be announced within a matter of months.
The biggest impact will be in the liquefied natural gas market. Since natural gas requires vast pipeline networks to ship and transport it, energy suppliers further removed from Europe instead cool it until it liquefies and then ship it via specially designed tankers. But as Russian gas pushes its realm of sale ever westward, LNG will be crowded out of all but the westernmost European countries -- and there, Algeria already enjoys strong infrastructure connections. That will force LNG suppliers to send their cargos to continents other than Europe, and the surge in supply will reduce their asking costs when they arrive.
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Post by Wood on Dec 17, 2008 10:44:51 GMT 4
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Post by Sharakena on Dec 17, 2008 10:46:35 GMT 4
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