E.U. Readies Charges Against Russia's Gazprom

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) - Russian gas giant, OAO Gazprom (Moscow, Russia), could be facing potential fines of up to €11 billion ($15 billion) if the European Commission successfully charges the company with abusing its dominant position in central and eastern Europe.

European Union (E.U.) Competition Commissioner, Joaquin Almunia, revealed that a charge sheet, or 'statement of objections' is being prepared and although he would not be drawn on when action will be taken, it is believed that Gazprom could be facing charges related to price fixing and restricting trade by the end of the year.

Gazprom supplies a quarter of all the gas in the E.U. and there is the risk that Gazprom will cut or restrict supplies if the charges are brought. The company has a history of cutting off supplies to some countries, like the Ukraine, in the past, leading to drastic gas shortages throughout Europe.

Speaking at a conference in the Lithuanian capital Vilnius, Almunia said: "We suspect that Gazprom has been hindering the free flow of gas across member states and the diversification of sources of supply....and has imposed unfair prices on its customers," said Joaquín Almunia, the European Union competition commissioner. "It would be premature to anticipate when the next steps might be taken, but we have now moved to the phase of preparing a statement of objections."

The European Commission (E.C.) opened a formal investigation to Russian gas giant Gazprom last September for possible anti-competitive practices in central and eastern European gas markets. The Commission said it was concerned Gazprom "may be abusing its dominant market position." The probe focused on Poland, the Czech Republic, Slovakia, Bulgaria, Hungary, Estonia, Latvia and Lithuania, although more countries could be added if evidence is found. For additional information, see September 6, 2012, article - European Commission Probes Russian Gas Giant Gazprom.

Many European gas buyers have complained that long-term supply contracts for Russian gas have become too expensive because they are linked to the price of oil. Although oil prices have remained high in recent years, gas prices have fallen as a glut of natural gas production in the U.S. has made extra supply available to Europe. This has pushed prices lower on European gas markets, meaning many utilities lose money when they buy gas from Russia and sell it on to their retail customers. The high price of gas is also forcing many energy companies to burn more coal to generate electricity, regardless of higher CO2 emissions. For additional information, see October 9, 2013, article - Why is Europe Burning More Coal?.

Gazprom charges countries in central and eastern Europe more for gas than western European countries, even though they are closer to the Siberian gas fields. Lithuania, which relies entirely on Gazprom gas imports, has been among the most vocal in getting the E.U. to investigate the company's practices.

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