Gazprom and Europe To Bury the Hatchet

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--The European Commission (EC) is close to ending a long-running antitrust battle with Russian gas giant Gazprom (PINK:OGZPY) (Moscow, Russia) as the company prepares to commit to fairer business practices.

A series of legally binding commitments is expected that will stop Gazprom from engaging in anti-competitive practices, including withholding gas supplies from neighbouring countries and charging higher prices to certain Baltic states and eastern European countries. The first stage is expected to see a "gradual shift" in Gazprom's pricing structure.

The EC opened a formal investigation into Gazprom's anti-competitive practices in central and eastern European gas markets in 2012 and, in 2013, readied formal charges that could land the Russian company with potential fines of up to 11 billion euro ($12.2 billion). For additional information, see October 11, 2013, article - E.U. Readies Charges Against Russia's Gazprom.

Gazprom supplies up to a third of all the gas in the European Union (EU), while some countries are completely reliant on Russian gas imports. Gazprom has a history of using gas as a political lever, most notably by cutting off gas supplies to Ukraine in the past, Europe's main transit country.

News of a deal emerged following a recent meeting between Margrethe Vestager, the EU's competition commissioner and Alexander Medvedev, deputy chairman of Gazprom. The EC has just announced that Gazprom will be allowed to ship more gas through the OPAL connector pipeline in Germany. Running 470 kilometres, it connects Germany and the Czech Republic and is the only connector to Gazprom's Nord Stream pipeline. Gazprom has been restricted to using 50% of the pipeline's 36 billion cubic metres of annual capacity, but this will now rise to 80%.

"We have made progress but there is still quite some work ahead," Vestager said. "Our goal is to achieve the best outcome for European households and businesses. To be effective, such measures would have to ensure the free flow of gas in Central and Eastern Europe at competitive prices. In particular, our objective is to ensure that restrictions to re-sell gas cross-border are removed once and for all and to facilitate the flow of gas to Central and Eastern European gas markets."

She added: "Secondly, we want gas prices in Central and Eastern Europe to reflect competitive benchmarks. It is essential for people throughout the EU that they can heat their homes and fuel their businesses with competitively priced natural gas. Finally, we aim to ensure that Gazprom cannot act on any rights concerning gas infrastructure, which it obtained from customers by having leveraged its market position in gas supply."

Medvedev added: "We are putting the final touch to our commitment proposal and it will be sent to the European Commission shortly."

Countries that have been most affected by Gazprom's business practices want the EC to impose harsher penalties. On news of a proposed deal, Poland's state-owned Polish Oil & Gas Company (PGNiG) (Warsaw, Poland), the country's largest oil and gas company, said they will sue the EC and Germany over the failure to prosecute the anti-trust charges and the decision to open up additional capacity in the OPAL pipeline to Gazprom.

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