30-05-06 Moscow's position in the dialog with Europe on energy has hardened after the Russia-European Union summit. That was demonstrated by Gazprom managers at the energy conference in Berlin.
Deputy chairman of Gazprom Alexander Medvedev stated that Russian and the European Union will sign a new framework agreement that, “will allow the construction of a new European energy security building, if not replace the Energy Charter Treaty.” That means that the plan to liberalize the energy market in the EUI will be seriously amended. Otherwise Moscow threatens to form a cartel of gas-producing countries that will have more influence than OPEC.

Medvedev began his speech at the conference with a quotation from a song, “Clouds hang over the city. The smell of a storm is in the air.”
“The tone of the negotiations between [Russian President Vladimir] Putin and [EU High Representative Javier] Solana and the approaches that both sides showed create optimism and disperse the clouds that have darkened relations between Russia and the EU lately,” he continued. Then he said that, in spite of the declaration of integration and understanding at a high level in the Russia-EU dialog, “undermining of the current system of relations on the gas market continues.” Gazprom's main contentions are against the consequences of ratification of the Energy Charter Treaty and a number of its clauses.

The EU passed a memorandum on the European Energy Charter in 1991 on the initiative of The Netherlands that laid the principles for the Energy Charter Treaty of 1994. The goal of that document is to attract consumer finances to Western Europe to develop the resources of countries that produce natural gas.
Russia signed the Energy Charter Treaty immediately along with 50 other countries, but it has yet to ratify it.

Gazprom managers have explained in detail that the charter does not suit the monopoly. Most of all, Gazprom wants to extend long-term contracts. The monopoly also is demanding a protocol (amendment to the Charter) on gas transit that will clearly define the “right to first refusal” to give the supplier priority access to pipelines at the expiration of the deadline of the transit contract.
In article 8 of the protocol, it only says that the transit country is obliged promptly and fully to ensure the transit of the fuel. Medvedev has stated that that norm makes Russia liable to give access to its gas transit system without Russian companies receiving anything in exchange.

The EU directive on natural gas (which is a document that supplements the Energy Charter) casts doubt on the payoff of the North European Natural Gas Pipeline. Medvedev demanded that the North European Pipeline project be “exempt from the directive in relation to access by third parties to the gas transport capacity” since such exemptions have been adopted in relation to the BBL pipeline that is being constructed between the Netherlands and Great Britain. And moreover, article 10 of the protocol envisages the holding of an auction for access to the pipeline.
“The Charter is an anti-Russian document in that regard, which will not be ratified without serious changes,” Medvedev said. “A new document must be signed to define the system of relations between Russian and the EU in energy security.”

Valery Yazev, Chairman of the State Duma Committee on Energy, Transport and Communications and president of the Russian Natural Gas Society, which was the organizer of the conference in St Petersburg, explained what Moscow would do if Gazprom's wished were not met. He made a number of serious statements that were understood at the conference as initiatives under consideration by Russian authorities.
“Acting predominantly alone, gas suppliers lose the negotiation process when they call the consumers, who act in concord, a cartel,” Yazev stated in defence of Gazprom's interests.

He continued that the gas market liberalization policy in the EU has not created competition. New suppliers have not appeared and the merger process for energy companies and acquisition of natural gas distribution networks has been stepped up by European monopolies.
“The actions of officials provoke suppliers to retaliation, which may lead to the formation of an alliance of gas producers that will be more effective and influential than OPEC,” Yazev said.

Claiming that “signing the Energy Charter Treaty did not bring Russia the promising influx of Western investment, or moderation of the discriminatory credit conditions for Russian energy companies at Western banks or improvement in relations with the main transit countries,” Yazev said, adding that Russia would sign the transit protocol only if its arguments were taken into consideration.
“We do not intend to agree to the role of negligent pupil when we have lost half of the economy by strictly following the advice of our teachers in international financial organizations,” Yazev said. Otherwise, he continued, when a single economic space is created among Russia, Kazakhstan, Belarus and Ukraine, conditionsmay be created that take into account the contents of the transit protocol and counteract the negative effects of it for Gazprom.

Earlier, Putin reached an agreement with Kazakh President Nursultan Nazarbayev on the development of two gas fields in Kazakhstan, taking advantage of the advance, promised at the same time to buy gas in the country for the super-profitable price of $ 140 per 1,000 cm.
After negotiations between Putin and Tajik President Emomali Rakhmononv, it was announced that a special commission was being set up in the country for cooperation with Gazprom that will examine the legal and issues of creating a Tajik-Russian joint enterprise in the oil and gas sector.

Attendees at the conference, European officials and executives from Gazprom partner companies, were obvious not expecting such harsh statements from the Russians. Yazev's speech was met with total silence and there was little commentary afterwards on the threat of an alternative gas alliance. Ewald Holst, chairman of the board of Verbundnetz Gas, tactfully recommended that Gazprom not interfere in disputes between regional gas companies and local authorities.
The EU is continuing its search for allies among suppliers and transporters of natural gas, also in quest of potential alliances.