Gazprom gains access to French consumers

Dec 20, 2006 01:00 AM

by Judy Dempsey

Gazprom, Russia's state-owned energy monopoly, agreed to a long- term supply contract with Gaz de France in exchange for the right to sell Russian natural gas directly to consumers in France. The agreement, signals a determination by Gazprom to increase its foothold in the lucrative European natural gas retailing market, after forging a similar deal in Italy in November.
But the contract also renewed concerns about whether Europe was headed down a dangerous path by relying more on Russia, which already supplies a quarter of the natural gas consumed by the 25 countries in the European Union. Critics charge that Russia is not investing sufficiently to develop its energy resources and could have supply shortfalls in coming years. They also fear that Russia may use its position as a major supplier of natural gas as a political weapon.

None of those concerns were on display, when Alexei Miller, chief executive of Gazprom, and Jean-Francois Cirelli, chief of Gaz de France, signed the agreement Moscow. The deal represents a victory for Gazprom, which for several years had been trying to enter the French retailing market.
"Without a doubt, the agreement will contribute to energy security in Europe and France," Miller said. Cirelli said that "the extension of our commercial cooperation with Gazprom helps to ensure the long-term reliability of our customers' supply in France and in Europe."

Gaz de France said that it had no choice but to comply with an EU directive for member countries to open their energy markets to domestic and foreign companies.
"Gazprom will be able to sell to industrial customers immediately," a Gaz de France spokeswoman said. "Starting next July, it will have the right to sell to domestic consumers. And, yes, if you buy gas direct from Gazprom, you will be billed by Gazprom," she added. Russia, in contrast, does not allow foreign companies access to its vast network of pipelines and has refused to ratify the EU's energy charter, which, if implemented, would create some degree of reciprocity in the energy market between Europe and Russia.

Gazprom will begin its retail sales in July and intends to sell as much as 1.5 bn cm, or 53 bn cf, a year starting in 2008, according to a joint statement. It is still unclear what impact Gazprom's entrance will have on consumers, but another major competitor could prompt competitors to ease their rates.
As the largest distributor of natural gas to Europe, Gaz de France serves 13.8 mm customers, including 11.1 mm in France. In 2005, it posted a profit of EUR 1.7 bn, or $ 2.25 bn, on sales of 22.4 bn. In return for access to Gaz de France's pipelines, Gazprom agreed to extend its natural gas supply contracts, which were set to expire, to 2030, agreeing to sell 12 bn cm a year to Gaz de France.

In addition, Gaz de France will receive 2.5 bn cm annually from the new Nord Stream pipeline, a joint Russian-German project in which Russia will be able to send natural gas directly to Europe by building a pipeline under the Baltic Sea. The project, which will have an annual capacity of 55 bn cm, is scheduled to be completed in 2013, and will reduce Russia's reliance on Ukraine and Belarus as transit countries.
In November, Gazprom arranged a major retailing contract with ENI, the Italian energy giant. In return for extending its natural gas supply contract to ENI until 2035, ENI granted Gazprom access to its pipeline network to sell natural gas directly to Italian consumers. Russia is already a major supplier of gas to Italy, selling 21 bn cm each year, nearly a third of total consumption. In return for granting Gazprom access to the retailing sector, ENI also hopes to gain rights to explore and exploit Russian natural gasfields.

Besides France and Italy, Gazprom also sells directly to consumers in Germany, Austria and Britain. Compared with Italy and Germany, France is far less dependent on Russian natural gas imports. Russia supplies more than a third of German natural gas, but only 19 % of that used by France, whose biggest vendor is Norway, followed by Russia, Algeria and the Netherlands.
Some Europeans, however, are becoming increasingly alarmed about the EU's growing dependence on Gazprom, the only Russian natural gas exporter, fearing that President Vladimir Putin will use energy supply as a means of political and economic coercion. Others worry that Russia is not investing enough in its energy development.

For example, Gazprom's decision to develop the giant Shtokman fields alone, instead of with a foreign consortium, has left foreign energy companies jittery about the security of their contracts with Russia and its ability to continue to export large quantities of natural gas.
"We can understand why Gazprom wants to enter the Europe market now that the markets here are opening up," said Jorgen Henningsen, senior advisor on energy and the environment to the European Policy Centre, an independent research centre in Brussels. "But what we worry about is that as consumers, we should be asking if Gazprom is investing in the right kind of things back home in order to guarantee secure energy supplies."

Source: International Herald Tribune
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