ENERGY RELATIONS BETWEEN RUSSIA AND EU COUNTRIES: NO CAUSE FOR ALARM

The Western press often engages in aggressive reporting on the diverging views between Russia and Russian energy importers. Much of this type of reporting is based on rhetoric and media hype rather than on the reality of relations.

A review of the gas supply history of EU countries will help put things in perspective:

Austria: Austria was the first country in Western Europe to start buying Russian gas in the 1980s and didn’t come to regret it. “Our experience is that Gazprom has supplied Austria and Europe for the last 20 years in a very reliable way,” Wolfgang Ruttenstorfer, Chief Executive of Austrian gas monopolist OMV has recently said. A third of all Russian natural gas exports to Western Europe (50 billion cubic metres) pass through the Baumgarten station in Austria.

Belgium : In mid-2008 Gazprom received permission from the Belgian authorities to supply natural gas to the country's major industrial enterprises. There are also talk for Gazprom to build an underground storage.

Bulgaria: A deal has been signed regarding Bulgaria’s participation in the South Stream project. Bulgaria imports more than 80% of its gas from Russia and is also actively backing the Nabucco pipeline.

Czech Republic: About 80 percent of the fuel comes from Russia. The main transit route delivering gas comes from Ukraine.

Estonia: Gas to Estonia has always been supplied in time.

Finland: Finland is the third least dependent EU country on natural gas. Gas imports come mostly from Russia and Finland is perfectly satisfied with the deliveries and even opted to participate in the Nord Stream project that would bring gas directly to Finland.

France: Russia is France’s second-biggest supplier of crude oil and natural gas and France never had any reasons to complain

Germany: one of the most accurate and collaborating clients of Gazprom, a fellow Nordstream enthusiast and shareholder, Germany holds many of Gazprom's underground gas storages that are instrumental for Europe's energy security.

Greece: Greece has marked its intention to participate in the South Stream project. However Greece is also involved in joint projects with Turkey to diversify its gas supplies.

Hungary : Hungary used to have its own natural gas production in 1960-1970, which peaked in the 80s. Since then domestic demand is satisfied by imports. 60 percent comes from Russia. Hungary supports the Russian pipeline project ‘South Stream’ - already underway - that will deliver gas bypassing Ukraine, and ‘Nabucco’ – a pipeline planned by Caspian gas producers to bypass Russia.

Italy: Relations between Russia and Italy couldn’t be better.

Latvia: Latvia is still fully dependent on Russian gas, and energy security is a vitally important issue.

Lithuania: There have been no significant interruptions of gas supplies to this Baltiс state.

Netherlands: Though a major gas exporter itself, Netherlands now looks forward to increasing the amount of gas it receives from Russia, as its own gas supply will be depleted in 12-17 years. So the Dutch are major Nord Stream enthusiasts and since November 2007 a shareholder of the project as well. Moreover Netherlands agreed with Gazprom on developing a key underground gas storage that will work specifically with NS.

Poland: Almost 50% of Poland's annual gas needs are supplied by Russia. Gas is also being supplied by Belarusian pipelines.

Romania: Romania looks forward to the Nabucco gas pipeline to lessen its dependence on Russian gas.

Slovakia: Almost all of the gas delivered to Slovakia comes from Russia via Ukraine. It’s one of the regions hit most by the disruption of supplies. The country is preparing to restart a nuclear power station that was closed down last year on the request of the EU.

Slovenia : Slovenia is not as dependant on gas as many of its neighbours, as it still utilises power from its nuclear plant in Krško. However, the nuclear plant is due to be shut down in 2023, so Slovenia is in negotiations for the South Stream project.

United Kingdom: In spite of complicated barter schemes to have gas reach the UK, Gazprom has never even considered dropping the United Kingdom as a client.

All in all Russia actually maintains good business relations with the buyers of its energy. These relations do not suffer from major conflict or antagonism; the only pressures they face are those resulting from competition and the market environment. Therefore, at the commercial level, we see that sales of long-term energy contracts are on the rise, joint efforts to build new pipelines are increasing and access to Europe's downstream assets is continuously broadening.

Indeed, the divergence between Russia and its energy importers exists only at the political level. Russia in general and Gazprom in particular are the victims of a number of myths. These myths are aimed at creating a powerful negative image, and turning western public opinion against Gazprom. They include the view that Russia's energy monopoly results in the EU's political dependency on Russia. They also include unfounded accusations that Russia is utilising energy as a weapon against its neighbours.

It should be noted that Gazprom, through projects such as Nordstream, South Stream, and the development of south Russian gas fields and Shtockman offshore fields, is actively working to provide an increased and more reliable gas supply. Of course, Gazprom is a profit-based corporation, and is pursuing its own business interests. These business interests often, but not always, match Russia's national interests. This is much discussed, but what is not acknowledged is that they often also serve Europe's interests. All of Gazprom's activities in the EU have been fully in line with the key interests of its member states, and most are being implemented in coordination with European oil and gas companies on the basis of inter-governmental agreements. The further implementation of Gazprom's projects would benefit the EU by:

• Helping to meet the rising demand for natural gas in Europe;
• Minimising transit risks;
• Strengthening cooperation between the Russian Federation and the EU as well as deepening interdependency (rather than unilateral dependency) between the two parties based on mutual benefits of oil and gas cooperation within the framework of joint ventures;
• Expanding the scope for competition in consumer gas markets;
• Supporting and expediting the process of formation of a unified gas market in the EU.

The increase in Gazprom’s gas deliveries is in no way a threat to the EU’s security The suggestion that Gazprom would invest billions of dollars in expensive gas export pipelines so that it could then disrupt them for political reasons looks absurd, especially in view of the substantial contribution these gas exports make to Russia’s budget and the country’s economy.

If, as it is claimed, Gazprom were trying to pose a threat to the EU, then it is certainly pursuing a very unusual strategy. It spends billions of euros on joint pipelines and gas holders in European countries, exchanges assets with other European energy companies, and places European partners on the executive boards of its offshoot companies. Examining Gazprom's activities, one can hardly say that they pose a threat to the EU. In fact, Paolo Scaroni, chief executive of Italian oil and gas company Eni, described Gazprom as "the pillar of European energy security."

Energy security is increasingly important for both consumer and producer countries. For Europe, Russia is the most important supplier of energy. Equally, Europe is Russia's most important market for its energy products. It is therefore in Europe's economic interests to move beyond political myths and constructed antagonism, and to develop a better mutually beneficial working relationship with Russia in the energy sector.

Gazprom owns 60% of Russia’s proven reserves of natural gas, which themselves make up a third of the planet’s known blue fuel reserves. Gazprom’s business model in export markets like Europe is to provide reliable long-term supplies in stable conditions at predictable prices. The EU depends for 25% of its gas consumption on Russia, yet Gazprom depends on the EU for over 70% of its export earnings. The bottom line is that Gazprom needs Europe as much as Europe needs Russian gas.