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Sunday, February 18, 2018

Gazprom is able to wrap the assignment of Europe to their advantage

The EU threats of gigantic fines was achieved by Gazprom of a series of concessions. The Russian monopoly is ready to change the wording of contracts for the supply of gas and even forgive Bulgaria for the rejection of construction of major gas pipeline “South stream”. Paradoxically, but as a result of Gazprom, even after suffering losses, has a chance to wrap it to their advantage.

Gazprom presented the European Commission’s obligation to settle the antitrust case, which Brussels started five years ago. Gazprom was accused of abuse of a dominant position on the markets of Central and Eastern Europe, including inflating the price of gas.

“If there is no penalty is a huge achievement. It’s all those concessions that you could go”

However, the parties want to resolve the situation peacefully and not to lead to a penalty which can be up to 30% of annual revenue of Gazprom from operations in this market. The fine could be billions of dollars. In 2011 alone, the penalty can be $ 1.1 billion. In 2016, the Gazprom received the proceeds from gas sales in Europe, amounting to 2,165 trillion. Fine in a third of it could reach as much as $ 11 billion.

The Russian company is ready to make a number of concessions to Brussels in order not to pay such high fines. On Monday the European Commission announced on what.

First, Gazprom has pledged to eliminate all contractual restrictions that prevent its clients to resell the gas.

Secondly, Gazprom agreed to include a number of changes in the terms of revision of gas prices for five countries: Bulgaria, Poland, Estonia, Latvia and Lithuania.

Finally, Gazprom is refusing to claim compensation from their Bulgarian partners for the rupture of the gas pipeline project “South stream”.

How significant are these concessions? “If there is no penalty is a huge achievement. A fine of billions of dollars and then sue them – that would be much worse. Look at the torment of Google”, – says CEO of the national energy security Fund Konstantin Simonov.

Concessions Gazprom on closer examination do not appear to be too critical.

Regarding the first point, explains Simonov, Gazprom has long been resigned to the fact that he will have to allow resale of its gas to third countries. “The situation on this point was originally losing. The European court believes that once the EU comes to a common gas market, Gazprom needs to help them, even to the detriment of themselves. Therefore, Gazprom has already lost a few ships trying to ban the re-export of gas,” says gas expert.

Gazprom is by and large losing a little. Rather, losses can be part of the European countries that decide to buy Russian gas directly from Gazprom, but through an intermediary, for example a German trader. Many EU countries will still want to buy gas directly from Gazprom, because it is profitable. But Poland or Lithuania, which for ideological reasons do not like Russian gas is easy to abandon it. Of course, this is only a formal “liberation” from Russian gas. Just Poland and Lithuania will buy Russian gas through a European intermediary, overpaying for him 10-30 dollars, as of now Ukraine does.

A much more important assignment – revision of prices in Bulgaria, Poland, Estonia, Latvia and Lithuania. The last four countries much battered nerves lawyers Gazprom, demanding discounts on gas. We are talking about the final contract price formula for gas from oil and linked to the spot gas market in Europe, full or partial.

As Ukraine makes Russian gas evropeiskaja a few years ago I started to add a spot component in the price formula in the contracts. But in General, did not want to go on the prevalence of this component, preferring reference to the price of oil. At the time the reference to oil was invented by Europe. But in recent years Europe is convinced that the binding spot is more profitable.

Although in reality the question of what exactly is advantageous to tie the price of gas – the price of oil or the spot price auctions are highly controversial. “If you take last year, the price of gas was very low, in some cases, gas cost less than $ 150 per thousand cubic meters. Why did this happen? Because of the diversification of the market or spot? No, of course. Because of oil, which in early 2016 cost $ 30 per barrel. Therefore, not the fact that the spot is always cheap,” explains Simonov.

Transition on the spot is reduce the revenues of Gazprom, but hardly serious. “Now the price Delta between Germany and Poland is not significant – about $ 30 per thousand cubic meters. Will make 18-20 dollars. The difference in price will continue, because Germany very different amounts of Russian gas it buys,” – said Simonov.

Meanwhile, the expert wonders why Gazprom does not use a serious argument against accusations of monopoly high prices for natural gas in Eastern Europe.

“According to Eurostat, the gas price for final consumers – households in all the five countries where Gazprom is accused of monopoly and obtain additional margin, the lowest in Europe. And in Italy, for example, where a very competitive gas market (LNG-terminals, pipes everywhere, our gas), the most expensive gas for the population. That is the main factors that affect the price for the final consumer, is a tax and the margin of the reseller, i.e. the issue of competition in the market of final sales. The EU must fight it, not with Gazprom, if you really want to reduce the burden on the population. It is no accident the Europeans more and more hate their own company, they account for sending gas than Gazprom. Why Europe is trying to put the blame on Gazprom,” explains the CEO of the NESF.

Most interesting is that Gazprom allowed to sell gas directly to end customer, i.e. the population. “Gazprom should also have the right to sell gas to end consumers, but its all crook from the business being suspended,” – said Simonov.

In other words, all that while the EU does not lead ultimately to lower prices for gas for the Europeans. All this is done for the possibility of certain forces to earn on the resale of Russian gas – whether it’s resale end user or re-export to third countries.

Debt forgiveness Bulgarians because of the failure of the “South stream” – a gift of a gas giant poor country, from which payments could wait for years or not wait at all.

In General we can say that in comparison with the fine, which really threatened to Gazprom, all of the above is a minor loss for the sake of reputation and market.

Moreover, paradoxically, the change of contracts can be beneficial to Gazprom itself. “If Gazprom is forced to rewrite contracts, it will be easier to modify the contract point of delivery of gas to the buyer in Europe. Because these issues would still arise in the light of the “Nord stream – 2” and “Turkish stream” and completion of the contract for gas transit through Ukraine. Because of Ukraine will have to change the logistics and deliver gas to other points,” concludes Simon.


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