Energy Official Downplays Gazprom Expansion Threat

by Radio Free Europe/Radio Liberty | 25 June, 2008

EU Energy Commissioner Andris Piebalgs says there is no reason to fear the recent spate of energy deals Russia has made with EU member states. In an exclusive interview with RFE/RL correspondent Ahto Lobjakas, Piebalgs says Brussels will continue to seek alternative suppliers to meet future EU demand, and notes that legislation is in the pipeline...

RFE/RL: The EU has viewed Russia's various recent pipeline projects -- among them South Stream and Nord Stream -- and acquisitions in Southeastern Europe with remarkable equanimity. Do you not fear that Moscow has a hidden agenda, aiming to increase Europe's dependence on Russian energy and undermining EU attempts to develop alternatives, such as the EU-backed Nabucco pipeline?

Andris Piebalgs: Well, there are different companies involved, quite a lot of companies. Eni [Italy, involved in South Stream] is not in Nabucco. Also, EON and BASF [German, Nord Stream], and Gasunie [Dutch, Nord Stream], are not in Nabucco. Nabucco is OMV

[Austrian] and other companies that are not involved [in the Russian projects]. So I would say it's not about the money -- the money is sufficient in the market. Also, the European Investment Bank, for example, is not financing Nord Stream; but perhaps, if the request were to be made, it could finance Nabucco. So it's not a money issue.

RFE/RL: And there is sufficient demand?

Piebalgs: Unfortunately there is too much demand for gas. That is what our difficulty is, because we today consume roughly 500 [billion cubic meters, or bcm] of gas, we produce 200 [bcm]. So it means we have a gap of around 300 bcm. In 2020, [the gap] will be at least 400 [bcm] because domestic production [will go] down and gas consumption [will] grow.

[The commissioner goes on to note that the EU's drive to cut down carbon-dioxide emissions will further boost the demand for gas as a relatively "clean" fuel. He says EU governments need to work to also develop other, "less easy" alternatives such as nuclear energy, renewable energy, coal and oil shale -- the latter two filtered for carbon-dioxide capture.]

RFE/RL: So you do not think Russia is using energy as a political tool?

Piebalgs: I'm very pragmatic. You can blackmail somebody who wants to be blackmailed. I don't see the situation this way. What I clearly see is that Gazprom decided that most of their [exports] would go to European consumers. Why is this so? I would say the reasons are not only political, [it is] because they know the market, they have experience in this market and they know that it's a market economy -- so they know that they will get very good profits for [their] gas.

What I also see from [Gazprom is] that they don't like to [supply] gas through countries. They like to go immediately to the consumer. Well, it's up to them to decide. I personally believe that [there is nothing wrong with] the transit of gas through [non-EU] countries. But they think differently; that's [the reason behind] the investment in South Stream. I would say [South Stream] is very clearly [about] going to a growing gas market, I don't see it differently.

Politically, well if you already have some dependence, 25 percent of consumption and we have a growing gap [between domestic production and imports], I don't believe that the consumption of Russian gas [will account for more than] 30 percent of our future demand, so it will not change particularly.

[Piebalgs goes on to say the "big challenge" for Russia is not infrastructure in Europe, but "upstream" investments in gas production to expand capacity. He says he "very much hopes" work on the Shtokman gas field will start this year. Piebalgs also expresses worry that the growing domestic demand for gas in Russia could affect deliveries to Europe.]

RFE/RL: So you don't see any underlying political motives behind Russia's recent deals in Serbia and Bulgaria?

Piebalgs: Where the political muscles are [being flexed], well, we see this with Serbia where that is definitely the case, where [there] is a political-economical deal, but I don't see [that] with any other country. Because the Bulgarian case [last week's signing of a joint-venture agreement with Gazprom to develop South Stream] is completely different. Bulgaria agreed that they will allow transit of gas via its territory. But if I recall, not so long ago when alternatives to Nord Stream were debated, Latvia said, "Oh, we would like to have the transit of the [Russian] gas." Lithuania [said the same thing] Poland had. So it's different. So we should see that Bulgaria is definitely in line with European energy policy and if they decide to allow the transit of gas through their territory it's their [decision] as a sovereign nation.

RFE/RL: Did Bulgaria consult with you prior to inking its deal with Gazprom?

Piebalgs: Well, we discussed [it] quite a lot. I never saw the documents that they signed because it's up to them. We discussed the issue and I said that gas is different from oil, it's completely different from [the] Burgos-Alexadropolis [oil pipeline], because for gas, at the end of the day, for some regulatory issues it will be [the European] Commission that will take the decisions. [I did this], just not to have bad surprises, just to explain that the acquis [that is, EU law] will be also applied to this pipeline [South Stream] and it means third-party access and all these issues. So, it is just the beginning of the story of South Stream, it is not still the final conclusion of the South Stream. As I said, there is nothing wrong [with] South Stream from the EU market point of view, but all the regulatory issues still need to be solved.

RFE/RL: Do you have any specific plans for the protection of strategic EU infrastructure in this field? Gazprom is looking for acquisitions in many EU countries, among them Austria, where Nabucco will end.

Piebalgs: I believe strongly that network infrastructure should be separated from upstream activities, downstream activities. It think that is the crucial issue. It's not only [important] from the security point of view, but also from the normal market point of view, to use the full capacity. That's why I proposed this ownership unbundling" [legislation in 2007 to separate energy suppliers from distribution networks] because I believe it is right from the market point of view [eds: bringing down prices] and also from a security point of view [eds: preventing monopolies]. Because only an "unbundled" company could own [pipeline] networks [once the legislation is passed] and then the question falls [away] because then Gazprom can't have control of any EU [pipeline] network -- not because it is Gazprom, but because it is an integrated company.

RFE/RL: When do you expect construction on Nabucco to begin?

Piebalgs: I need now to take a decision on one regulatory request for third-party access, I will take it in early February. Soon I will get other requests [from EU member state energy-market regulators], [which] we could deal with during 2008. I heard that there will be six partners in the consortium. We are working now, we will meet with a couple of companies afterward to discuss competition [legislation] issues because the gas will mostly come at this stage from [the] Shah Deniz [field in Azerbaijan], and also through the Arab pipeline from Egypt, later on some Iraqi gas could be added. So, we should resolve some competition issues still, so that means we could be ready [to start work on Nabucco] somewhere in the second part of 2009.

RFE/RL: What about the prospect of importing Iranian gas?

Piebalgs: The issue is very much related resolving the issue of the enrichment of uranium. What I have heard is that there have been some positive changes, but I know that the Iranians are very tough negotiators, so I don't know if [these are] real changes or not. Until then, I believe there will be no major investments from EU companies.

[Piebalgs adds that he is certain Iran will be a major gas supplier to the EU in the future.]