Gazprom dismisses EU hub pricing preference
London, 12 October (Argus) — Russia's state-controlled Gazprom has again slammed the EU investigation into its trade practices in central and eastern Europe as politically motivated, in a further demonstration of the wide gulf of understanding separating the Russian export monopoly and its largest foreign market.
In the latest issue of Gazprom's corporate magazine, the company described the investigation as “out of touch with reality”, and expressed surprise that the European Commission had focused on the oil-gas link — a move that gives the investigation “an entirely different dimension way beyond Gazprom”, the firm said, hinting that the commission's ulterior motive was to secure a price cut.
“If the end game is to dictate gas prices by EU decree, then the commission should say so,” Gazprom said. “Russians know from their own painful history that arbitrary administration of the economy brings about adverse results.”
But while the commission's initial announcement of its investigation into Gazprom's sales in central and eastern Europe was more loosely worded, it has since been at pains to narrow the terms of the investigation to the firm's insistence on a single pricing model in countries where it is the dominant supplier.
“We are not saying that oil indexation is illegal per se,” the spokesman for commission vice-president and competition commissioner Joaquin Almunia told Argus last month. “But if a dominant company decided to maintain oil price indexation without reflecting the evolution of market fundamentals, such behaviour could possibly be abusive, for example if this leads to higher prices while demand for gas actually decreases.”
Nonetheless, Gazprom has taken the opportunity to launch another broadside on the principle of gas-on-gas pricing and defend the institution of the oil index. Gas indexation “would render Europe's gas market entirely unattractive for investors”, the company said. “European hub prices are a mere derivative of oil-indexed gas prices,” it added. “The tail cannot wag the dog.”
That said, the firm signed late last month a gas-indexed deal to provide UK utility Centrica with 2.4bn m³/yr of gas for three years from 2014. Gazprom had said in the past that the UK's liquid NBP market is the only one in Europe that it would consider using for gas-on-gas pricing.
And there was also some further elaboration of what could be the firm's preferred route out of the impasse. Rainer Seele, the chairman of Wintershall — Gazprom's joint venture partner in German midstream firm Wingas — said in the same publication that the World Trade Organisation “could become the formal structure within which Europe and Russia can synchronise their efforts to build an energy dialogue”. And Gazprom has previously indicated that it sees the trade body as a forum in which it can “protect its interests” — although it cautioned that, given the newness of Russia's membership, it would be “premature” to say how it might do so.
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