September 24, 2012 / 10:20 AM / 5 years ago

Gazprom kicks EU gas complaint up to Kremlin

SOCHI, Russia (Reuters) - The European Commission must take its challenge to Gazprom’s (GAZP.MM) pricing on European gas markets to the Kremlin, the export chief of the world’s largest gas company said, signaling its gas exports were now under political control.

The Commission launched its probe into Gazprom’s exports earlier this month, focusing on a link Gazprom applies between its gas sales and the price of oil.

The Kremlin responded by tightening state control over “strategic” companies operating outside Russia, ordering them to obtain government approval to disclose information to foreign regulators, alter contracts or sell property abroad.

The head of Gazprom Export, Alexander Medvedev, told Reuters this presidential order had equalized the discussions between the EU and Russia.

“Let the European Commission discuss its problems and claims and so forth with the appointed Russian government body,” Medvedev said in an interview in the Black Sea resort of Sochi.

“We will keep doing business as usual in accordance with the laws of the countries in which we operate and let’s see how the European Commission deals with the government on this issue,” Mevedev said at the weekend, in remarks embargoed for Monday, the first day of the annual Reuters Russia Investment Summit.

The investigation has coincided with efforts by the European Commission to secure more disclosure of member states’ agreements with counterparties from outside the European Union. Details of Gazprom’s long-term contracts are carefully guarded.

These moves are seen in Moscow as an escalation by the European Union, and the Kremlin had responded in kind, said Vladimir Feigin, president of the Russian Institute for Energy and Finance and an industry consultant.

”Gazprom is a big company but it is still a company,“ Feigin said. ”Now it is face to face with the Commission. This is happening for the first time. It is a completely new level.

“This escalation is happening not from the Gazprom side but from the European side. The EU is increasing the political element.”


Gazprom, which cut prices this year by an average of 10 percent for key European customers who are struggling in a weak European economy, is still allowed to cut, but cannot retreat from the controversial link to oil prices in long-term contracts, Medvedev said.

The EU has no official policy rejecting the oil link, but rhetoric around the investigation has suggested it is at issue. Some argue gas is divorced from oil markets as spot pricing and deliveries of liquefied natural gas gain prominence.

“The (Kremlin) order does not refer to standard price revisions, but to situations where the pricing system itself is in question,” Medvedev said.

    “But we are not planning to change the pricing system ourselves, and if someone else wants to do so, let him go to the Russian government, not to us.”

    The European Commission announced the formal launch of an anti-trust investigation into the Russian state gas export monopoly’s operations in seven countries in early September, nearly a year after raids on Gazprom units in central and eastern Europe.

    In response, Gazprom has by turns promised to cooperate and threatened to send gas to Asia instead. It said it would speed up its eastern program, a vast project to tap eastern Siberian gas fields and deliver the gas to Asian buyers.

    Talks with China, by far the biggest potential customer for Siberian gas, appeared to hit a wall last year and, at the urging of President Vladimir Putin, Russia has shifted its Asian strategy to super-cooled seaborne liquefied natural gas.

    Gazprom and a consortium of Japanese consumers are looking at the construction of an LNG plant near the Pacific port city of Vladivostok with a capacity of 10 million tonnes or more.

    It has also agreed to step up studies on a third production line at Russia’s only existing LNG plant on the island of Sakhalin, operated under a production-sharing agreement with Shell (RDSa.L) and Mitsui (8031.T).

    “Pipe gas to China via the eastern corridor will only be discussed, if it will be discussed, after the launch of the LNG plants,” Medvedev said. “We still have to design the projects and start construction, so it will be about four to five years.”

    Editing by Douglas Busvine and David Holmes

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