Russia throws in the towel in gas dispute with EU


The dispute over gas prices between Russia and the European Union that lasted for more than 4 years has ended with the capitulation of Gazprom.

Facing possible fines from the European Commission and the growing risks of losing competition to liquefied gas from the US, the Russian company agreed to radically revise the pricing policy for Eastern Europe and the Baltic States. It was reported by the European Commission’s press service on Monday, March 13th.

The gas price for Poland, Lithuania, Latvia, Estonia and Bulgaria, where Gazprom holds more than half of the market, will henceforth be tied to prices in Western Europe.

For this purpose, a provision on the possibility of price revision will be introduced in the supply agreements if the price significantly differs from the one at the border of Germany, France, Italy, or in Western European gas hubs.

In other words, Gazprom will lose the opportunity to overprice the gas for those EU countries whose policies do not suit the Russian Federation.

These are the terms that the European Commission agreed on to settle claims to Gazprom on charges of abuse of monopoly position, that were put forward in 2012.

In addition, Gazprom agreed to abolish all direct and indirect restrictions that prevent its customers from reselling its gas across the borders of the EU countries, which will also lead to an equation of prices for Russian gas in the EU.

Moreover, the company will provide infrastructure for reselling gas from Hungary, Poland and Slovakia to the Baltic countries.

Finally, Gazprom agreed not to put forward any financial claims on Bulgaria regarding its decision to abandon the ‘South Stream’ pipeline project, even if such claims have legal grounds.

The obligations taken by Gazprom “will ensure free gas flow in the market of the Central and Eastern Europe at competitive prices … and help the integration of the EU gas market,” the EC said in a press release.

If the terms of the agreement are violated, Brussels will fine Gazprom by 10% of the incomes without any investigation.

Analysts of Fitch predict that these concessions are just the beginning of a radical change in the rules at the European gas market. The urge of the EU authorities to get rid of Gazprom’s monopoly will combine with a sharp increase in LNG production.

By 2020 the USA, Qatar and Australia will launch LNG plants of a total capacity of 188 billion cubic meters per year. Currently the liquefied gas mainly goes to Asia, but this market has already been oversaturated and contracted for years to come, which means that there will be no other place than the EU where they can sell additional volumes, which will crash European gas prices.