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Liberalizing EU gas market will put supply at risk

The European Commission’s efforts to liberalize Europe’s energy markets and reduce dependence on Russian gas imports will increase the risk of supply insecurity as the relationship with Russia deteriorates, a leading energy consultancy said.

Cambridge Energy Research Associates gives warning that Europe’s liberalizing agenda could prevent the development of the next generation of gas supplies and export pipelines. The consultancy urges the Commission to raise security of supply on its agenda and foster a relationship of „interdependence” with Russia. Cera’s report, Securing the Future, which is published today, comes ahead of the publication next week of the Commission’s legislative proposals for opening up Europe’s energy markets.

A key element of the EU legislative package is expected to be the forcible divestment of gas pipeline networks, a measure vigorously opposed by leading European utilities such as Gaz de France and E.ON, as well as Gazprom. The Cera report suggests that aggressive steps to liberalize the EU market could increase risk, jeopardizing vital Russian gas investments, and might encourage Russia to turn its back on exports to Europe. According to the report, Russia’s legacy of giant gasfields is declining rapidly and its gas industry requires huge investment of more than $100 billion (£49.3 billion) to bring Arctic gas resources to the market.

Meanwhile, Russian economic recovery is increasing the value to Gazprom of its domestic market to the point where domestic gas sales can compete with European exports. According to Cera’s Simon Blakey, one of the report’s authors, the key message is that Europe should approach its relationship with Russia with „pragmatism rather than ideology”. The tension could lead to a „corrosive undermining of a relationship that is a fundamental pillar of both Europe’s and Russia’s economies”. Blakey said that within European energy policymaking, security of supply came a weak third to issues of competition and the environment. „Security of supply should be put a bit higher,” he suggested. (Read more)