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EU should press Putin to open energy market

The European Union has the leverage to induce President Vladimir Putin to allow more foreign energy investment because of the EU's importance for Russian exports, said a US diplomat.

Europe „can extract an enormous amount from Russia,” Matthew Bryza, US deputy assistant secretary of state for European and Eurasian affairs, said in an interview today in Brussels. „As much as Europe feels dependent upon Russia for natural-gas supplies, so is Russia dependent on Europe for the revenue stream that is flowing back.” Russia, the world's largest fuel exporter, is using state control of the oil and gas industry to boost economic clout. Russia this year has threatened to cancel a $22 billion Royal Dutch Shell Plc project, spurned offers by western companies to help develop the country's biggest untapped gas deposit and temporarily shut off the gas tap to Ukraine. Putin last week rejected calls to introduce investment rules modeled on the EU's free-market principles. At an October 20 meeting with EU leaders in Finland, Putin said Russia's refusal to ratify an energy charter didn't mean the door was shut to western investment. „I would hope that President Putin is simply being an astute negotiator, which he's proven to be,” said Bryza. „If Europe hangs tough and together, and like a consortium of companies demands mutually beneficial terms, Europe can exact quite a bit.”

Energy is at the heart of EU-Russian ties, with oil and gas making up more than 60% of Russian exports to Europe. The EU became Russia's largest market when 10 countries, including seven former Soviet satellites, joined the bloc in 2004. The Russian government today said Royal Dutch Shell's Sakhalin-2 oil and gas project may face criminal charges and should halt some construction, bolstering Putin's efforts to gain a stake in the biggest foreign investment in Russia. Bryza said the dispute may involve legitimate Russian legal concerns and Shell, as „one of the world's greatest companies,” would „abide accordingly.” „If, however, it comes to be seen that there's something else at play here, something that is contrary to the rule of law,” he said, „then I think that's a more foreboding situation.” OAO Gazprom, Russia's state-run gas company, said two weeks ago it would develop the $20 billion Shtokman field itself. Chevron Corp., ConocoPhillips, Norsk Hydro ASA, Statoil ASA and Total SA had bid to help develop Shtokman's 3.7 trillion cubic meters of gas, enough to supply the US for more than five years. Gazprom, the world's biggest gas exporter, decided this week charge to Ukraine about $2 billion more for the fuel in 2007. Russia cut off shipments to its former Soviet Union partner in early January before Ukraine agreed to pay Gazprom almost twice the price in 2006 as the year before. (Bloomberg)