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‘Reciprocity’ will not secure Europe’s energy

As Russia „growls angrily” at the West, Europeans are becoming more worried about their energy supplies, writes Katinka Barysch for the Centre for European Reform (CER).

Barysch believes that Europe is right to be worried about its „dependence” on Russian gas, refusing to rule out the danger of collateral damage to Russia’s energy industry as a result of the presidential succession in 2008. With domestic demand increasing fast and Gazprom’s output stagnant, she predicts that Russian underinvestment could lead to a shortfall of gas in Europe „as early as 2010”.

However, Barysch observes that Europe’s dependence is not one-sided, particularly as more than a third of EU gas imports come from Russia – a major source of Russian foreign exchange. Moreover, she reminds us that all the big Russian pipelines go to the EU and thus Russia will not have the ability to ship its gas eastwards to China or the US for many years.

The EU’s solution – backed by Barroso, Putin and Merkel – is the principle of „reciprocity”, the author argues, through which European companies get investment opportunities in Russian energy, and in return, Gazprom gets access to distribution and sales businesses in the EU. However, Barysch claims that Europe and Russia interpret „reciprocity” differently, with Russia wanting assets swaps and the EU preferring a mutually-agreed legal framework to „facilitate two-way investment”.

In other words, she suspects that „Europe wants openness” while „Russia wants control”, and remarks that reciprocity is currently working in Russia’s favor. Rejecting calls for an EU ban on Gazprom activity in Europe unless and until Russia allows more investment by European companies as it would contradict free-market principles, Barysch instead recommends that the EU ensures that Gazprom „plays by European rules” by using tools already at its disposal, such as instruments to enforce competition and transparency.

The CER paper concludes by calling on the Commission to speed up liberalization of the European gas market. Opening up Europe’s pipeline networks to competition through ‘unbundling’ should prevent market abuse by big companies such as Gaz de France, E.ON and Gazprom, Barysch claims. Moreover, since more competition would mean lower profits, the author speculates that Gazprom may then lose interest in the EU and invest its money at home instead. (