Gazprom Wins as EU 'Unbundles' Energy Conglomerates 11 comments
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The European Union is trying to “unbundle” its energy conglomerates. Too bad it can’t do the same thing for the biggest threat to Europe’s energy supply. Gazprom (OGZPY.PK) wins when RWE loses.
First, you should know that Russia owns Europe. Let’s dispel any ideas to the contrary. Russia’s Gazprom (OGZPY.PK) controls a significant percentage of the natural gas running into Europe. And the EU is making it even easier for the former socialist republic to throw its weight around on the Continent.
The European Union is very uncomfortable with monopolies. It despises them with a passion usually reserved for rival football clubs (European, not U.S.). And it disapproves of even a lingering whiff of “monopoly” wafting around on the breeze.
The European Commission has sniffed out monopolistic leanings in the energy companies of member states. And it’s dissecting them in a process that’s almost identical to the “liberalization” practices of China, where competition is invented out of thin air, and government coffers, when one of the country’s supposedly autonomous companies gets too big for its silk britches.
Unlike China, which has the luxuries of physical isolation, dictatorial government control and size (both in landmass and population), Europe can’t afford to lose its big power players. But it’s too self-absorbed to understand that fact.
The old guard falls
RWE [Xetra:RWE], one of Europe’s old-guard energy companies (it started in 1898 with one power plant in Essen, Germany), was just forced to sell its domestic gas distribution pipelines to appease the European Commission. Although, you won’t hear that from the company.
The commission began an investigation of RWE for antitrust violations in the use of its regional German pipelines. According to RWE, it’s settling with the EC to avoid protracted litigation, and the pipeline sale has nothing to do with that… at all… ever.
RWE doesn’t yet have a buyer for the pipelines. It has two years to find one. And you can bet Gazprom will be ringing the doorbell any day now. As the EU breaks its energy companies into exactly equal-sized pieces (because the business world should run like a kindergarten, whenever possible), Gazprom looms, large and untouchable, in the background.
Russia without a rival
I’m not saying Gazprom is going to take over the world, although given the chance, I don’t think the fellas (who’s in charge of Gazprom these days? Medvedev? Putin? Does it really matter?) would turn down an opportunity at world domination. But the company will certainly use its strength in Europe to an advantage.
If there’s one thing last winter’s showdown with the Ukraine taught us, it’s that Gazprom will not hesitate to turn off the spigot if it doesn’t get what it wants.
So far, the company has only used this power to serve its own profit margins (although, you could argue that the Ukraine situation has less to do with back payments and more to do with the country’s new coziness with the West).
But what happens when the gloves come off and Gazprom starts withholding energy to halt military action or influence an election? It’s getting colder and colder, and who’s going to turn the heat back on?
Disclosure: None
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This article has 11 comments:
About GazProm - what are they after? They are after dollars and deutschmarks. I explained this to the great washed at Cambridge University twenty years ago, and I don't remember anyone saying I was wrong. As for this thing of yours about Gazprom staking out a claim to Europe, that just isn't so, but if it was so they are being assisted by the ignoramuses in the European Commission. Instead of being against monopolies they should be for them. Do the economic theory: competitors and weak oligopolies lose to monopolies or strong oligopolies. I read German, and I know that this concept is not unknown in Germany.
If you want to do Europe a favor, Stephanie, tell them to use less gas and use more nuclear. I repeat, not a nuke on every corner, but more nuclear energy. This doesn't have anything to do with the Russians, but with (social and private) profit maximization.
well said. me thinks there's a message for POLS/beauracrats beyond the EU in there.
I do get feeds on Gazprom, and Russia and Putin has stated quite clearly that he would like Russia to recover some of it's former glory. I have no bone to pick with that.. I think it's normal. I am more suspect of our own President's words and actions, which does have the 'odor' of the old Cold War 'double-speak' and seems to serve no good purpose...And Gazprom has been very busy contracting with South America, Libya, and cutting supplies to former members of the old USSR, and tying up contracts in Europe, which does lend support to her views. Admittedly, this is what any **good** company would do, but it does seem clear that the ties between Medvedev, Putin and Gazprom have political overtones as well...
In any event, I think you over-reacted..
Having said that, why not post your article.. (Seems to me I read your work in the past..)
jegan ;-)
With Russian oil production down year over year, I would hazard a guess that Russia would want to enhance its production anyway it can. If it means liberating the capacity of its former satelites, it will do so.
Let me count the latest Russian endeavors: Gazprom want to buy the total oil output of Libya, Russia is building a NASA type facility in Cuba to ostensibly launch Satelites, Russia is loaning Chavez Billions for Arms purchases, the Russian Built Iranian reactor will be activated within the next 5 months, Russia recently held War games in the Caribbean with its allies, Russia stations troops on the Georgian Border and promises to aid its citizens wherever they may be, Russia declares that a missile defense shield in previous satelites would cause them to aim their missiles at Europe.
I don't know what your phrase is for the above activities but would certainly like to know. I can then use it to enlighten those of us who feel that the War of words previously called the Cold War has been Renamed.
I gather by the tone of your rejoinder that you have managed to ignore the above events which are current ( the last 3 months ).
I don't have your "20" years ago credentials. I am just a "unwashed" multinational who would like to stick an umlaut above the u in Arschlucke but doesn't know how while composing on the fly. Of course the Germans are familiar with this concept, this "concept" engendered the First and Second Reichs. The Russians appear to be in the process of following this concept.
According to your apparent views, the ideally suited Economy would be Totalitarian, monopolies would reign unopposed.
If Putin wants Russia to restore some of his former glory, then I say good for him. What I would really like though is to see the United States recover some of its former glory, which means returning that country to the kind of place in which I grew up, where lies by 'swift boat captains' were called lies, and presidential candidates didn't use expressions like "now we are all Georgians". As for the ties between the Russian leaders and Gazprom having political overtones, of course they do. Makes all the sense in the world. Gazprom has an important role to play where increasing the standard of living in Russia is concerned.
Paultaut starts out wrong. Rather than "liberating" anything, Russia is probably thinking about joining OPEC. As for Russia and Georgia, 5 former State Secretaries on a recent CNN special (3 Republican and 2 Democrats) seemed to agree that Georgia had been the first to open fire, and not on Russian soldiers but on a civilian housing area. Of course, it doesn't make any difference what they agree on, because that was what happened. Incidentally, if I were advising the Russians I would tell them to leave those countries alone, except for trade. What's the point; what is there to gain? Russia is an energy powerhouse, and if they had a little help from Iowa and Canadian farmers, they could be an agricultural powerhouse.
Lalo Palo, I haven't missed out on very much where natural gas is concerned. That LNG is probably headed for Asia, although it's too early to be sure. This is one of the reasons why I accept Ms Palin's logic about the construction of an Alaska-Canada-Lower 48 pipeline. As for Putin's comments about gas and other matters, I am strictly not interested, because dumb governments like the one here in Sweden closed nuclear facilities and started making arrangements to buy gas..
One more time, Do You Favor Totalitarianism?
Inre Opec, Russia will not join unless it can control it. If Iran succeeds, they will have a very big stick in the Middle East.
Totalitarianism? I've never used that word in my life. Moreover, I dont know anything about it and don't want to know. But it is true that I want to see a consumer's gas monopoly or oligopoly in Europe, although without a lot of discussion. What the Russians don't know wont hurt them.
Russia will have a very big stick in the MIddle East you say. What for? You say that Russia will not join OPEC unless they can control it. I certainly hope that you are right. because an OPEC with Russian participation - whether they control it or not - could be an ugly thing for those of us on the buy side of the oil market. I'm sure that you know that as well as I do.
Where this business with the umlaut is concerned, I am pretty hopeless with certain German usages myself, although I read the language easily enough after a few days in the country. One thing I know though, Germany doesn't want any trouble with Russia that would put those wonderful German cities at risk. As a brilliant teacher of economics, let me give you some advice. You obviously know a lot, which unfortunately is unusual these days. If you want to learn more, stick with the American business literature - Forbes, Fortune and Business Week. They dont make many mistakes.
I prefer feeds from the Financial Times, Reuters, Market Watch, Bloomberg, Forex, Kitco and Zawya(Middle East News). Since I don't sleep very long, 6 hours max, and am retired I tend to put in long hours on Overseas news and usually try to avoid most US oriented Media coverage.
In many ways, I applaud Russia's attempt to solidifiy the country's future. I just don't agree with their method. They already have the unexploited resources of their lands to make them Economically dominant in that part of the world. I don't understand the reasons for the rush. Unless it is because Putin has started feeling the passage of time and wants to leave his mark in Russian History Books.
jegan ;-)
Mr Paultaut, I suspect that you and I would agree on a lot of things. For instance, I cant possibly understand a great deal of what is going on in Russia, and in particular this urge toward foreign adventures. What are they after? They definitely have a bright future if that is what they want, and they take their time. Reducing the consumption of potato brandy might also be a big help. On one thing though I'm not sure whether we would agree, and this is the value of Forbes, Fortune and Business Week (magazines). Reading these every week for a year or two, and thinking about some of the articles in them, is as good as any business school education in the world, and better than most. I noticed that the Economist was not on your list - well, it's not on mine either. I would rather read a comic book.