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 (OTCPK:OGZPY) wins when RWE loses.
First, you should know that Russia owns Europe. Let’s dispel any ideas to the contrary. Russia’s Gazprom (OTCPK:OGZPY) 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?