Lukoil Takes 70% Stake In Sierra Leone Offshore Block

Gazprom stake in Dutch energy: risk or benefit?

Is Essent in danger of falling into the clutches of a Russian state company? Ms Van der Werf raised concerns about the deal with Economic Affairs Minister Maxime Verhagen.

“What I’m slightly uneasy about is that a company in which the Russian government has proved to have a considerable finger in the pie should have a say in a Dutch company,” she says.

Dark side
Privatisation has brought a lot of benefits to the Dutch energy market, says Ms Van der Werf. Consumers can now take their pick of energy suppliers battling to beat each other’s prices. And cooperation with foreign companies has brought scale benefits and fresh investment.

But there’s also a potential dark side to the globalising energy market, she says. “If Gazprom gains control over these companies, it’s possible that they could come under Russian state influence.”

Essent stresses that Gazprom is merely gaining a financial interest in Dutch power stations, not a controlling influence. And it hastens to add that the Netherlands’ only nuclear power plant, Borssele, has nothing to do with the deal.

No problem
Energy expert Aad Correljé of the Clingendael International Energy Programme doesn’t share Ms Van der Werf’s fears of Russian state control.

“It’s not the fact that the Russians will determine whether or not the Essent plants will be used to generate electricity or not,” he says. “And a stronger argument is that those plants are in the Netherlands and can’t be removed or cut off. And there’s alternative gas available. So I can’t really see it as a problem.”

So the Gazprom deal could actually be seen as a benefit, he believes. It suits Dutch ambitions to become a European energy hub. What’s more, if Gazprom has an interest in Dutch power plants, Mr Correljé points out, it’s hardly likely to start turning off the gas taps. And the Netherlands has its own gas to fall back on anyway.

Gazprom is motivated by concerns that Brussels is trying make the EU less dependent on Russian gas, Mr Correljé says. So by investing in European clients like RWE and Essent, the company is securing its European market.

Unfair competition
Marieke van der Werf is concerned that while EU companies are bound by strict rules on matters like sustainability or the split between energy supply and grid management, Gasprom doesn't have such worries.

“In short, Gasprom has a different way of making profit,” she says. “If that money is invested in Dutch companies, isn’t there a question of unfair competition? Because you have to compete with companies that do have to comply with European regulations.”

In the end, he says, Europe has to accept its dependence on Russian gas. So rather than get into rivalries and political clashes with Russia, it’s better to strike deals that create a common interest with the Russian energy giant.

Gazprom Profiting Mightily From German Nuclear Exit

Gazprom expects gas prices to reach $400 per 1,000 cubic metres by the end of the year, as against an average of $306 in 2010. Even though European gas consumption has stagnated this year and even declined during the first four months of 2011 compared to the previous year, Russian gas exports to Europe have increased. Gazprom is counting on sales of 155 billion cubic metres (bcm) to Europe in 2011, up from 139 bcm in 2010, Medvedev told a group of journalists in Austria.

There are about 35.3 cubic feet in a cubic meter, so $400 per cubic meter works out to $11.30 per thousand cubic feet (or $11.30 per million BTU). That is nearly 2.5 times the price that Bloomberg.com is quoting for US natural gas futures today. If Gazprom reaches its sales and price targets, its revenue would increase from $42 billion in 2010 ($.306 per cubic meter x 139 billion cubic meters) to $62 billion in 2011 ($.400 per cubic meter x 155 billion cubic meters). That is nearly a 50% increase year over year in a period where the European economy is struggling.
 
So, what is driving those European prices and those increased sales? Did you notice how the quote indicates that there was a substantial turnaround in sales after a slow first four months of the year?

Gazprom’s new-found confidence has everything to do with political and economic developments in the European energy market. Russia’s prospects on the European gas market are looking up again. The Nord Stream gas pipeline linking Russia with the European Union is nearing completion. Germany is planning to phase out its nuclear power. Competing LNG is looking to find its way to China and Japan (after Fukushima), while doubts about the viability of future supplies of Caspian gas via the Nabucco pipeline are growing by the day. And serious competition from shale gas will not be a factor for a long time, in Gazprom’s view at least.

Germany and Russia have of course been on very good terms for a long time when it comes to energy. Last year the Germans literally took a saw to the table at which BASF and Gazprom signed the agreement in the early Nineties to set up Wingas – not out of anger or frustration but, on the contrary, as a sign of appreciation for their close energy ties. From the hacked-up wood Berlin selected a piece of table top measuring 10 by 15 centimetres and had it beautifully framed as a memento. In his new role of promoter of the German-Russian gas lobby, former German chancellor Gerhard Schröder subsequently presented the souvenir to BASF CEO Jürgen Hamperecht and Russian Gazprom chief Alexei Miller. ‘There’s no getting round Russia, we can’t ignore them’, Schröder said. The recent decision by the German government to phase out nuclear power looks set to increase German dependency on Russian gas even further over the coming years. But Gazprom’s German partners seem unconcerned about the implications of this.

In the comment threads on previous Atomic Insights posts that detail the relationship between Gazprom, Schroder and Germany’s 2001 nuclear phase out decision, several people have claimed that the actions border on treason, but many Germans have a different view. Germany has a substantial population that traditionally looks to the east instead of to the west for partnerships and political alliances. The above quote supports my contention – certain German business leaders and politicians are happy to partner with the Russians. It may be just coincidental that Ms Merkel, the architect of the recent phase out decision, grew up in East Germany before the reunification.

Since European Energy Review targets energy investors, it takes no moral or judgmental position on the Gazprom’s market maneuvers and it does not every draw a line between the irrationality of the political decision to shut down reliable, low cost, emission-free nuclear plants and the rapid revenue growth at Gazprom. However, I decided to try to encourage readers to think about the circumstantial evidence supporting the idea that there were purposeful actions to kneecap a competitor. It is also worth thinking about the people that those actions will ultimately hurt. Here is my comment:

The article does a fine job of pointing to the means, motive and opportunity relating Gazprom and its German partners to the illogical decision to kill off German nuclear power plants.

A relatively tiny number of people stand to capture a great deal of wealth and power by closing nuclear plants and making the EU more dependent than ever on expensive natural gas.

It requires a gullible imagination to believe that Gazprom does not recognize the connection between killing nuclear and increasing gas sales. It is likely that they were financial supporters of the organizers who encouraged antinuclear mobs to take to the streets after Fukushima experienced a natural disaster-initiated accident that resulted in zero radiation related deaths. We all know that Gerhard Schroder has been well rewarded for his initial leadership in the effort to phase out nuclear energy.

Why doesn’t this make people realize that the tales they continue to be told about the dangers of nuclear are exaggerated lies created by competitors who are willing to go to great lengths to capture market share?

The losers in the battle are the hundreds of millions of energy consumers who will pay higher prices for more vulnerable gas supplies.

Rod Adams

PS – The Petroleum Economist has an article titled Gas Markets Enter New Era that includes a lengthy analysis of various factors that will affect natural gas demand and prices. Here is an interesting quote:

And while nuclear power may not be a popular option in the immediate aftermath of Japan’s disaster, sentiment towards that source of energy may change over time, leading to higher nuclear gneration – and, potentially, less gas use – than some forecasters are predicting.

I hope that is true, but I also suspect, based on the tone and content of the rest of the article, that some Petroleum Economist readers will see that as a warning and a call to action to keep up the pressure against nuclear energy. After all, if you sell gas, increased nuclear generation is not a positive scenario.

http://russia-media.ru/gazprom/morenews.php?iditem=257

Gazprom became the winner following the independent study carried out by IR magazine Russia & CIS in cooperation with Thomson Reuters Extel. Opinions by more than 300 asset managers and analysts from Russia, Europe and the USA were reviewed during the study.

In addition, IR magazine Russia & CIS announced Alexey Miller, Chairman of the Gazprom Management Committee the winner in the Best Investor Relations by a CEO/CFO nomination.

Background

IR magazine Russia & CIS is a periodical highlighting the IR theory and practice. Since 2008 the Magazine has been giving awards to the best IR structural units of Russian and CIS companies.