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Russia Proposels Gas Alliance With EU.

The international energy conference "Moscow Energy Dialog", held in Moscow on Oct. 30/Nov. 1, was the latest round in the sorting out of energy-related issues in relations between Russia and the EU. Their bilateral dialogue increasingly resembles a conversation between a blind man and a deaf one. The parties are not willing to listen to each other, insisting only that their own demands be met. The EU is setting the tone.

Russian President Vladimir Putin recently delivered an ultimatum in Lahti, Finland: Either Russia ratifies the Energy Charter Treaty together with the transit protocol, or the main clauses of these documents will be included in a new agreement between Russia and the EU. Russian Industry and Energy Minister Viktor Khristenko, who attended the forum, emphasised that Russia had a unique perspective on the energy problem due to its geographic location and economic situation, adding: "We are both a large energy exporter and a large energy consumer. At the same time, Russia is an important transit country. So we understand the views of almost all players on the global energy market".

Gazprom owns the world's largest gas pipeline network, part of which connects Central Asia and the Caspian region with Europe. This allows proponents of gas-market liberalisation to argue that Russia hinders direct access of Central Asian gas to European markets and therefore prevents diversification of EU energy sources. Without the right of direct access to Russian gas pipelines, European consumers are unable to buy Central Asian gas at lower prices. These circumstances are at the root of Brussels' persistent attempts to make Russia ratify the transit protocol to the Energy Charter. Russian objections to the protocol are based on some of its clauses that allow for a broad interpretation not in line with Russia's interests. Nevertheless, Russia has not ruled out signing the Energy Charter, but it wants the wording of some important clauses to be changed so that they no longer have the potential to encroach on its interests.

This work is done by experts, who are amending the wording and bringing the positions closer together. The numerous publications and speeches by both the Charter's proponents and opponents tend to misunderstand the essence of these problems, which are not simple, often hinders the co-ordinating process and adds unnecessary tension to the atmosphere surrounding the energy dialogue. Very few experts have actually read and understood the 250-page document, but that does not keep them from offering their ample interpretation of it.

The Moscow forum has shown once again that Europeans are waging a co-ordinated and aggressive battle for the interests of energy-consuming countries under the banner of supply diversification. Russian representatives are right to view this front as a kind of cartel of gas consumers, which makes them want to level the playing field by acting similarly.

Valery Yazev, head of the Russian parliament's committee for energy, transport and communications, proposed setting up a gas producers' alliance in response. He said: "The EU clearly constitutes a cartel of consumers of Russian gas, and they are demanding that we ratify the Energy Charter... This is not in Russia's interests because it governs access to our pipeline network. We need to set up our own gas alliance, which might consist of Turkmenistan, Kazakhstan, Uzbekistan, Russia, Ukraine and Belarus. If the problems with Iran's nuclear programme are resolved, I would also like to see Iran in this alliance".

Gazprom has long been working to build a system for co-ordinating its actions with owners of large energy reserves. It is currently co-ordinating its transport, production and pricing decisions with Central Asian producers. It has signed a memorandum of co-operation with Algeria, which is the EU's second largest gas supplier. Last June, the presidents of Russia and Iran agreed to co-ordinate their gas-selling policies at the summit of the Shanghai Co-operation Organisation. In September, Gazprom began co-operating with Qatar after the company's CEO visited the country.

The reaction to Yazev's initiative was controversial but constructive. The many problems Russia is encountering on the world's changing gas markets do not allow it to dismiss the possibility of a gas OPEC. So this can be viewed as one possible scenario for Russia's economic policy which, though it will not necessarily be carried out, remains on the table. In any case, the exchange of threats accompanying the Russian-EU energy dialogue is unlikely to lead to creation of a solid legal framework for further co-operation or to ensure energy security for both parties.
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Publication:APS Review Gas Market Trends
Date:Nov 13, 2006
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