EU shows antitrust power to counter Putin’s gas maneuvers – POLITICO – .

EU shows antitrust power to counter Putin’s gas maneuvers – POLITICO – .

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Threatening Russian President Vladimir Putin with a massive antitrust fine has worked in the past as a way to improve the behavior of his export monopoly Gazprom in the EU, so why not try again?

EU Energy Commissioner Kadri Simson told EU energy ministers on Tuesday that Brussels’ competition police have started collecting evidence on whether the surge in energy prices could be blamed on illegal activities of one of the block’s main gas suppliers. The European Commission has confirmed that questionnaires have been sent to all parties that could help build a case on this autumn’s most pressing economic crisis.

Brussels competition investigators avoided citing Gazprom by name, but the company is a former sparring partner. Gazprom supplies over 40% of the EU’s gas imports and was the subject of one of the most high-profile antitrust cases ever initiated by Brussels, from 2012 to 2018. as Poland and Lithuania had wanted , this prompted Gazprom to radically change its business model in Central and Eastern Europe.

Still unhappy that Moscow was not heavily fined in 2018, Poland is now leading the charge for EU authorities to take further action against what it sees as Russian market manipulation, who are accused of driving up prices this year by undervaluing expected deliveries. .

Putin himself delivers mixed messages about Russia’s motives. On the one hand, he denies that Russia uses the world’s largest gas reserves as a geopolitical weapon. On the other hand, he simultaneously suggests that flows could increase significantly if legal permission is given to the controversial Nord Stream 2 pipeline designed to pump Russian gas directly to Germany. Gazprom did not respond to a request for comment.

No longer content to leave all postures (and potential bluffs) to Russia, Simson on Tuesday promised that Brussels would address “the widespread concern about manipulation or market speculation.” It will be music to the ears of Polish Prime Minister Mateusz Morawiecki, who said an investigation could “sober up Gazprom”.

Pipeline penalties

Lawyers agreed that it made sense to turn to competition law, the most powerful political weapon of the European Commission. “Although the investigation may be politically triggered by the energy price crisis, it does not seem unreasonable to study the current market dynamics through the prism of competition law,” said Natura Gracia, lawyer in competition law at Linklaters.

“Brussels could investigate an abuse of a dominant position by Gazprom, trying to gather evidence of the company’s suspension of supply to raise prices, or of anti-competitive restrictions in contracts between wholesale gas suppliers like Gazprom and European retail gas suppliers, ”added Gracia.

Alan Riley, academic lawyer specializing in EU antitrust, trade and energy law, who previously advised Polish and Ukrainian energy companies, said there was sufficient evidence to open an investigation into Gazprom’s abuse of dominance.

“You have a dominant supplier who seeks to deliberately refuse to supply gas without any commercial reason, they are directly using their market power to limit supply,” said Riley.

A full Commission antitrust investigation would, of course, be too slow to be a silver bullet to Europe’s gas problems this winter. The case the EU settled in 2018 began with dawn raids across Europe in 2011. But that may not be the immediate goal. Merely talking about an investigation – which might never lead to formal charges, let alone a fine – might simply be meant to sharpen the spirits in Moscow.

Riley said the threat of an investigation from the Commission “puts more pressure on Russia and Gazprom” to make more gas available.

The European Commission can impose a fine of up to 10% of a company’s turnover in a financial year. Although Gazprom was spared from something so serious in 2018, it was forced to stop divisive tactics to rule in Eastern Europe, where it could dictate prices country by country. The EU affair pushed it to stop drafting contracts in which Eastern Europeans could not sell gas to their neighbors and struck out clauses in which Gazprom’s rivals were excluded.

U.S. Senior Adviser on Global Energy Security Amos Hochstein said on Monday that Russia has the gas it needs to maintain supply.

“If Russia has the gas to supply [Europe] via Nord Stream 2, as they suggest, that means they have the gas to supply it via Ukraine [system] or other pipelines as well … that’s what we expect and I think any free and open market should expect it. ”

One foot on the pipe

One of Gazprom’s most immediate concerns is that buyers with long-term contracts have clauses that tie prices to the cost of gas in the openly traded spot market. If Gazprom puts more gas on the market, it will lower prices not only in the open market but also in its longer-term contracts.

Any new case against Gazprom could indeed be made more complex by the different types of gas sales and contracts in question. The 2012-2018 case focused on how Gazprom trapped countries in unfair contracts. The current objections are based more on the limits of supply in the free market, which could prove to be more difficult territory to prove the abuse of dominant position. As the President of the European Commission Ursula von der Leyen put it: “Although Gazprom honored its long-term contracts with us, it has not responded to higher demand as it has in previous years. .

Explaining Gazprom’s predicament, Jack Sharples, a researcher at the Oxford Institute of Energy Studies, noted that the boot was on the other foot last year when prices were at their lowest, and argued that there was no contractual obligation for the Russian company to offer more gas.

“The contrast between 2020 and 2021 couldn’t be more stark: last year, when European demand fell and hub prices were at record highs, Europe had no problem with indexation long-term supply contracts from Gazprom, and European companies have been happy to fully exploit their contractual flexibility to take less gas from Gazprom. A year later, with hub prices at record highs, even though we would like to see Gazprom offer more volumes to the European market, we have to remember that they don’t actually have to.

Russia argues that its deliveries fall short of previous years because it is still filling national storage, but an energy economist who regularly consults with participants in the European gas market has pointed to potential antitrust concerns.

The economist said that “it seems likely that what Gazprom is doing right now is maximizing profits – if it produced more, it would likely reduce its profits, and that’s sort of the definition of abuse of market power. Withholding supplies to keep prices high is de facto anti-competitive. “

“Gazprom: They didn’t start the fire, but they are standing over the garden hose,” he added.

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