Wednesday, April 22, 2015

EU antitrust vs Gazprom (1): What a monopoly in gas supply and energy entails

Gazprom’s monopoly position is worrisome to European Union member countries, especially to the six EU states that comprise Ukraine, Lithuania, Finland, Latvia, Estonia, Slovakia and Bulgaria. These have been dependent on Russian gas for their energy needs. That position might soon be threatened. This week, Ms. Margrethe Vestager, the EU antitrust chief reopened the case file on Gazprom that was established by her predecessor, Joaquin Almunia, in 2012.

The EU antitrust regulators are charging Russian’s energy giant, Gazprom, with abusing its dominance in the natural gas market. The EU’s move is concerted with its effort of encouraging member states that are dependent on Russian gas to seek a diversification of gas supplies. The EU depends on Russia for about one-third of its gas supply.

Gazprom Building in focus.
Credit: Thawt Hawthje on Flickr
Harmful pricing that harms rivals are one of the contentious issues Ms. Vestager is leveling against the company. It has the liberty of raising or lowering prices at will in exercise of its market position without any transparent economic motives. Such practice gives Russia a political leverage against European nations who are against its anti-Ukrainian policies. A notable case in point is Ukraine whose gas supply was blocked towards the better half of last year.

Gazprom is also being accused of linking the price of gas to that of oil which has fallen to record lows. By forcing other nations to commit to its oil prices rather than market rates, it is strangling and further tightening its grip on European consumers.

These and many other issues leveled against Gazprom, which also includes furthering the geopolitical ambitions of President Vladimir Putin, the Russian President, will have to be proved.

Gazprom though is not unrelenting. It hopes to complete the South Stream gas pipeline that runs from Russia to Bulgaria under the Black Sea so that it can be able to supply gas to countries in Southern Europe while undercutting Ukraine. Also on the pipeline is a Turkish Stream pipeline project which is being created for the same purpose. According to Gazprom, it wants to change its current model of dealing directly with European consumers. It is also reported that it has its eyes open for Asian markets if the price is favorable.

Next: EU antitrust vs Gazprom (2): Politics always interferes with the economics of pricing

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