Photographer: Vincent Mundy/Bloomberg

Tougher Scrutiny of Russian Natural-Gas Deals Sought by Europe

  • EU regulator proposes rules to improve security of gas supply
  • European Commmission wants better regional cooperation on gas

The European Union’s regulatory arm proposed more oversight of natural-gas contracts with Russia and other external suppliers as a part of a wider plan to boost energy security.

The European Commission is also seeking closer regional cooperation among the EU’s 28 nations to prevent supply disruptions, under its winter gas package presented in Brussels on Tuesday. The bloc, which imports 53 percent of the energy it consumes, wants to cut dependence on external sources and reduce greenhouse gases that result from the most polluting fossil fuels such as coal.

The move to tighten energy links and oversight of contracts comes after the crisis in Ukraine highlighted the degree of Europe’s exposure to a possible disruption of flows from Russia, the supplier of 27 percent of gas consumed in the EU. At stake is a campaign by the EU to win energy-policy authority from national governments that compare with existing European powers over monetary, antitrust and agriculture matters.

“Last year was full of turmoil, we all followed the developments of the Ukrainian crisis and we know how much such a crisis can have a direct impact on security of energy supply here in Europe,” Maros Sefcovic, commission vice president for energy union, told reporters in Brussels. “Such threats to our energy supply come on top of existing vulnerability of certain European countries. I’m glad that we have managed to put on the table a very solid package to address these challenges.”

Market Abuses

To increase transparency in gas negotiations, the commission wants to ensure that governmental agreements with third countries fully comply with EU law by introducing a mandatory compatibility check before the deals are negotiated and signed. A separate law would require gas companies to notify national authorities and the commission of contracts whose duration is more than one year and which cover more than 40 percent of annual gas consumption in a member state. The commission will intervene if it identifies market abuses.

“This is not about the commission snooping on commercial deals,” said EU Climate and Energy Commissioner Miguel Arias Canete. “It is not about the commission checking prices or making changes to private contracts. This is about having greater transparency on the security of supply situation in a given region.”

That transparency requirement may have an impact on the Russia-led Nord Stream 2 project, which Russia’s gas export monopoly Gazprom PJSC is pursuing with western European companies including EON, Engie, Royal Dutch Shell Plc, OMV AG and BASF SE. The planned new pipeline would expand Nord Stream by 55 billion cubic meters a year, which would double its capacity to almost 30 percent of current EU demand. While Russian gas contracts currently cover less then 40 percent of Germany’s annual gas consumption, the situation may change if Nord Stream 2 is constructed, according to Arias Canete.

The commission has the power to penalize companies breaching the bloc’s competition rules. Last year it accused Gazprom of pursuing an unfair pricing policy in Bulgaria, Estonia, Latvia, Lithuania and Poland.

Potential Threat

Under Tuesday’s proposal, the EU is seeking access to additional information from gas companies, which national authorities will be empowered to request in a situation of a potential threat. To increase the bloc’s resilience, the commission also wants a shift from national approach to a regional approach in designing crisis-response plans. The EU would be divided into nine zones, where countries would have to cooperate to draw up emergency measures.

The planned regulation will build on a 2012 law establishing an information-exchange mechanism to guard against market barriers and supply disruptions and on 2010 legislation that requires governments to notify the commission of contracts with third countries.

The commission’s proposal also replies to calls by east European member states, who have called for joint gas purchases to increase the bloc’s bargaining power. Governments and natural-gas companies would be free to explore the potential benefits linked to collective purchasing to address supply-shortage situations as long as such mechanisms are in line with the World Trade Organization and EU competition rules.

The regulation sought by the commission will need support from member states and the European Parliament to enter into force.

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