Gazprom Exec Cautions Against Reforms
Saturday January 20, 8:51 pm ET
By David Mchugh, AP Business Writer
Gazprom Exec Cautions Europe Against Move Away From Long-Term Contracts
GELSENKIRCHEN, Germany (AP) -- A top executive with Russian natural gas company Gazprom warned Europe against energy market reforms that would disrupt long-term supply agreements or infringe companies' rights to control their own pipeline infrastructure.
Long-term contracts covering decades should not give way to short-term trading by "speculatively oriented entities such as Enron," said deputy CEO Alexander Medvedev, referring to the high-flying U.S. energy trader that went bankrupt.
"Their fate is known to all," he said Saturday.
The European Union is working on a new energy policy aimed at improving the security of supply and increasing competition, including a proposal to split big energy companies from their distribution networks. State-controlled Gazprom, the world's largest gas company, produces gas from its Arctic and Siberian gas fields and also owns a distribution pipe network in Germany through its Wingas partnership with BASF's Wintershall division.
The European Union is working on a new energy policy aimed at cutting dependency on imports and increasing alternative sources of energy as well as competition, including a proposal to split big energy companies from their distribution networks. Gazprom, the world's largest gas company, produces gas from its Arctic and Siberian gas fields and also owns a distribution pipe network in Germany through its Wingas partnership with BASF's Wintershall division.
Those proposals have taken on new urgency as Europe has seen its oil and gas supplies disrupted by disputes between Russia -- which provides one quarter of its natural gas -- and the countries the supplies pass through such as Ukraine and Belarus on their way to Germany, Poland and other countries.
"We of course are following the new initiatives being advanced in Europe, and we don't just observe but are also in a dialogue with the European Union," said Medvedev, who is in charge of Gazprom's export activities. "But we think that any attempt to disrupt the system of long-term contracts would pose a threat to reliable gas supplies to Europe."
Medvedev spoke to reporters in Gelsenkirchen, northwestern Germany, before a soccer match between FC Schalke and Zenit St. Petersburg. Gazprom sponsors both teams.
He said that the company was prepared "to develop the market in full accordance with applicable legislation," but said "it would be extremely unreasonable not to take into account the opinions of gas producers."
He noted that when it came to competition, 60 percent of Wingas' gas contracts were of one-year duration. "That means Wingas has to show its competitiveness on the market every year," he said.
Much of Gazprom's business is long-term contracts with buyers obligated years in advance to pay whether they use the gas or not, the so-called "take or pay" practice.
He also said any liberalization should not deprive companies of control of their pipelines. Some have proposed giving competitors access to utility companies' pipelines, as has been done with phone lines, to increase competition, which in theory should lead to lower prices.
"We have encountered a very dangerous tendency, not only in Germany, but in Europe as a whole, that the owners of infrastructure cannot be sure they will be able to preserve their property interest in their assets," Medvedev said. "We feel the obligation to supply natural gas to our customers, and access to infrastructure, control over it, is a necessary condition for supplying gas."
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