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Russia Tightens Grip on European Gas Supplies with Serbian Energy Pact, Stake in Baumgarten Hub28 Jan 08The leaders of Russia and Serbia have signed off on the controversial energy pact that will see Serbia become a transit state for the South Stream gas pipeline; at the same time, Gazprom has taken a 50% interest in the Baumgarten gas hub in Austria, which is to be the main distribution point for supplies from the Nabucco pipeline.
As One Deal is Closed… With President Vladimir Putin of Russia and Serbia's President Boris Tadic looking on, Russian and Serbian officials on Friday (25 January) signed the controversial energy pact that will see Gazprom take a 51% stake in Serbian oil monopoly Naftna Industrija Srbije (NIS) and invest in new underground gas storage facilities in the country, and Serbia become a transit state for the proposed South Stream gas pipeline to Europe (see Serbia: 22 January 2008: Serbia Agrees to Gazprom Plans for NIS). Reuters reported that the final text of the agreement confirmed that Gazprom would pay 400 million euro (US$589 million) for the controlling share of NIS, quashing speculation that Serbia had managed to negotiate an increase to the Russia gas giant's original offer. However, the deal did see Gazprom agree to invest no less than 500 million euro in NIS between the end of 2008—when the transaction is set to be completed—and 2012. In relation to the South Stream project, the Serbian leg of the pipeline will be jointly constructed and managed by Gazprom and Serbian gas company Srbijagas, although Gazprom will take the controlling 51% share. Reuters said Gazprom has guaranteed that it will pump 10 bcm of natural gas each year via the Serbian leg of the pipeline, indicating it will act as the key spur to central Europe. A second branch of the 30-bcm pipeline is still expected to run from Bulgaria, through Greece and into Italy. …A New One is Announced On the same day that the Russia-Serbia energy pact was signed, Austrian oil and gas company OMV announced it had struck a deal with Gazprom that will see the Russian company take a 50% interest in Austria's Baumgarten gas hub. The two companies agreed to develop the hub into the most important gas trading platform in continental Europe, with targeted trading volumes of 2-3 bcm per month by 2010, up from 1.3 bcm per month currently. Furthermore, the companies agreed to invest in several as-yet-undecided joint storage projects in the region surrounding the Baumgarten hub and in neighbouring countries. Possible projects will be evaluated in upcoming feasibility studies. Outlook and Implications The agreements see Gazprom—within the space of 24 hours—get two further boosts to its control over gas supplies to Europe. Serbia's agreement to act as a transit country for the South Stream gas pipeline adds further momentum to the project following Bulgaria's agreement to participate in the project earlier this month. The participation of the two Balkan countries secures a transit route for Gazprom from the pipeline's intended landing point on Bulgaria's Black Sea coast to central Europe (see Bulgaria: 18 January 2008:Bulgaria Poised to Sign onto Russia's South Stream Project). With each new country signed on, Gazprom moves one step closer to realising the project and to securing a major new transport route for the delivery of Russian gas supplies to Europe. However, the agreement between OMV and Gazprom for the Russian company to take a 50% stake in the Baumgarten hub is a sign that Gazprom's efforts to maintain its dominant role in supplying Europe with gas are anything but one-dimensional. In addition to pursuing the construction of major new transport routes to the continent in the form of the South Stream and Nordstream project, the Baumgarten agreement has seen Gazprom boost its role in a major existing trading hub, and with it, its leverage over the source of the hub's gas supplies. Importantly, the Baumgarten hub has been proposed by OMV to be the primary distribution point for the Nabucco pipeline, the European Union (EU)-backed project to build a new link to deliver Caspian and Middle Eastern gas supplies to the European market, and indeed a central component of the EU's strategy to diversify its energy supplies away from Russia. Gazprom's participation in the Baumgarten hub—while potentially boosting the chances of the Nabucco pipeline itself progressing by providing it with a central market for its gas—also raises the likelihood that it will be Russian gas, at least in part, flowing through the link. With one swift move then, Gazprom has delivered a hefty blow to the EU's hopes that Nabucco will act as a supplier of exclusively non-Russian gas, again demonstrating that, when it comes to the battle for control over energy supplies to Europe, the Russian company remains one step ahead of the game. |
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