Transcript Antitrust: Commission opens proceedings against Gazprom
EU vs Gazprom: The Substance and Implications of the Antitrust Clash
Dr.Andrey A.Konoplyanik, Advisor to Director General, Gazprom export LLC, Professor, Chair “International Oil & Gas Business”, Russian State Gubkin Oil & Gas University www.konoplyanik.ru
Introductory Remarks at Expert Roundtable at Chatham House’s Russia and Eurasia Programme, London, UK, 27 November 2013
Disclaimer
• This presentation reflects personal position of this author. It does not (re)present official position (if any) of the Gazprom Group, its management bodies, shareholders, and/or its affiliated companies, nor of the Russian state on the issues in question.
A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
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The 04.09.2013 DG COMP claim, lines of action, economic dimension
A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
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CEC vs Gazprom: three ways of action => three lines of debate
EU Investigation against Gazprom, 04.09.2012
RF Presidential Decree 1825 (11.09.2012) as an immediate reaction to CEC claim (“domino” & “senior brother” effects) => to switch from diagonal to horizontal character of “debate” (to adjust/to put on equal level “political weight” of parties in debate) => official RF reaction To (try to) understand the economic development (background, pre requisites) that led to situation which creates conflict of interests and thus stipulated CEC claim against Gazprom => author’s line of proposed debate Official DG COMP procedure (dominance of legal over economic considerations)? => (most probable) continued EU action? 4 A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
DG COMP 04.09.2012 Summary: “Gazprom may be abusing its dominant market position in upstream gas supply markets in Central and Eastern European Member States”
•
Three
claims: –
two
refers to CEE
capacity
• market functioning,
“First, Gazprom may have divided gas markets by hindering the free flow of gas across Member States”
•
“Second, Gazprom may have prevented the diversification of supply of gas”
–
one
refer to CEE
commodity
market functioning •
“Finally, Gazprom may have imposed unfair prices on its customers by linking the price of gas to oil prices”
A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
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DG COMP 04.09.2012: “Gazprom may be abusing its dominant market position in upstream gas supply markets in Central and Eastern European Member States” – AK view
• Right facts, but incorrect reasoning: there is a lot of things Gazprom can be criticized for, but don’t claim it for what it is not responsible (USSR/COMECON/GOSPLAN) • Gazprom as commercial state-owned entity tries to maximize economic benefits (non-renewable resource rent) from situation which it has inherited from the past (EU gas system since 1962; USSR/RF gas export to EU since 1968) • Gazprom – by definition – can’t prevent EU to develop alternative routes, supply sources &/or energies => why this was not done by EU in CEE until 2009 (when EU gas market changed to oversupplied)?
• Increasing competition in EU gas market will best force Gazprom to adapt to its new architecture, not the administrative attacks => EU to create economic preconditions for diversified/saturated infrastructure => investment climate (trade vs investment) 6 A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
Capacity market component of the claim
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EU CEC
CEE capacity market diversification: two lines of EU action
Semi-economic way
(to preserve capacity deficit, but to save time & money): - Economic part: CMP (increase efficiency of utilization of existing though limited transportation capacity) - Non-economic part: to “take away and share” (restrict access to existing limited transportation capacity for incumbents in favour of newcomers)
Economic way
(to liquidate capacity deficit & to exclude its appearance by developing corresponding procedures (Coordinated Open Season) => to spend time & money): - To invest in developing new capacity & its diversification (plus using CMP instruments) A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
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Diversity (saturation) of gas transportation infrastructure in the EU (trunk pipelines only, km/100 km2), preliminary results
10 5 0 30 25 20 15
Figures for UK & Denmark should be much higher if offshore pipelines are added (to be done at the next step of analysis)
Северо-Западная Европа Центральная и Восточная Европа Южная Европа Северная Европа Calculations made by E.Orlova, PHD postgraduate student, Chair “International Oil & Gas Business”, Russian State Gubkin Oil & Gas University, based on the data for 2011/2012, kindly provided by ENTSOG A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
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Diversity (saturation) of gas transportation infrastructure in CEE: (trunk plus distribution pipelines, km/100 km2), preliminary results
500 400 300 200
How much will it cost & how long will it take to cover this gap in gas infrastructure diversity between CEE & NWE ?
100 0 Германия Австрия Северо-Западная Европа Венгрия Словакия Словения Польша Чехия Болгария Центральная и Восточная Европа Румыния Хорватия Calculations made by E.Orlova, PHD postgraduate student, Chair “International Oil & Gas Business”, Russian State Gubkin Oil & Gas University, based on the data for 2011/2012, kindly provided by ENTSOG A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
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Commodity market component of the claim
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• • •
Gas price/pricing: visual & hidden part of the iceberg
Competitive prices (different facets) : – Competitive
contractual structure
=> SPOT vs CONTRACT, but: • Contract (3 components) = price + volume + flexibility (TOP = virtual UGS) => what value of contractual flexibility?
• Spot (2 components) = price + volume => to take flexibility from the market => either from liquid hubs (=> oversupplied market) or UGS (=> CAPEX + time) – Competitive
energy structure
=> GAS vs COAL vs RES, but: • Gas => flexibility for free? (move 3-component price to level of 2-component price) • Coal => CO2 emissions (who cares? How corresponds with 20:20:20 policy?) • RES => State subsidies (who pays? How corresponds with WTO rules?) EU gas market dilemma =
to find the balance between
: – Consumers & intermediaries => lowest price level – Producers & project financiers => highest marketable price => resource rent for non-EU sovereign states + CAPEX pay-back (RROR) But search for multilateral or unilateral solutions? : – DG COMP, Mario Monti (10 years ago): “We will look
MOSTLY
consumer’s interests”; – DG COMP, Nelly Kroes: “We will look
ONLY
to to consumer’s interests” (Source: Johannes Hettema, GasTerra, 31.05.2013, Groningen Energy Conference) A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
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Evolution of gas value chain & pricing mechanism of Russian gas to EU (1) Past (Pre-2009) – growing EU market Oil-indexation Oil-indexation Gazprom Wholesale EU buyers/ resellers End-use EU customers
Common interests
Gazprom as price-taker from OIL market Nowadays (Post-2009) – oversupplied (in NWE segment - ?) EU market with not yet clear future trends
Request for hub indexation
where hubs are rel.liquid
Gazprom Oil-indexation
Request for hub-indexation both
where hubs are relat.liquid & where there is no hubs
(under threat of arbitration)
Wholesale EU buyers/ resellers Hub-indexation
Common interests
End-use EU customers EU hubs Non-EU customers (f.i. reverse flows to CIS/UA)
Evolution of gas value chain & pricing mechanism of Russian gas to EU (2) Future (“ NO GO ” contractual scheme under any (?) supply-demand scenario) Hub-indexation Hub-indexation
Gazprom
Traditional flexibility for buyer (TOP)
Wholesale EU buyer / reseller End-use EU customer Common interests – downgrading price spiral for RUS gas
Gazprom as price-taker from GAS BUYER’s market (with no participation on it)? => NO GO Future (what competitive niche for oil-indexed LTC in DELIVERIES to EU?) Role of DG COMP?
Gazprom
Oil-indexation
Wholesale EU buyer / reseller (delivery)
Hub-indexation
End-use EU customers (delivery)
Gazprom as one of price makers at EU market?
Oil EU hubs (trade)
Direct supplies to EU end-users
Common interests
Conclusion
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From hardline to softline in search of multilateral solution
• Multi-facet complex & complicated cross border issues (incl. both commercial and sovereign dimensions) require first intensive soft/friendly informal expert discussions (if the aim is to find mutually acceptable long term solution) but not hardline political claims or other administrative pressures as a perceived instrument for reaching forced unilateral (and thus short-term) decision A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
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Thank you for your attention www.konoplyanik.ru
A.Konoplyanik, CEC vs Gazprom expert debate, Chatham House, London, UK,27.11.2013
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