EU flexes antitrust muscle to counter Putin’s gamesmanship

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Russian President Vladimir Putin’s threat of massive antitrust sanctions has helped improve the behavior of his export monopoly Gazprom in the EU in the past. So why not try again?

EU Energy Commissioner Kadri Simson told European energy ministers on Tuesday that Brussels’ competition police had started collecting evidence as to whether rising energy prices were due to illegal activities by one of the bloc’s main gas suppliers. The European Commission confirmed that questionnaires have been sent to all parties that could help compile a case on this autumn’s most pressing economic crisis.

The Brussels competition investigators avoided naming Gazprom, but the company is an old sparring partner. Gazprom supplies more than 40 percent of EU gas imports and, from 2012 to 2018, was the subject of one of the most sensational antitrust proceedings that Brussels has ever conducted, as Poland and Lithuania had wished, urging Gazprom to radically change its business model in Central and Eastern Europe .

Still unhappy that Moscow failed to impose a heavy fine in 2018, Poland is now indicting EU enforcement agencies of taking new measures against market manipulation by Russians, who are accused of driving prices up this year by falling short of the expected deliveries.

Putin himself delivers mixed messages about Russia’s motives. On the one hand, he denies that Russia uses the world’s largest gas reserves as a geopolitical weapon. On the other hand, he also suggests that flows could increase significantly if the highly controversial Nord Stream 2 pipeline, which is supposed to pump Russian gas directly to Germany, were legally approved. Gazprom did not respond to a request for comment.

Samson was no longer content with leaving all antics (and possible bluffs) to Russia. That will be music to the ears of the Polish Prime Minister Mateusz Morawiecki, who said that an investigation could “sober up Gazprom”.

Pipeline penalties

Lawyers agreed that it made sense to turn to competition law, the European Commission’s single strongest political weapon. “Although the investigation can be politically triggered by the energy price crisis, it does not seem unreasonable to examine the current market dynamics through the lens of competition law,” said Natura Gracia, antitrust attorney at Linklaters.

“Brussels could investigate an abuse of dominance by Gazprom and try to gather evidence that the company is holding back supplies to raise prices or for anti-competitive restrictions in contracts between gas wholesalers like Gazprom and European gas retailers,” added Gracia.

Alan Riley, an academic lawyer specializing in EU antitrust, trade and energy law, who previously advised Polish and Ukrainian energy companies, said there was enough evidence to open an investigation into Gazprom’s abuse of dominance.

“You have a dominant supplier who is deliberately refusing to supply gas for no commercial reason. It is directly using its market power to limit supply,” said Riley.

A full antitrust investigation by the Commission would of course be too slow to be a panacea for Europe’s gas problems this winter. The case, which the EU settled in 2018, began with raids across Europe in 2011. But that may not be the immediate goal. Just talking about an investigation – which may never result in a formal charge, let alone a fine – could simply serve to sharpen Moscow’s mood.

Riley said the Commission’s threat of an investigation “increases pressure on Russia and Gazprom” to provide more gas.

The European Commission can impose a fine of up to 10 percent of a company’s turnover in a financial year. Despite being spared such severe measures in 2018, Gazprom was forced to abandon divide and rule tactics in Eastern Europe, where it could dictate prices from country to country. The EU case urged them to stop writing contracts banning Eastern Europeans from reselling gas to neighbors and removing clauses that excluded Gazprom’s rivals.

US Senior Adviser for Global Energy Security Amos Hochstein called on Monday that Russia has the gas it needs to keep supplies going.

“When Russia has the gas to deliver it [Europe] through Nord Stream 2, as they propose, it means they have the gas to deliver via Ukraine [system] or other pipelines … that’s what we expect and what, in my opinion, every open, free market should expect. ”

One foot on the hose

One of the more immediate concerns for Gazprom is that buyers with long-term contracts have clauses that tie prices to gas costs on the publicly traded spot market. If Gazprom brings more gas to market, it will push prices not only in the free market but also in its longer-term contracts.

Indeed, any new case against Gazprom could become more complex with the different types of gas sales and contracts. The 2012-2018 case focused on the way Gazprom kept countries trapped in unfair contracts. The current objections are more related to restrictions on supply in the open market, which could prove to be more difficult terrain to demonstrate abuse of a dominant position. EU Commission President Ursula von der Leyen put it this way: “Gazprom has fulfilled its long-term contracts with us, but has not reacted to the increased demand as in previous years.”

Explaining Gazprom’s predicament, Jack Sharples, a research fellow at the Oxford Institute of Energy Studies, stated that the boot had been on the other foot when prices hit rock bottom last year, arguing that there was no contractual obligation for the Russian Companies give gas to offer more.

“The contrast between 2020 and 2021 couldn’t be more stark: Last year, when European demand fell and hub prices hit record lows, Europe had no problem with the hub indexing of its long-term contract deliveries from Gazprom, and European companies were happy to Make full use of their contractual flexibility to purchase less gas from Gazprom. A year later, with lift prices at record highs, although we would like to see Gazprom offer more volumes in the European market, we have to remember that it is not actually obliged to do so. “

Russia argues that its deliveries are lagging behind previous years because it is still filling domestic storage facilities, but an energy economist who regularly advises European gas market participants stressed potential antitrust concerns.

The economist said, “It seems likely that Gazprom is currently maximizing profits – if it delivers more it would likely reduce its profits, and that’s kind of a definition of abuse of market power. Withholding supplies to keep prices high is” de facto anti-competitive. “

“Gazprom: They didn’t light the fire, but they are above the hose,” he added.

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