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Europe's Gazprom Deals Are a Vote of No Confidence Against EU Commission

European energy businesses have spoken - they've no time for EU's irrational Ukraine-centric policies

This is an excerpt from an article that originally appeared at Natural Gas Europe

Gazprom has signed a shareholders' agreement on the Nord Stream 2 project together with European Engie, Shell, OMV, E.ON and BASF/Wintershall.

Shell, OMV, E.ON and Wintershall were to receive 10 percent of the shares in the project. French Engie could receive an additional 9 percent. The Russian company would retain a controlling interest in the amount of 51 percent of shares.

The signing of the shareholders’ agreement is something more than the already existing memorandum on an agreement between said companies. In contrast to the memorandum, which is an act of will, the agreement is a form of commitment, which actually commences the cooperation of companies with the implementation of the project.

The decision of the European companies to initiate the expansion of the Nord Stream means the pressure put on the European Commission will increase. The European Commission refuses to accept the release of the overground branches of the Nord Stream from the regulation of the third energy package. The first two threads of Nord Stream with a total capacity of 55 bn m3 per year are partly unused as Gazprom has the permission to exclusively use up to 50 percent of this power. The construction of the third and fourth thread in the Nord Stream 2 project would indicate that this capacity would be doubled, and the shareholders would even more need the approval from the Commission for the release.

Therefore, this is a vote of no confidence against the Ukrainian policy of the European Commission. Brussels insists on the maintenance of the gas transit through the territory of Ukraine in order to stabilise its budget and the economic relations with Russia, which continues its aggression in Donbas and occupies Crimea. Talks on the resumption of supplies from Gazprom necessary for the maintenance of transit in winter, when the right amount of raw material must rest in the storage facilities are announced for the end of September.

Another tragic news piece is the information that Russian Gazprom and German BASF have agreed to end an exchange of assets, which the German company has blocked due to the situation in Ukraine.

In a BASF press release one can read that the companies are to complete the transaction by the end of 2015. It has been agreed and approved by the European Commission in December 2013, but its implementation did not take place in 2014 for political reasons.

Under the agreement, Wintershall – a company that belongs to BASF– passes the gas distribution and storage of this material in Germany to Gazprom. Gazprom acquires 50% of shares in another company, Wingas, under the same agreement. This company runs gas trade having 20% of share in the German gas market. In addition to the transmission network, Gazprom takes over (as the 100% shareholder and the owner) large gas storage facilities which have been owned by Wintershall so far, including the Europe’s largest storage facility – Rehden near Bremen, with a capacity of 4.4 billion m3, which is more or less the amount of the national production of gas in Poland. This constitutes 20% of the entire German gas reserve. Additionally, the Russians will also have shares in two smaller storage facilities: in Jemgum in Lower Saxony and in Haidach in Austria. This storage facility has a capacity of 2.6 billion m3.

In 2014 I wrote that they are gas Mistrals. These assets give Russia a strategic effect as significant as the blocked purchase of the French helicopter carriers. Thanks to the assets in Germany, Gazprom will be able to continue the plan to replace the gas transit through Ukraine with increasing supplies using the German network. This will be an opportunity to deepen the fruitful cooperation in the gas sector between Germany and Russia, undermine the EU policy in this field and the position of Kiev before the upcoming talks of EC-Ukraine-Russia.

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