The most demonized company in the world. But Stockholm Arbitration Courts says Lithuania did not prove Russia's Gazprom ever overcharged it
Russia’s Gazprom is free and clear and does not owe Lithuania one red cent for supposedly overcharging the Baltic nation over $1.6 billion for natural gas between 2004 and 2012.
The Stockholm Arbitration Court ruled on Wednesday that Gazprom was not at fault. The Lithuanian government appealed to the Stockholm Arbitration Court in October 2012, so this dispute settlement is long overdue.
The news is supportive for Gazprom. The stock can use a break. Sanctions by the European Union and United States, a much weaker ruble and oil prices going from $80 to $40 in the last two years has the Russian gas giant’s shares down over 48% in dollar terms. The forex loss is so great that Gazprom needs oil and gas prices to go back into the $80s before it can recover the last two year’s losses in the exchange rate. The stock is down 1.8% in rubles over the last two years.
Had the Stockholm ruling gone the other way for the Russians, the state-run gas company would have had to pay $1.6 billion, or the rough equivalent of 10% of Gazprom’s 2016 estimated earnings before taxes (EBITDA).
Gazprom is seen as one of the big villains of the Russian corporate enterprise. Price gauging and delivery stoppages are often headlines associated with the 3.4 trillion ruble energy firm. Russia accounts for well over half of Lithuania’s natural gas deliveries. In 2014, Gazprom was Lithuania’s only source of natural gas. This year, 20% or more of Lithuania’s natural gas comes from Norway. The new Klaipeda LNG terminal in the country launched recently and is supposed to eventually enable Lithuania to shed her reliance on Gazprom. Oil, on the other hand, is nearly fully dependent on the Russians.
All of this criticism about Gazprom being the Voldemart of the region’s energy market has CEO Alexei Miller more concerned with the company’s image than ever before. Miller has said that company will always honor contracts, and will play fair with its clients, as if an admittance that it was never playing fair all along.
European energy companies rely on Russia for future development projects, of which sanctions have put up detours for the time being. That has still not stopped major oil firms from preparing future business deals with Gazprom.
According to Russian business daily Kommersant on Thursday, Germany has begun negotiating with Poland about the Gazprom proposed Nord Stream-2 pipeline. ButPrime Minister of Poland Beata Szydlo said they were not ready to agree with Berlin on the gas pipeline. Poland’s anti-monopoly government agency has delayed issuing the licence to EU members of the Nord Stream-2 consortium — Germany’s E.On and BASF ; Shell Oil; Austria’s OMV and France’s Engie. Poland has been decisively anti-Russia when it comes to energy matters and is building its own LNG terminal as an alternative. The new pipeline may undercut Poland and Lithuania’s LNG dreams, even though it succeeds at adding to the country’s supply diversity regardless.
Meanwhile, Slovakian Prime Minister Robert Fico, following negotiations with German Chancellor Angela Merkel, said that he was waiting for an answer on “compensation” because the new pipeline means less gas distribution revenue from existing Gazprom lines that go into the country via Ukraine.
In light of the Lithuania law suit now, Gazprom comes to the table looking like a much cleaner partner in the pipeline project.
“German support might increase the commitment of European counterparties and help with the process of gaining the permissions for the Nord Stream-2 pipeline,” Dmitry Loukashov, an oil and gas analyst with VTB Capital, wrote in a note to clients on Thursday from his offices in Moscow. “Were the German negotiations to be successful, that might support sentiment on Gazprom.”
Back in June, Germany’s deputy prime minister and Merkel’s right hand on energy matters, Sigmar Gabriel, said his country would support the Nord Stream-2 project if the project didn’t mean Gazprom’s Ukraine transit route as a source for European deliveries would be shut down. Russia opted to build the second pipeline through the Baltics as an alternative to Ukraine following more than two years of a political stalemate between the two nations, and between state-run Naftogaz and Gazprom on payments.