This is the key line Russian President Putin used at the plenary session of the International Arctic Forum, which was instantly relayed by all Russian media, mainly by TASS, Russia Today and Sputnik. There is nothing new in this vintage Russian propaganda, which is echoed by pro-Russian politicians in the EU – Russian gas is indispensable and the cheapest gas in the world, while US-sourced LNG is expensive and inferior in quality.
EU budgets, he asserts further, will have to compensate European consumers for the price difference between US LNG and pipeline gas from Russia. Even if one sets aside the basic fact that the budgets of EU countries and that of the Russian state are profoundly different in structure, the EU legal and regulatory bases make it virtually impossible for any state to provide artificial market screens for any gas via national government decisions – as such an action would be sanctioned either under EU anti-trust law or would potentially be considered illegal state aid, triggering special review and clearance procedures by the European Commission.
Russia’s main and often repetitive propaganda theme is that the United States is not interested in commercial competition with Russian gas, but in leveraging its political might to help US LNG enter the EU market and help Washington solve geopolitical problems. In the Russian President’s interpretation, the sanctions are not related to Crimea and Ukraine at all, but to help enforce American liquefied natural gas as an alternative to Russian gas for European consumers.
“Sanctions today are being used not as an instrument of foreign policy but as an instrument of competitive struggle in the world,” Putin continues. Reading this makes me wonder whether to trust my own life experience in all the years after 1989, when Gazprom was nothing else but a key Kremlin policy instrument. Worth recalling, my favorite Russian proverb is very accurate – everyone understands to the extent of his depravity.
One can hardly recall any case over the last 40 years where Gazprom had to compete at tenders to get contracts for the supply and transit of natural gas anywhere in the CEE. On the contrary, the deals were ‘negotiated’ as a one-way diktat by Moscow. The ‘corporate’ facade masked the legacy of the intergovernmental agreements on gas between the USSR and the respective dependent states of Central and Eastern Europe.
Gazprom has not only succeeded the Soviet Ministry of Gas Industry but is still acting as a quasi-ministry under the direct control the Kremlin and personally by President Vladimir Putin, who is the true CEO behind the scenes. Gazprom shareholders are simply passive bystanders. It is suffice to talk to former and current shareholders to understand how decisions at the top are made, including on the investment program. It is not by accident that Western minority shareholders have taken Gazprom’s management to US court for mismanagement, resulting in financial losses to the company, which has affected their dividends.
The other key line in the Russian President’s statement is his parable of the Europeans rejoicing over the Nord Stream-2 project. The United States are the bad guys who are blocking Putin’s EU partners, who have wholeheartedly and with ‘near consensus’ accepted this project.
Once again, starting to wonder – what am I missing – are we considering the same Europe and the same time as the Russian president?
The main act I can recall that can be defined as a valid pan-European stance on Nord Stream-2 is the European Parliament resolution, passed on March 13, 2019, by an astounding majority of 402 against 163 votes, which calls for an immediate suspension of this project. Juxtapose the facts and Mr. Putin’s claims of a ‘near consensus” on Nord Stream and you will find a classic case of delusion.
The truth is that the European Parliament has adopted new amendments to the EU Gas Directive, which have further elaborated the EU’s common reaction on Russia’s pet projects that further isolates Putin’s “main friends” in the EU – Germany and Bulgaria. The right to determine the conditions for access to gas infrastructure in the EU will rest exclusively with Brussels and not with national governments or regulators.
Further on, Putin deliberates on his understanding with Erdogan on the Turkish Stream pipeline under the Black Sea, which he trusts will come online at the end of this year. Yet he fails to mention the differences with the Turkish President. Turkey is not a member of the EU, so both sides are not bound by EU law for bilateral deals. The problem arises when infrastructure in Turkey enters EU territory and Russian gas is not competitive pricewise. Turkey has reduced its consumption of gas and the share of Russian natural gas. That is where the “good news” narrative has a downside, not shared with the public.
Another false Putin argument goes that if Nord Stream-1 had not been realized, gas prices in Germany would have been higher. There the propaganda piece expands into the claim that US LNG is more expensive, and European governments would need budgets to compensate consumers for higher gas prices.
Hereinbelow is the graph with the latest data on the TTF gas exchange, the largest in liquidity in the EU, which is mostly used to benchmark US LNG prices to Europe.
Please note the red dash at top right corner – the quote of the current regulated price in Bulgaria, which reflects Gazprom’s pipeline gas to Bulgaria. The price of 23 euros per megawatt hour can’t be accommodated to the scale of the graph. The verified fact is that LNG spot prices, including US LNG, for the first and second quarter of 2019 have been 30% cheaper than Russian gas for Bulgaria. The last gas supply tender of Bulgargaz, as per the terms for delivery, purposefully excluded LNG options with the requirement for regular monthly supplies.
One thing is certain: Vladimir Putin is getting nervous. If he has problems coming to terms on gas prices with his closest buddy Erdogan, then the chances he will sell his propaganda to Western partners become miniscule. The EU is not interested in verbal deviation from facts. If Gazprom wants to sell gas, it has to compete on the market and not the stage of geopolitics and Kremlin’s political bravado. No one is interested anymore in his visits to EU countries, discussing gas supplies and transit projects.
The world where Mr. Putin is ab initio right is getting smaller by the day.