Europe’s Case Against Gazprom Will Damage Russian Influence

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As Russian President Vladimir Putin tries to maintain its grip over Eastern Europe with its vast web of natural gas pipelines, one small European country gained a bit of leverage over Russia. Lithuania announced on May 8 that it has successfully pressured Russian gas giant Gazprom (NASDAQOTH: OGZPY  ) into lowering its price for natural gas through 2015, according to Reuters.

Lithuania is not the first country that comes to mind when thinking of who may be able to stand up to Russia. But the deal came as Lithuania made some aggressive moves to seek global suppliers of liquefied natural gas (LNG). The small Baltic nation was in talks with Norway and Qatar and was trying to sign a deal as quickly as possible.

To be sure, it is not as if Lithuania has achieved energy independence from Russia. In fact, it relies on Russia for 92 percent of its imported natural gas supplies. But Lietuvos Dujos – the Lithuanian utility that accounts for 40 percent of the domestic market – forced Gazprom to slash its price of gas. Although the details of the agreement were not disclosed, Lithuanian Prime Minister Algirdas Butkevicius previously said that he expected Gazprom to agree to a 20 percent price reduction.

"Lietuvos Dujos has entered into an agreement with Gazprom that involves a significant reduction in the price of natural gas," the company said in a statement.

By seeking alternative supplies of energy, Lithuania forced Russia into price concessions for fear of losing market share. In the coming months and years, as Europe continues to diversify its sources of energy, it will enhance its leverage of Russia in a similar manner.

But perhaps more important than Lithuania seeking LNG suitors is the ongoing case on behalf of the European Commission against Gazprom for price manipulation and antitrust violations. Europe has argued that Gazprom manipulates prices for political gain and the European Commission is set to release the results of a two-year investigation this month, which is expected to demonstrate substantial evidence that Gazprom is breaking European laws. After that report is released, the EC could take action relatively quickly.

"I think we are going to see, first of all, a spectacular lump of bad publicity for Gazprom, because the complaints will list all of the bad things that Gazprom has been doing, then we will have fines, which may be very substantial, and there will also be the opportunity for the companies that have been overcharged for gas to launch lawsuits against Gazprom over the extortionary prices that they have been charging," Edward Lucas, the editor of The Economist, told Radio Free Europe in an interview.

The European Commission could seek fines against Gazprom and/or a change in pricing structure. Gazprom has long linked its prices to the price of crude oil, and has signed up countries to long-term contracts, which are often expensive.

But as the spot market in Europe has grown as a result of a flood of Qatari LNG – which was once destined for the U.S. until shale gas came about – Russian gas is no longer the only game in town. Purchases of natural gas on the spot market have shot up from just 15 percent in 2008 to 44 percent in 2012. This has Gazprom's gas contracts looking more and more expensive and even extortionary, as Mr. Lucas points out. Eastern European countries often pay 1 ½ times more for natural gas than does Western Europe.

That has Gazprom scrambling to pre-empt any actions by the European Commission. By granting price cuts, it hopes to disarm the complaints by many EU member countries. It has maintained near-monopoly control over Europe's energy for years, but its influence could be on the wane. The discount it just gave to Lithuania is a sign that cracks in Russia's grip over Europe are beginning to show.

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  • Report this Comment On May 12, 2014, at 12:45 PM, JamesABG wrote:

    Even if everything in the article is true, concluding that Gazprom is weaker is silly. Lithuania's pyrrihic victory does nothing but strengthen Gazprom. Further, there is nothing the EU can do to stop the China deal and if its a choice between selling to grateful China or whining Europe, northern Europe is going to get mighty cold in the winter.

  • Report this Comment On May 12, 2014, at 2:41 PM, amvet wrote:

    The ranting against Russia and Russian oil and NG came from the USA. It is political, not economic, and its result will be to damage the Eruopean economy.

    Forget LNG from the USA. The only NG fields in the USA that are incresing production are the shale fields and they decline the first year about 80%. Drill baby, drill. Most US NG production companies have a lot of debt and are not breaking even.

    Last winter both the US and Canada had massive declines in stored gas, i.e. production could not keep up with demand. Can storage be replenished by the end of October?

    Qatar sends 70% of their LNG to Asia where they can get around $15 for it. Asian demand is rising. LNG production in down from 2011.

    Probably Europe can get alternative, long term, supplies of NG, but at a higher price than the Russian. Enjoy.

  • Report this Comment On May 12, 2014, at 3:24 PM, DZPM wrote:

    USA and West are pathetic instead to stop not a ligament puppet government they install government that use tanks and helicopters on own eastern Ukrainian. The vote seems the most logical outcome of the events in Ukraine. The east saw the overthrow of the democratically elected president by the western backed Kiev politicians following demonstrations and violence following a western threat that the demonstrators were not to be confronted. The former president was from the east. When similar demonstrations take place in the east the demonstrators are attacked by the Kiev led armed forces there is no parity in this situation. The argument that terrorist are behind the eastern demonstrations is false, their maybe some instigators but the vast majority of the eastern demonstrators are Russian speaking Ukraine citizens, the killing of these people by the army is a human rights violation.

    USA and West warn Russia not to interfere if Russia interfere they can tell the World look we are the good gay and Russia are bed gay Russia occupy Ukraine we the hungry capitalist armed with Banks and Wall Street are only trying to help Ukrainians buy suckering everything they have only few puppet can benefited and the rest can depend on the West hungry Capitalist forever. If Kiev’s corrupted Chronis didn't listen to USA and West Imperialist they will still have whole country also Kramer that always belong to Russian Russia has to invade Ukraine to stop hungry Imperialistic blood sucking USA & West

    Obama tack nonsense He can’t push out Russia with force out the Crimea because Russia can spray his but with atomic dust that why. Russia is not Serbia, Iraq etc. West Ukrainians did the same things while ago they overturn the legitimate government now is time for the east of the country to do the same West & USA hungry capitalist start that and now all Ukrainians have to suffer.

    Double Standard >USA & WETS Baloney High Schools bullies Who care about G7 Russia China and India are bigger and more important than G7 West Ukraine’s top Diplomats are CIA Spy. Timoshenko sale Ukraine for money when she was Premier to USA >CIA and West for money and here on interest she must be mad.

    China dislike> disspy USA regardless of economic trades USA are arming Taiwan and hinder Taiwan unification with mother land China for USA own Interest. US Invaded Grenada, Panama, Iraq, Kosovo, Afghanistan non US citizen was there and this country's are thousands of miles away from US and no mutual border this is absolute valuation of UN chapter Russia is absolutely right to intervene in Ukraine, Russian minority in danger mutual border and Russia is taking her land back Peninsula that belong to Russia prior 1945 USA and West are arrogant bulls everybody know history and people’s rights even if they don't you have internet to find the truth and have your own and right opinion.

    * Liberal brainwashing propaganda machine don't work in twentieth century any more.

    *Bill Clinton established the precedent when he cut Kosovo loose from Serbia using the same mechanism. Putin is diabolical and the liberal West's foreign policy establishments are complete idiots. With irresolute current administration, I am calling on President Clinton to get involved. President Clinton had shown unparalleled bravery ordering bombing of Yugoslavia (Serbia) to support secessionist forces in Kosovo Even Kosovo is historically Serbian Creamier is historically Russian not Ukraine. What we need to do now is to bomb Ukraine to support Crimea independence movement to make aspirations of all local nationalities (Russians, Armenians, Greeks, Tatars, Jews, etc.) a reality. Also, we need to offer a job to any Russian soldier disguised as a freedom fighter to become a legitimate member of armed forces of Independent Crimea.

    *What about England do they have to give back north Ireland they took away and split the country in half or Granada they stole from Spain (What a double standard?)

    * What happened to the U.S. position of furthering democracy? If the people vote what is the problem? The reason is this is really about money and Wall Street. If the EU comes in billions can be made by the bankers in another debt laden market. If Russia gives its aid package and controls the purse strings Wall Street and the EU make zip. After the debt is refinanced a couple times then the EU can take over and install its banker prime minister in the bailout like it did in Greece, Italy and Cypress. The EU and the bankers usurp democracy and take control of countries without firing a shot!

    Obama speaks, what a crock.......The narrative is, the truth is, that the breakaway republics have been under assault by influence from outside the country since 2004. The new leader of Ukraine was being paid, and paid well, to destabilize the region by the globalist financier #$%$, That statement is well rooted in truth. Putin saw through all the deception long ago. We support most oppressive regime in the world like Saudi Arabia Regime that support terrorist that operate in Syria, Iraq, Libya, Russia country without a single Church country that hate Christianity Country that rule buy Middle Ages principle. USA & Obama Government are pathetic.

    Steven Segal is not brain wash like 75% off American Steven Segal is smart educated he travel the world & develop his own opinion and can't be brain wash by Washington bureaucrat.

    West Ukraine, Germans & Poland’s are Catholic they hate Russia because they are Christian Orthodox seem like Greek Orthodox Priest can Marry and have children. On the contrary Catholic Priest cannot marry so they prey on innocent boys .You can read every day how boys bin rep and molested by Catholic Priest, what a shame.

    Well, if the government that you democratically elected gets violently overthrown by western backed neo#$%$, and if the new western backed toughs in power unleash the army on its own people, wouldn't it be only logical to want to secede? If these people in power in Kiev did not have the west's blessings and if what they are doing was not convenient to the west, then we would be fed a totally different story from western corporate controlled news outlets. Then the story would be about how despicable it is for a nation's army to attack its own people and the need for the west to intervene so as to protect freedom. I find it sad that a lot of people still believe in the old tired lines about defending freedom and democracy every time the US and the war profiteers that are actually in power want to intervene in another nation's affairs.

  • Report this Comment On May 12, 2014, at 5:45 PM, forrest wrote:

    If the EU can pass a law like

    United States antitrust law is a collection of federal and state government laws, which regulates the conduct and organization of business corporations, generally to promote fair competition for the benefit of consumers. The main statutes are the Sherman Act 1890, the Clayton Act 1914 and the Federal Trade Commission Act 1914. These Acts, first, restrict the formation of cartels and prohibit other collusive practices regarded as being in restraint of trade. Second, they restrict the mergers and acquisitions of organizations which could substantially lessen competition. Third, they prohibit the creation of a monopoly and the abuse of monopoly power. the EU can get a better price for there LNG suppler

  • Report this Comment On May 13, 2014, at 2:28 AM, Joefacc2244 wrote:

    Russia is just going to "sanction" Europe eventually and sell all it's gas to China. Then China and Russia will be laughing all the way to the bank.

  • Report this Comment On May 13, 2014, at 7:41 AM, kabella wrote:

    It's good to hear Lithuania standing up to Russia and Gazprom. The world is finally waking up to the fact that both Gazprom and Russia are as corrupt as corrupt can get. China will enter no serious deals with either of the two in fear of losing their export market to the US. If that happened then China's economy would be headed in the same direction as Russia's is now...a decession that would bankrupt them and that's where Russia is headed again. I'm sure the EU will soon not have to depend on anything Russian so down goes Russia even more.

    Good for the EU.

  • Report this Comment On May 13, 2014, at 12:07 PM, vet212 wrote:

    If the EU isn't more cautious they could find themselves paying 4 times as much for Gas. plus the oil they also are getting from Russia

  • Report this Comment On May 13, 2014, at 2:39 PM, quasimodo007 wrote:

    Yeah but can Lithuanian and other Baltic countries Stop the Evil czar putin/hitler massive German /Nato Trained Evil bully Russian military and Evil czar putin/Hitler Evil serbian Bully LAp DOGs THUGS ?

    Evil czar putin/Hitler is Czar of all evil russia for Life. Evil czar putin/Hitler has LOTS of Money and Time to consume and surround the WEAK /Waffling GB/ Europe.

    Evil czar putin /Hitler has No Fear of the WEAK /Arrogant /Blind Deaf/Greedy/ Ignorant and Down Right Dumb USA/EVIL NsA.

    Evil czar putin/Hitler has had a VERY DEEP Hatred of the USA ever since the Fall of the EVIL corrupt russia.

  • Report this Comment On May 13, 2014, at 4:28 PM, Mayvau wrote:

    Of course what all of the Russia cheerleaders here do not mention, or more likely are not aware of, is that Gazprom's market capitalization is less than $100 billion.

    That is equal to Statoil's, the Norway energy giant.

    Gazprom, if managed and operated like a "real" energy company and not as a toady to the FSB, their market capitalization would be nearer Exxons. Exxon has a market cap of $450 billion.

    So by Gazprom being the bully in the playground Russia is loosing $350 billion in current market capitalization.

    I do not know how much total income Gazprom gets from gouging Eastern European countries but I doubt it is over say $15 billion a year.

    So it will take Gazprom 20 years to make up the amount they are loosing today, yes today, in value by being jerks.

    Yes you can make the EU colder if you want. But that lost $350 billion could have gone a long way towards making Russia an actual modern country in which to live.

    Get granny out of that shack with no running water or electricity that you keep hidden in the dacha in the country.

    Or the 4 million homeless children.

    But your sure teaching the EU a lesson.

    Welcome to capitalism. Who is really laughing now.

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