Does Gazprom have a master pipeline plan?

  • 2006-02-01
  • By Roman Kupchinsky
RFE/RL - Russia's state-controlled monopoly Gazprom is the world's largest gas company and the 10th largest company in the world after its shares rose 13 percent on the London market in mid-January. But its ambitions don't end there, and in fact extend across the European continent.

After the disintegration of the Soviet Union in 1991, Viktor Chernomyrdin 's then head of Gazprom 's devised a plan to maintain as a single unit, falling under Gazprom's purview, the gas- transportation infrastructure of Russia, Ukraine and Belarus. In formulating the plan, Chernomyrdin and his advisers were following the most fundamental principle in gas geopolitics 's the winners need not only access to large gas reserves but also efficient systems for delivering the gas to markets. He who controls the pipelines controls the buyer 's and to some degree the country where the gas originates.

It was a good plan, but it failed. Ukraine and Belarus refused to give up what they considered the lucrative business of gas transit and insisted on nationalizing the pipelines on their territory. The main components of the former Soviet system were divvied up between the three states.

But Gazprom, looking at the defeat as a short-term setback, set for itself the far-reaching goal of buying up much of the gas-transit systems in the former Soviet Union as well as in Eastern and Central Europe. Its hope was to someday control the entire regional gas distribution system.

To date, Gazprom has had only mild success in realizing its plan. The pre-independence gas pipeline system in Belarus, for example, is still controlled by Beltransgas, a state-owned company. In Ukraine, the Soyuz pipeline and the two-thread Urengoy- Uzhgorod pipeline remain under Kiev's control. Georgia likewise resists pressure from Moscow to cede control over its pipeline in exchange for cheaper gas.

Elsewhere, however, Gazprom is gaining ground. Armenia, trying to diversify its energy sources, is currently building a pipeline to Iran. Gazprom, however, has insisted the diameter of the pipe be smaller than originally planned in order to prevent Armenia from shipping surplus Iranian gas to Georgia.

In Estonia, Gazprom owns a greater share of the national gas company, Eesti Gaas (30.64 percent) than the Estonian government (27 percent). Eesti Gaas, in turn, owns the country's gas transportation system. Gazprom owns 30 percent of Lithuania's Stella Vitae and 25 percent of Latvija's Latvias Gaze.

And Gazprom, of course, has a significant presence even beyond the former Soviet Union.

The gas pipeline system running through Poland was built jointly with Russia, and Gazprom holds a 50-percent share. Gazprom also holds 46 percent of the Polish company EvRoPol Gaz.

In the early spring of 1991, Gazprom attempted to buy a 25 percent stake in Verbundnetz Gas, which operated the entire gas distribution system in the former East Germany. But despite help from the German chemical company BASF, Gazprom was not allowed to take part in the tender and the stake was bought by Germany's Ruhrgas.

Gazprom's bid was primarily based on a wish to lower its dependency on Ruhrgas, which had been dictating the prices it paid for Russian gas, a practice that angered Chernomyrdin.

But in the ensuing years, Gazprom was able to gain a considerable presence in the German gas market through its partnership and joint venture agreements with the Wintershall. Today it has three major joint ventures with Wintershall, Wingas WIEH and WIEE, as well as agreements with Ruhrgas, Verbundnetz Gas and Siemens AG.

Gazprom holds a 50-percent stake in Hungary's Panruysgaz, and in 2001 it set its sights on the country's chemical company BorsodChem. This was not only for its chemicals, but also because it owned a minority stake in TVK, Hungary's second-largest chemical firm.

In July 2002 the European Commission approved the purchase of a 49-percent stake in SPP by Gazprom, Ruhrgas and Gaz de France. The deal was worth $2.7 billion and was financed by Ruhrgas and Gaz de France. Gazprom paid a third of this sum in installments. The SPP pipeline system transports about 70 percent of all gas supplied from Russia via Ukraine to Europe.

Gazprom also holds a 50-percent stake in Slovakia's Slovrusgaz.

And the investments don't end there. Gazprom has shareholdings in Italy's Volta (39 percent), the British-Belgian company Interconnector (10 percent), France's Fragaz (50 percent), and similar companies in Austria, Serbia, Greece, Finland, Bulgaria, and Turkey. In October 2005, the amount Gazprom had spent on those investments was estimated at $2.6 billion.

The International Herald Tribune cited Emmanuel Bergasse, administrator for Central and Eastern Europe and the International Energy Agency, as saying, "Gazprom has substantial market power from being the supplier of gas down to the customer. It is the chain that counts."

He added, "Gazprom's stated aim is to extend its dominant position, with obvious consequences for European energy diversification."