The great gas pipeline game: monopolistic expansion of Russia's Gazprom into European markets

Abstract

PurposeRussian dominance of the Eurasian natural gas delivery system has put the independence of the EU's foreign policy at risk. Although Europe is struggling to counteract the threat, Russia appears to be winning the game. This paper aims to recommend significant measures to reverse the trend.Design/methodology/approachThis is a discussion paper exploring the issues involved.FindingsRussia's stranglehold already has acquired 25 percent of the European market. Moreover, it is installing four new pipelines, and plans to increase its market share substantially. In response, Europe is building or planning three new pipelines. The author recommends additionally: strategic gas reserves, anti‐trust prosecution, financial and political inducements, and offering WTO membership to Russia in exchange for concessions.Practical implicationsEurope can win the great natural gas pipeline game if it is played with commitment. Europe must focus on the big prize, natural gas independence.Originality/valueThis original research viewpoint contains suggestions for the EU and Europe to increase their energy security.

Die Sicherheit der Energieversorgung in der EU – Eine Bewertung des Nabucco Projekts und Vorstellung dessen Open-Season-Auktionsprozesses

“…Previous research has already shown that the "great natural gas pipeline game" can be won (Schaffer 2008), but only by acting with rapid commitment. Hopefully commerce is not taking back seat to politics (Freifeld 2009).…”

“…As can be seen in Fig. 1 (left), European gas consumption will grow-largely due to increased gas-fired power generation (Bothe and Lochner 2008;Kjärstad and Johnsson 2007)-from approximately 500 bcm in 2005, valued at about USD 100 billion (Schaffer 2008), to about 816 bcm in 2030 (OME 2006) representing an average growth rate of 2% per annum. 1 As the indigenous gas production of the European Union declines (BCG 2005), a growing gap between gas production and gas demand-as illustrated by Fig.…”

“…1 (right)-can be expected in the coming years (IEA World Energy Outlook 2008). This stems from the fact that, at its present rate of consumption, the EU has only a ten-year supply of natural gas within its own borders, making imports of natural gas a necessity (Schaffer 2008). Thus, increasing gas demands on the one hand paired with decreasing EU production on the other make a strong case for investing in new pipeline infrastructure (Lise et al 2008;Finon and Locatelli 2008;Mavrakis et al 2006).…”

“…The Russian monopolistic dominance of the European Union's natural gas supplies has put the independence of the EU foreign policy at risk (Schaffer 2008). Currently, roughly a third of natural gas used in the European Union comes through Kremlin-controlled east-west pipelines (The Economist 2009) and some sources even surmise that half of all the gas the EU imports comes from Russia (Von Hirschhausen et al 2005;The Economist 2007).…”

“…The opening up of a fourth main supply corridor might be considered as one solution to meet future EU gas demands (BCG 2005). As such, Nabucco might provide a promising beginning for enhancing the EU's energy supply security in future years (Schaffer 2008).…”