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EU-Russia trading relations: the challenges of a new gas architecture

Abstract

Gas security is a key factor in the European Union’s energy policy. Contractual relations based on long-term contracts during the 1970s and 1980s led to relative stability in energy trade between the EU and its gas suppliers. But since the mid-1990s, the process of opening up the EU’s gas industries to competition and the desire to create a single gas market has led to an in-depth reorganization of the sector. The EU now intends to redefine the way in which it manages its relations with its main suppliers, such as Russia, by attempting to impose a model based on competition, unbundling of network industries and privatization. Russia does not intend to implement this “EU model” in its gas sector, despite the big changes taking place in its domestic market. An approach based on the preferential use of state instruments conflicts with the multilateralism and principles of competition upheld by the EU. The EU’s normative power is thus in contradiction with the institutional environment of the Russian energy sector. It is therefore unlikely that energy relations between the EU and Russia will be structured solely on standards stemming from international rules and institutions.

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Fig. 1

Notes

  1. According to Brousseau et al. (2011), “(…) a competitive selection among institutional solutions does not systematically eliminate costly governance structures (…)”.

  2. A number of more or less inclusive definitions of the concept of energy security have been proposed (Kruyt et al. 2009; Sovacool and Mukherjee 2011). The International Energy Agency (2001) gives a fairly restrictive definition that has since been widely used in the economic literature (Winzer 2011). This concept refers to “the physical availability of supplies to satisfy demand at a given price”. The definition includes a physical dimension, in other words the reliability of the source and the volumes available, as well as an economic dimension linked to prices and their volatility.

  3. The Herfindhal-Hirschman index attempts to measure market concentration while the Shannon–Wiener index measures the diversity of importers.

  4. The Energy Charter transit protocol (2000) specifies pipeline access conditions. It defines the principles for determining transit tariffs, available capacity and unauthorised taking of energy products during transit.

  5. Two other categories of players can be identified alongside Gazprom. In the first category are the independent producers, which are generally private companies that received some of the exploration and production licences at the time of the gas sector reform in 1992. The second category is the Russian oil companies.

  6. The liquidity of a gas hub can be defined as the ratio between the total volume of trade on the hub and the volume of gas consumed in the area served by the hub.

  7. First gas OPEC meeting. EU Energy, No 231, 23 April 2010.

  8. The Price Review and Price Re-opener clauses are two mechanisms that were introduced in the 1980 s to increase flexibility and open the way for renegotiating prices in long-term contracts. These provisions introduced the possibility of adjusting the price formula, making them an important part of the risk-sharing arrangements between importer and exporter (Wäktare 2007; Frisch 2010).

  9. International Gas report, No 718, 25 Feb. 2013.

  10. These companies are E.ON-Rurhgas (Germany), PGNiG (Poland), DONG (Denmark), ENI (Italy) and Econgas (Austria).

  11. Direct access to end-users would also enable a company to avoid competition in wholesale markets strategies and increase supply costs for its downstream competitors (Hansen and Percebois 2010).

  12. Re-negotiation of the gas transit contract between Poland and Russia is an illustration of the implications of these rules. The Polish section of the Yamal gas pipeline, previously operated by EurRoPol Gaz, jointly owned by PGNiG of Poland and Gazprom, is now in the hands of the Polish operator Gaz-System.

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Correspondence to Catherine Locatelli.

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Locatelli, C. EU-Russia trading relations: the challenges of a new gas architecture. Eur J Law Econ 39, 313–329 (2015). https://doi.org/10.1007/s10657-013-9423-y

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Keywords

  • Natural gas market
  • Energy security
  • European Union

JEL Classification

  • D23
  • D86
  • Q34