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Research Report

THE QUEST FOR GAS MARKET COMPETITION: Fighting Europe’s Dependency on Russian Gas more Effectively

Iana Dreyer
Fredrik Erixon
Robin Winkler
Copyright Date: Jan. 1, 2010
Pages: 37
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Table of Contents

  1. (pp. 5-6)

    IN THE SUMMER of 2009, Russia silently withdrew from its commitment to provisionally apply the Energy Charter Treaty (ECT), the plurilateral agreement regulating investment protection and transit in the energy sector in Europe and the CIS. Russia is neither a member of the World Trade Organisation (WTO) nor signatory to any other international economic agreement with other international powers that would limit the discretionary power of its government in the field of energy. Such limitations would have been useful in the recent past. The Kremlin’s lack of respect for property rights and for contracts has been costly to foreign energy...

  2. (pp. 7-11)

    GAZPROM IS RESPONSIBLE (wholly or partly) for the most important gas supply disruptions experienced in the EU. One reason why this company, which holds the monopoly over gas exports from Russia and a quasi-monopoly over gas production at home, has not hesitated to resort to supply cuts is its own favourable position as investor and importer operating in the domestic gas markets of some EU member states, notably in those which are most dependent on Russian energy. This can be clearly inferred from Table 4 in this paper’s annex. These countries are the Central and Eastern European member states, the...

  3. (pp. 11-17)

    WILL THE THIRD Legislative Package untie the competitive knots that strangulate the EU’s gas markets? The section below examines Brussels’ liberalisation and competition legislation initiatives with a particular emphasis on the last Gas Directive of 2009. As will be explained in detail below, the most important provision of the Gas Directive, full ownership unbundling, was watered down due to member state resistance. As a consequence, the chances for more genuine competition and therefore greater supply of security, in particular on Europe’s Eastern borders, are not good. This section will provide an historical and analytical overview of the EU’s gas market...

  4. (pp. 17-25)

    THE CURRENT SITUATION is this: the Third Energy Package was passed in the spring of 2009 in its watered down version. It is precisely the countries that have proven to be the most vulnerable to supply disruptions from the East in January 2009 and further in the past who will adopt the weakest proposition for “unbundling”: the ITO, or the Third Option (see above, and Table 5.1 in the annex). This is the case of Bulgaria, Slovakia, and Latvia, for example. Other countries will seek exemptions (see below). In such a context, what can be done to improve competitive conditions?...

  5. (pp. 26-27)

    Supply disruptions from Russia can in some cases be considered abuse of market dominance because member states which are strongly dependent on Russia as supplier have been subjected to them, although they have not breached their contractual obligations towards Gazprom.

    Vertically integrated national incumbents in Central and Eastern Europe have no sufficient incentives to invest in alternative sources of supply and integrate with the rest of the EU’s markets. This is due to their dominant position in the market and the absence of an adequate competition framework.

    Most Central European countries and the member states located on Europe’s Eastern rim...