World
Natalia Meden
June 12, 2011
© Photo: Public domain

Gazprom CEO A. Miller revealed no secret when he told in an interview to Germany's Suddeutsche Zeitung that the Russian energy giant was interested in buying into E.ON or any of its subsidiaries. The acquisition of foreign assets is built into Gazprom's widely publicized strategy aimed at creating integrated supply chains stretching from gas fields in Russia to end buyers in various countries, with priority being given to Europe…

The response in German media was markedly defensive. For Suddeutsche Zeitung, Gazprom is a dangerous partner en route to global dominance, and Europe – its number one potential victim. Allegedly, even at the moment Gazprom can easily leave European consumers short of natural gas, and – given Russia's materializing North Stream and South Stream projects – the prospects for Europe must be dire. The Russian company is thus portrayed as an enemy eager to roll over Germany not with tanks as in 1945, but with the help of its gas reserves and pipelines. Now that the demand for natural gas is rebounding (the IEA projected in its recent survey that the share of natural gas in the global energy balance would increase from the current 21% to 25% by 2035), the media can expect Europeans to be a receptive audience for alarmist talk about the appetites of Russian energy giants.

By the way, around six months ago Germany used to say that Gazprom's glory days were over. Facing the global economic downturn, the company had to choose between maintaining its share of the gas market and sales volume or maximizing revenues. Gazprom's top management decided in favor of the latter option and did not give in to the pressure of its European partners, including E.ON, who urged the company to reform its pricing policies and to agree to prices lower than set by existing contracts. Over the past year, the revenues posted by Gazprom grew by almost by a quarter and reached $43.9b. The convincing performance evidently prompted the media to reverse their grim forecasts, but Gazprom's aspirations to market some day directly to European customers continue to meet with opposition.

Judging by the posts on Sьddeutsche Zeitung website, Germans are divided over opening doors to Gazprom, opposition to deeper engagement with the company not being the prevalent viewpoint. The majority seems to see no reasons to reject the idea, occasionally citing the fact that Germany's number one energy company is already foreign-owned (as of the early 2011, 63% of E.ON were owned by non-German shareholders). One of the comments read that Russians are clearly more reliable suppliers than Arabs, another – that gas is a better fuel than oil while renewables remain a matter of a distant future.

The growth of the share of natural gas in the overall energy balance is indeed largely attributable to ecological regards. Burning natural gas generates considerably less COx emissions believed to be responsible for climate change than burning coal or oil. From this standpoint, gas-burning power plants are still worse than nuclear ones, but on June 6, 2011 the German government adopted a plan of phasing out the latter. Interestingly, the step was taken – contrary to IAE warnings and Brussels' thinly veiled discontent – by a ruling coalition compiling traditionally pro-nuclear energy parties. Brussels felt that, on top of putting in jeopardy the EU common energy security, the decision reflected Berlin's untamed independence and tendency to put German interests above European. Voters in Germany do hold their own, and their preferences have to be treated with respect. Former E.ON CEO Wulf Bernotat described the theme of nuclear energy in Germany as a “religious issue” and said admitting it to the country's energy mix would take profound shifts in the public opinion. There is consensus among German experts that a cocktail of nuclear and alternative energy makes no sense on the systemic level. At the same time, wind and solar energy combine perfectly with gas-powered generation as their summary output can be adjusted flexibly to fluctuating demand. Part of Germany's plan to depart from nuclear energy is to additionally construct 9 gas-burning power plants.

In the light of the above, representatives of parties from Germany's ruling coalition reacted to the statement made by A. Miller positively. Christian Democratic Union’s economic policy expert Joachim Pfeiffer invoked the success of Wingas, a German market player jointly owned by Gazprom and BASF, remarked that there were no reasons to be nervous about Gazprom's bid to buy into E.ON, and even expressed the view that giving Gazprom a bigger role in the German energy sector might generally benefit the country's economy. Martin Lindner from the Free Democratic Party held more or less the same but stressed that there are borders not to be overstepped and the independence of E.ON must not be called into question. As for Moscow, what it needs is not a chunk of E.ON stock but access to the company's strategic knobs, and that is exactly the possibility Germans are uneasy about. German economic ministry spokesman said that if Gazprom casts its intentions into a definite shape the ministry and the federal anti-monopoly agency would carefully screen the proposal for compliance with free trade regulations. Problems can rise in connection with Gazprom's possession of 50% of Wingas which competes with Ruhrgas. Furthermore, the European Commission can derail the deal under the pretext that it does not fit with the Third Energy Package. There is also a chance that E.ON simply will not welcome Gazprom's bid. Regardless of the mostly positive record of cooperation between E.ON Gazprom, in the past the Russian company failed to swap a stake in the South Russian gas field for E.ON stock or even that of any of its West European subsidiaries. As Bernotat admitted, Germans chose to retain control over the key companies supplying their market. In 2009, Gazprom got a stake in a joint venture with E.ON and regained a package of its own shares. Germany’s program of withdrawal from the nuclear energy drained value from most energy companies and as a result they have to worry about becoming vulnerable to unfriendly mergers.

It is unclear so far whether Miller’s statement is going to translate into a practical offer and, if it is, how likely it is to be accepted by Germany. The opponents of admitting Russian companies to the European market are political heavyweights and Russia’s list of grievances up to date includes failed attempts to buy Opel and Infineon, the recent dumping of Hungary’s MOL by Surgutneftegaz, and the hysterical reaction of the British media to Gazprom’s probe into buying Centrica. It is therefore an open issue what future awaits Gazprom’s latest initiative.

The views of individual contributors do not necessarily represent those of the Strategic Culture Foundation.
Gazprom vis-a-vis Germany

Gazprom CEO A. Miller revealed no secret when he told in an interview to Germany's Suddeutsche Zeitung that the Russian energy giant was interested in buying into E.ON or any of its subsidiaries. The acquisition of foreign assets is built into Gazprom's widely publicized strategy aimed at creating integrated supply chains stretching from gas fields in Russia to end buyers in various countries, with priority being given to Europe…

The response in German media was markedly defensive. For Suddeutsche Zeitung, Gazprom is a dangerous partner en route to global dominance, and Europe – its number one potential victim. Allegedly, even at the moment Gazprom can easily leave European consumers short of natural gas, and – given Russia's materializing North Stream and South Stream projects – the prospects for Europe must be dire. The Russian company is thus portrayed as an enemy eager to roll over Germany not with tanks as in 1945, but with the help of its gas reserves and pipelines. Now that the demand for natural gas is rebounding (the IEA projected in its recent survey that the share of natural gas in the global energy balance would increase from the current 21% to 25% by 2035), the media can expect Europeans to be a receptive audience for alarmist talk about the appetites of Russian energy giants.

By the way, around six months ago Germany used to say that Gazprom's glory days were over. Facing the global economic downturn, the company had to choose between maintaining its share of the gas market and sales volume or maximizing revenues. Gazprom's top management decided in favor of the latter option and did not give in to the pressure of its European partners, including E.ON, who urged the company to reform its pricing policies and to agree to prices lower than set by existing contracts. Over the past year, the revenues posted by Gazprom grew by almost by a quarter and reached $43.9b. The convincing performance evidently prompted the media to reverse their grim forecasts, but Gazprom's aspirations to market some day directly to European customers continue to meet with opposition.

Judging by the posts on Sьddeutsche Zeitung website, Germans are divided over opening doors to Gazprom, opposition to deeper engagement with the company not being the prevalent viewpoint. The majority seems to see no reasons to reject the idea, occasionally citing the fact that Germany's number one energy company is already foreign-owned (as of the early 2011, 63% of E.ON were owned by non-German shareholders). One of the comments read that Russians are clearly more reliable suppliers than Arabs, another – that gas is a better fuel than oil while renewables remain a matter of a distant future.

The growth of the share of natural gas in the overall energy balance is indeed largely attributable to ecological regards. Burning natural gas generates considerably less COx emissions believed to be responsible for climate change than burning coal or oil. From this standpoint, gas-burning power plants are still worse than nuclear ones, but on June 6, 2011 the German government adopted a plan of phasing out the latter. Interestingly, the step was taken – contrary to IAE warnings and Brussels' thinly veiled discontent – by a ruling coalition compiling traditionally pro-nuclear energy parties. Brussels felt that, on top of putting in jeopardy the EU common energy security, the decision reflected Berlin's untamed independence and tendency to put German interests above European. Voters in Germany do hold their own, and their preferences have to be treated with respect. Former E.ON CEO Wulf Bernotat described the theme of nuclear energy in Germany as a “religious issue” and said admitting it to the country's energy mix would take profound shifts in the public opinion. There is consensus among German experts that a cocktail of nuclear and alternative energy makes no sense on the systemic level. At the same time, wind and solar energy combine perfectly with gas-powered generation as their summary output can be adjusted flexibly to fluctuating demand. Part of Germany's plan to depart from nuclear energy is to additionally construct 9 gas-burning power plants.

In the light of the above, representatives of parties from Germany's ruling coalition reacted to the statement made by A. Miller positively. Christian Democratic Union’s economic policy expert Joachim Pfeiffer invoked the success of Wingas, a German market player jointly owned by Gazprom and BASF, remarked that there were no reasons to be nervous about Gazprom's bid to buy into E.ON, and even expressed the view that giving Gazprom a bigger role in the German energy sector might generally benefit the country's economy. Martin Lindner from the Free Democratic Party held more or less the same but stressed that there are borders not to be overstepped and the independence of E.ON must not be called into question. As for Moscow, what it needs is not a chunk of E.ON stock but access to the company's strategic knobs, and that is exactly the possibility Germans are uneasy about. German economic ministry spokesman said that if Gazprom casts its intentions into a definite shape the ministry and the federal anti-monopoly agency would carefully screen the proposal for compliance with free trade regulations. Problems can rise in connection with Gazprom's possession of 50% of Wingas which competes with Ruhrgas. Furthermore, the European Commission can derail the deal under the pretext that it does not fit with the Third Energy Package. There is also a chance that E.ON simply will not welcome Gazprom's bid. Regardless of the mostly positive record of cooperation between E.ON Gazprom, in the past the Russian company failed to swap a stake in the South Russian gas field for E.ON stock or even that of any of its West European subsidiaries. As Bernotat admitted, Germans chose to retain control over the key companies supplying their market. In 2009, Gazprom got a stake in a joint venture with E.ON and regained a package of its own shares. Germany’s program of withdrawal from the nuclear energy drained value from most energy companies and as a result they have to worry about becoming vulnerable to unfriendly mergers.

It is unclear so far whether Miller’s statement is going to translate into a practical offer and, if it is, how likely it is to be accepted by Germany. The opponents of admitting Russian companies to the European market are political heavyweights and Russia’s list of grievances up to date includes failed attempts to buy Opel and Infineon, the recent dumping of Hungary’s MOL by Surgutneftegaz, and the hysterical reaction of the British media to Gazprom’s probe into buying Centrica. It is therefore an open issue what future awaits Gazprom’s latest initiative.