Gazprom and Europe are trying to end their interdependence

The story of Gazprom is the story of interdependence. The Russian energy giant, benefiting from monopoly control of natural gas exports, is one of the central pillars of the state.

Last year, the Kremlin depended on this single company for 15 per cent of its tax revenues. Gazprom, in turn, depended on gas sales to Europe for most of its export earnings, which totalled $72.4bn last year, while supplies to the world beyond the former Soviet Union accounted for $52.8bn.

Meanwhile, a string of European countries, particularly the Kremlin’s former satellite states, depend on Gazprom for between 80 and 100 per cent of their natural gas imports. Just as the Russian energy giant must sell its wares, so these countries have nowhere else to turn if they are to keep their lights on. Mutual interdependence locks together Gazprom, the Russian state and European gas consumers.

But the partners in this unlikely marriage are eyeing escape routes that would at least reduce their mutual reliance. Gazprom is trying to sell gas to China, where demand is powering ahead thanks to the country’s economic boom. Negotiations on an export deal have been taking place for several years without success.

However, Alexander Medvedev (pictured), deputy chairman of Gazprom’s management committee, says that the chances of an agreement have risen in the last few months.

During a visit to London, he described how the “nature” of the talks with China has changed. “We have agreed on all the basic terms for gas supplies, except prices,” he said. “The structure of any gas supplies is agreed upon. We have agreed upon all key metrics of the gas contract and we are no longer discussing abstract gas, but very specific gas supplies for very specific areas. Feasibility studies are now happening.”

Medvedev added that negotiations would resume in St Petersburg in March. “I believe this will be the next but last decisive step towards an agreement,” he said. At present, no gas pipeline connects Russia with China. However, if a deal were to be signed this summer, Medvedev said that construction of a pipeline would commence next year, with the first commercial gas deliveries taking place in 2015.

If all this falls into place – and China has many competing offers which could yet scupper any agreement with Russia – Gazprom will have won access to a new market with immense potential. Crucially, this would also ease its dependence on European customers.

Europe, for its part, is trying to find alternative sources of gas, notably via the proposed pipelines that would afford access to Azerbaijan’s reserves in the Caspian basin. With interdependence goes mutual distrust. Europe and Russia are quietly circling one another, each trying to ease its reliance on the other. Eventually, one or both may succeed and the familiar era of interdependence will come to an end.

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