Laboratoire d'Economie de la Production et de l'Intégration Internationale Département Energie et Politiques de l'Environnement (EPE) FRE 2664 CNRS-UPMF CAHIER DE RECHERCHE LEPII Série EPE N° 41 bis Russian and European gas interdependence Can market forces balance out geopolitics? Dominique FINON Catherine LOCATELLI janvier 2007 LEPII - EPE BP 47 - 38040 Grenoble CEDEX 9 - France 1221 rue des Résidences - 2e étage - 38400 Saint Martin d'Hères Tél.: + 33 (0)4 56 52 85 70 - Télécopie : + 33 (0)4 56 52 85 71
[email protected] - http://www.upmf-grenoble.fr/lepii-epe/ 1 Russian and European gas interdependence. Can market forces balance out geopolitics? Dominique FINON, CIRED, CNRS and EHESS, Paris Catherine LOCATELLI, LEPII-EPE, Université de Grenoble Summary This article analyses the economic risk associated with the dominant position of the Russian vendor in the European market, with a view to assessing the relevance of possible responses by European nations or the EU. It considers various aspects of the Russian vendor's dependence on the European market, before turning to the risks that Gazprom exerts market power on the European market. It concludes by considering the relevance of the possible responses open to the EU and member states to limit any risks by creating a gas single buyer or more simply by encouraging the development of a denser pan-European network, with additional sources of supply and increased market integration. 2 1. Introduction A great deal has been written recently on relations between European Union countries and Russia with respect to gas. Alarmed by the fears stirred up by the supply cuts following the gas dispute between Russia and Ukraine in January 2006, European states are increasingly concerned about their growing dependence on Russian gas (40% of imports) and the strategy of the quasi-public company Gazprom, which aims to take control of some major gas companies in certain countries without offering anything very substantial in return.