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22 May, 2009 10:33

Khabarovsk summit sees renewed push on gas ties

Russia is continuing to battle for gas producers to be allowed to deliver gas to consumers in Europe, at EU-Russia Summit in Khabarovsk, and the EU has signalled it will consider Russia's proposals.

The EU must review its plan to separate gas production from supply – that's one of Russia's goals at the summit with the EU in Khabarovsk. The new, third version of the EU's energy charter forbids gas supply by vertically integrated companies – like Gazprom – that both produce and supply gas.

Russia wants more flexible terms of trade, and European Commission President, Jose Manuel Barroso believes Russia’s proposals are worth looking at.

“We might consider Russia’s proposals and look at changing the energy charter.”

Russia has not ratified 18-year old EU energy charter – because it views EU efforts to liberalise the markets as a purely artificial division between companies that transport gas, and those who sell it.

The latest version of the charter would require Russia to let EU companies access its pipelines from Central Asia. However, Russian companies would not be able to freely access European pipelines.

Chief Strategist at Uralsib, Chris Weafer, says time is of the essence on sorting out an agreement.

“The clock, if you like, is ticking on this issue very loudly, because sometime in the next couple of years Gazprom is going to start seeing a decline in its existing production, at the same time as the European Union will need to import more gas. So unless we see some progress soon, an agreement on how energy is going to develop, then the risk is that both Europe and even Russia will face a period where there is a gas shortage.”

Russia is asking why companies would build pipelines if they cannot profit from them, and it isn’t rejecting the EU energy charter outright, but wants it modified according to President Dmitry Medvedev.

“The energy charter is signed by many countries and it was a serious achievement. This work should not be wasted. It should be used to create even more effective energy instruments in the form of a new separate agreement, or in a new edition of the energy charter, but in the framework of procedures that will be agreed.”

Russia supplies one quarter of Europe's gas and that's expected to rise by half over the next decade. But without agreement on the terms of trade, Russia has warned it will focus on building its own pipeline networks and even liquefied gas plants, so it can target other markets.