The energy market constitutes a strategic and dynamic economic field of vital importance. The policy of companies active in the energy sector can have a significant impact on customers’ life. Taking into consideration that the energy field is mainly an oligopolistic economic sector. Under these circumstances, phenomena such as abuse of dominant position are very likely to appear. The European Union, as an internal market, is responsible both for preventing such practices with relevant regulations and intervening when they occur. In the gas supply sector the Case of Gazprom, a huge Russian gas company part-owned by the state that controls the largest market share, is the most important antitrust case of the past decade.
Article 102 TFEU prohibits the abuse of a dominant position in the internal market or a substantial part of it by one or more undertakings. Article 102 TFEU defines in paras a – d the abuse of dominant position as unfair trading conditions such as imposing unfair purchase or selling price, limiting the production or technical developments to the prejudice of the consumers, discriminating trading conditions on partners, and imposing obligations that have no connection with the subject of the contracts.
The main subject of article 102 of TFEU is not the existence of dominance but the abuse of it. The most hurtful type of abuse may be the exclusionary methods. With exclusionary practices, a company may affect the market in the long term period by denying or preventing competitors or small companies from entering the market. This will affect the consumers as they may not be able to have more choices of the given product in the market. Thus not have the choice to benefit from better choices or better technologies in the market.
Gazprom is a Russian energy company, that in the majority is state-owned and is active in multiple nations around the globe. Gazprom is a gas monopoly company in Russia. It controls one-sixth of natural gas reserves in the world and supplies approximately one-third of natural gas imports in Europe. It is the world’s leading gas producer in around 12% of global gas production. Owns the world’s largest gas transmission system, the total length of which within the boundaries of Russia reaches 175.2 thousand kilometers.
Gazprom is the largest joint-stock company in Russia. It is a public state-owned company as the Russian government controls more than 50% of the Company’s share. In the table below is the stake percentage of Gazprom as of December 31, 2020.
Table 1: Stake percentage of Gazprom as of December 31, 2020
*Companies controlled by the Russian Government.
Source: Official Site of Gazprom ,Gazprom’s equity capital, Shareholders
The Russian government controls the largest percentage of stakes, a fact that we should bear in mind as long as we are going, later on, to investigate the supply of natural gas by Gazprom to Europe.
Natural gas is a fossil energy source. It has been formed deep beneath the earth’s surface. Natural gas contains many different compounds. The most important component of natural gas is methane, a compound with one carbon atom and four hydrogen atoms (CH4). In addition, it contains smaller amounts of natural gas liquid (NGL), and nonhydrocarbon gases, such as carbon dioxide and water vapor. We use natural gas as a fuel and to create materials and chemicals.
European Gas Market – The role of Gazprom
Until the late 90s, the European gas market was mainly state-owned, state-owned companies were responsible for the transportation, storage, distribution, and supply of natural gas across Europe. The European Commission with two main directives (98/30/EC and 2003/55/EC) aimed to end the monopolistic environment in the natural gas market and liberalize the market to provide the final consumers with more choices and better quality final products. The primary goal of these two directives was the liberalization of the need for natural gas. In addition, the creation of a single market across the European Union member states. The European Commission, in the case of Gaz de France, has defined a market for the supply of natural gas to various customers. In addition, the European Commission in the case of Gaz de France has distinguished the supply market of natural gas from the transportation market of natural gas. The supply market of natural gas is limited to the specific geographic area that the natural gas is supplied and does not involve transiting through different geographic areas. For the supply market, the Commission has in previous decisions made a distinction between gas sales to wholesalers and gas sales to final customers (retail).
For the consumption of natural gas European Union countries are heavily dependent on third parties. As table 2 shows almost three-quarters of European Union imports in natural gas came from Russia (41%), Norway (16%), Algeria ( 8% ), and Qatar (5% ). The European Union countries heavily depend on energy imports to cover their energy needs. According to an energy report from Eurostat for the year 2019, the energy dependency in the European Union from net imports was at the rate of 61%. Specifically, in the natural gas energy market, European Union countries heavily depend on net imports from Russia and the public-state-owned company, Gazprom. Russia supplies above 40% percent of net imports. This means that European Union is vulnerable to price moderation from the Russian company, Gazprom. The public-state company has achieved a dominant position in the European natural gas market. Table 2 describes the domination.
Table 2:EU Imports on Natural Gas by trading partner percentage.
The dominant position of Gazprom is not against article 102 of TFEU as we have explained above. Although the European Commission has investigated if the Russian energy company has abused the dominant position in the natural gas supply market. In table 3 we review the changes in certain countries of the European Union for the years 2010-2014. The data clearly shows that Central and Eastern European Countries have paid much higher prices than Western European Countries. This translates into a percentage of approximately 10%. The lack of diversification of natural gas supply in these particular countries. As the European Commission has identified Gazprom may have pursued an unfair pricing policy, charging excessive prices much larger than the production cost of natural gas.
Written by our Energy Enthusiast
Pavlos has a Bachelor’s in International and European Studies from the Panteion University of Athens. He has worked successfully at a Law Firm in Kolonaki, Athens. Currently, he is working at a Solution Provider/System Integrator Company in Athens. Postgraduate student of the MSc in Energy: Strategy, Law, and Economics at the University of Piraeus in the faculty of International and European Studies. Speaks Greek, English, and German. He is keen on Middle East culture and history.