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22nd Jul 2018

Russia-China deal overshadows talk of EU energy union

The EU's lack of a common energy policy costs the bloc €30 billion per year, Polish prime minister Donald Tusk told a conference of European energy experts on Wednesday (21 May).

But talks about the possibility of an EU energy union were immediately overshadowed by news that Russia and China have agreed a gas contract estimated to be worth over $400 billion (€300bn) over 30 years.

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  • Gazprom's $400 billion deal with China is the richest gas contract ever negotiated (Photo: kremlin.ru)

Signed off by Russian President Vladimir Putin at a summit in Shanghai, the 30-year contract with China's National Petroleum Corporation is comfortably the largest-ever negotiated by Russian state-owned energy giant Gazprom.

It is expected to deliver some 38 billion cubic metres of natural gas a year to China, starting in 2018.

The deal, which has been 10 years in the making, is also expected to help insulate Russia from the threat of EU sanctions as a result of the Ukraine crisis.

Speaking a few hours after the news came out at a conference on energy security in Brussels, Poland's Tusk told an audience dominated by representatives of government and industry that governments should agree to set up a common EU body to secure energy supplies.

"Every year we lose up to €30 billion just because we don't actually have an energy market in Europe yet ... and the very high prices of gas are affecting our competitiveness and employment rates."

"We need to think about an EU body that looks at buying gas," he said, mooting the possibility that this "could be done through an agency or a consortium … and would protect member states from a shortage of gas supplies".

The Polish Prime Minister has become the leading advocate for the EU to act as one to increase its clout in energy negotiations.

But he conceded that there would be scepticism in some capitals at the prospect of shifting decisions on energy supply from national to European level.

"I have met a number of EU leaders who have agreed in principle but when I explained that this would mean a common purchasing policy people were concerned that this would be impossible," admitted Tusk, although he added that "people said that the banking union was impossible".

Tusk also called for an end to secret energy contracts, describing them as "a barrier to an internal market".

"Do gas secrets deserve more protection than banking secrets?", he questioned, adding that the "EU should intercede on behalf of consumers and gas secrets affect consumers."

Securing Europe's energy supply and reducing the bloc's reliance on Russian gas, is a particular concern to central and eastern European countries, many of whom complain that they are overcharged by Gazprom.

But Tusk was clear that the crisis in the Ukraine was an opportunity to diversify supply and move away from a system of bilateral deals between individual governments and Russia.

Comparing Europe's energy concerns to the recent banking crisis in the eurozone, he noted that "times of crisis are the best time to draw hard and difficult conclusions".

"I hope that we don't have to spend hundreds of billions because we took too long to make these decisions," he said.

Gazprom is currently subject to a probe by the European Commission's competition department over its dealings with eight EU countries, and could face a multi-million euro fine for abusing its position as the dominant force in the gas market.

Under its contract with Gazprom, Germany currently pays an estimated 35 percent less for its gas than Latvia and Lithuania.

European Commission President Jose Manuel Barroso said that the EU executive had long been calling for a true European energy policy but that "minds in Council were not focussed".

The commission will publish a paper on energy security and supply in the coming weeks, before EU leaders gather in June for a summit meant to address the issue.

For his part, US Vice President Joe Biden on Wednesday suggested the development of a EU energy market could be the natural next step of European integration.

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