GAS BATTLES,

The debate surrounding the diversification of energy supplies to Europe entered a new phase after the summer holidays and is becoming more distinct. After Moscow's criticism of the European Union, which provided the European Commission (EC) with a mandate to sign a legally binding agreement on the construction of the Trans-Caspian pipeline, the EC initiated inspections and searches at the offices of Gazprom OJSC's subsidiaries in Central and Eastern Europe and the offices of some European buyers. The inspections were carried out in a total of 10 European countries. Those inspected included EON Ruhrgas, PGNiG, OMV and RWE. In fact, OMV (Austria) and RWE (Germany) are members of a consortium on the construction of the Nabucco gas pipeline.

In a statement, the EC noted that the searches were connected with the investigation into possible "anti-competitive practices in the supply of natural gas to Central and Eastern European countries". So the EC made it clear to Moscow that there is no politics involved, that there is nothing personal and that it is a purely business matter. The press release of the European Commission indicates that the inspections do not automatically mean that the companies are guilty, although the words by the EU energy commissioner, G?nther Oettinger, that there was a suspicion that the EU antitrust rules may have been violated, suggest that the inspections were not at all accidental. In particular, the EC accuses Gazprom-Germany of abusing its influence on the market and of price collusion that prevents healthy competition. The EC spokeswoman on competition issues, Amelia Torres, spoke in the same vein, "These are not routine inspections. We conduct antitrust investigations only if we have good reason to do so."

Russian gas monopolist Gazprom, for its part, expressed readiness to provide all necessary support to the EC which suspects it of breaching antitrust laws. Nevertheless, the EC plans to sue 18 EU member-states for failing to fulfil the so-called "third energy package" which was supposed to assist countries in liberalizing the gas market. According to the document which aims to promote competition in energy markets, producing companies cannot simultaneously own distribution and transit networks. The EU adopted this package in 2009, hoping to reduce its dependence on Gazprom.

It is not ruled out that the inspections at the offices of several European companies associated with Gazprom could be the result of dissatisfaction on the part of Eastern European countries over the overpriced Russian fuel and the competition between the South Stream pipeline and the European Nabucco project. If the inspections do discover violations, Gazprom may face huge fines (according to some estimates, around 4.5 billion euros).

Hardly had European tensions subsided when Moscow received another unpleasant "surprise" from Ankara. On the first day of October, Turkish Energy Minister Taner Yildiz stated that the state-owned company Botas would stop buying gas from Russia via the "western route". The contract for this route was signed back in the USSR era (1986) and Turkey imported 6 billion cubic metres of Russian gas a year. The contract expires in December this year. The refusal of Turkish company Botas to extend the deal means that the volume of purchased gas will be reduced from 18 (last year) to 12 billion cubic metres. Moreover, the agreement between Turkey and Russia envisaged the supply of 30 billion cubic metres (together with the "western route") a year. According to the official theory, the reason for refusal was the failure of negotiations on a 20-per-cent reduction in the price for Russian gas which Ankara had been seeking from Moscow for a long time. In 2009, when a Russian-Turkish intergovernmental gas protocol was signed, promises were made to Ankara that it would be reduced. The same was promised by the Russian deputy prime minister on fuel and energy issues, Igor Sechin, the following year.

As a matter of fact, the price issue is also under discussion between Russia and the countries of Central and Western Europe, for which Gazprom established a price of $500 per 1,000 cubic metres (about the same as for Turkey) for the fourth quarter of this year. According to experts, by demonstrating intransigence in the negotiations with Ankara, Moscow hoped that Turkey would not give up on energy supplies from the north. But it miscalculated. Economists estimate that Ankara's rejection of the "western route" will cost Gazprom about $2.5 billion a year. At the same time, this situation may have far more serious consequences for Russia.

Ankara and Moscow have yet to agree on the construction of the South Stream gas pipeline in Turkish territorial waters of the Black Sea, which could lead to Turkey's rejection of the pipeline. Obviously, by abandoning the "western route", Ankara is counting on the implementation of alternative pipelines, including Nabucco, which has been unequivocally confirmed by the Turkish energy minister, Taner Yildiz. "We see Nabucco as a strategic project and will make every effort to implement it," he said. This statement is proof that Turkey is likely to refocus its markets for Azerbaijani and Iranian gas soon in order not to depend on Russia. Especially since Baku and Ankara are now on the verge of concluding a package of gas contracts which envisage the signing of deals for the supply of gas as part of the first and second stages of the Shah Deniz project, as well as the transit of Azerbaijani gas to Europe via Turkey.

The inspections of European companies associated with the Russian gas monopolist and Gazprom's subsidiaries in 10 European countries, Ankara's rejection of the "western route" and the immediate prospect of the signing of a package of agreements between Azerbaijan and Turkey, which had been a long-standing talking point for Baku and Ankara, suggest that recent events have not only economic but also political overtones. Apparently, the West has mobilized all available resources, tools and partners and launched frontal pressure on Russia so that Moscow does not interfere in the construction of Nabucco and the Trans-Caspian gas pipeline. Should this tactic prove right, European consumers, complaining of Gazprom's price dictates, will receive powerful leverage in the talks on reducing the price of Russian gas. On the other hand, this will enable countries of the Caspian region to get direct access to the European market, which may also lead to lower energy prices as a result of competition. For the European economy, which is now faced with serious challenges, such a reality would be a timely help. The consistently high prices established by Gazprom in the long-term contracts are not good enough for European consumers and place a heavy burden on their economies. In addition, diversification of supply routes and energy sources would narrow the opportunities of Moscow, which, according to the west, regularly uses the "energy club" for political purposes.

Europe's determination to implement projects bypassing Russia is confirmed by the fact that the EU energy commissioner, G?nther Oettinger, said at the opening of the 6th Kazenergy Eurasian Forum in Astana in early October that Kazakhstan (co-founder of the Customs Union together with Belarus and Russia) was invited to join the Trans-Caspian gas pipeline project.

The attractiveness of western projects is also growing for Turkmenistan, which voiced its consent to participate in them a few years ago. For Turkmenistan, which has increased the production of natural and associated gas, it is a requirement of the time to get direct access to European markets, especially in light of the suspended construction of the Caspian pipeline that was supposed to deliver gas from Turkmenistan to Russia via Kazakhstan. Although Russian Deputy Prime Minister Igor Sechin said that the construction had been postponed until there was higher gas demand in the EU market, most experts put this decision down to serious disagreements between Moscow and Ashgabat over the price and volume of Turkmen gas supplies. Interestingly, in exchange for a refusal to participate in the Nabucco project Russia declared its readiness to help Turkmenistan supply gas to markets in South Asia through the TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline, which did not impress the EU very much. This is further evidence that all the stand-offs between Moscow and Brussels have serious political implications.

Europe, which launched the audits of Gazprom, views the Russian gas monopolist as a key player used in Moscow's foreign policy. This is possibly why the German magazine Der Spiegel notes that it is Gazprom that should turn Russia into a superpower again. Brussels is confident that Gazprom's strategy is developed not in the offices of the gas giant, but in the Kremlin. It is therefore possible that the actions of the EC may also be dictated by the announcement that Vladimir Putin, known for his hard-line foreign political stance, will return to the Kremlin.

Meanwhile, Moscow has taken several counter moves in this confrontation. The head of Gazpromexport, Aleksandr Medvedev, said the Russian gas monopolist will try to supply the volumes rejected by the Turkish state-owned company Botas to new partners - private companies for sale in Turkey. A similar tactic is planned with respect to Ukraine. In case of cancellation of the contract between Gazprom and Ukrainian Naftogaz, the Russian monopolist will sell gas directly to its "daughters", Gazpromsbyt-Ukraine and UkrGaz-Energo.

Another response on the part of Moscow was the recent suggestion by Prime Minister Vladimir Putin for post-Soviet countries to join the Eurasian Union on the basis of the Customs Union, which will be transformed into the Common Economic Space (CES) early next year.

It is obvious that the Kremlin, with behind-the-scenes support from some leading European countries, as has happened before, will try to split the united EU front to offset the pressure on Gazprom and inhibit alternative energy projects. And in this respect Moscow is likely to count on the support of Germany, which launched the Nord Stream project jointly with Russia in early September.

Incidentally, Putin openly told Ukrainian President Viktor Yanukovych in closed-door talks in Zavidovo, also attended by Russian President Dmitriy Medvedev, that Berlin (and not only Berlin) was lobbying the interests of Russia in the EU. According to the Russian media, Putin urged Yanukovych to join the Customs Union, arguing that the European Union would not embrace Kiev, that the EU would never pass a decision that runs diametrically opposed to the interests of Russia and that the interests of Moscow in the European Union are guarded by a number of countries led by Germany.

Given Putin's revelations, it is hardly a coincidence that several leading German companies related to Gazprom were among the suspects for the European Commission. And how can we decide what is the dominant factor there - economics or politics?