EU and Russia fail to bridge Gazprom gap

Russian Energy Minister Alexander Novak and EU Energy Commissioner Gunther Oettinger reported no progress on Friday at tense talks over state-run Gazprom's stranglehold on the European natural gas market. The European Commission delivered a blow to the world's biggest natural gas firm in December by declaring vital deals it struck with six EU nations to be in violation of the bloc's rules. The six south and central EU states -- stretching from Austria and Bulgaria to Croatia and Greece -- have agreed to host the onshore section of the Black Sea pipeline Gazprom plans to launch to Europe by the end of next year. But Russia claims that its bilateral South Stream pipeline agreements with the six -- which also include Hungary and Slovenia -- supercede internal EU regulations. Gazprom is also challenging an EU Third Energy Package ban on the same company owning both pipelines and distribution networks -- a measure meant to boost competition and ease the continent's dependence on the state-controlled firm. The Russian energy ministry issued only a brief statement after Friday's negotiations saying the two sides had "agreed to create a working group for discussing all legal and technical issues related to the South Stream project." The complex details of the dispute hide the 28-nation bloc's overriding desire to shrink Gazprom's 25-percent share of the European market and limit the Kremlin's ability to influence EU nations' internal affairs. Russia has long been accused of using energy as a political weapon that has been wielded in countries such as Ukraine when they made efforts to cut some of their ties to Moscow. Brussels has also launched a comprehensive antitrust investigation that focuses on whether Gazprom overcharged its customers and blocked rival sources of supplies. Novak's talks with Oettinger were being watched especially closely because they came ahead of a January 28 Russia-EU summit in Brussels that has already been clouded by a bitter dispute about the future of protest-riven Ukraine. EU spokeswoman Maja Kocijancic said on Thursday that the heated confrontation over the ex-Soviet state's decision to ditch a historic trade deal with Brussels in favour of closer ties with Moscow has forced the cancellation of a pre-summit dinner the leaders had planned for January 27. Analysts have noted little progress between Gazprom and EU regulators in the runup to a summit that threatens to be one of the two sides' frostiest in years. "All of Russia's proposals (on South Stream) look more like an ultimatum," RusEnergy consultancy analyst Mikhail Krutikhin said. "Neither Gazprom nor the European Commission has taken a single step to bridge their positions," Krutikhin told the Nezavisimaya Gazeta daily. Moscow's VTB Capital investment bank also warned its clients that "we are reiterating our view that the South Stream project is risky, given the political overtones." But Gazprom in December sued for peace with Brussel over the antitrust suit. The firm's exports chief Alexander Medvedev told the Financial Times that Moscow and the European Commission had agreed to "try to find a mutually acceptable solution" that would spare Gazprom formal charges. Medvedev added that he expected a solution to be found in a "relatively short time -- three to four months." Gazprom continues to rely heavily on its traditional European clients even as it tries to make the first inroads in countries such as China and Japan. Its exports to Europe jumped by 16 percent last year to reach 161.5 billion cubic metres after slipping in 2012. The sharp increase has been driven both by dropping European imports from Norway and Qatar's decision to divert some of its liquified natural gas (LNG) to more lucrative Asian markets. The onshore section of South Steam stretches for 925 kilometres (575 miles) and ends at the Tarvisio natural gas metering station in northeastern Italy. Its designated annual capacity of 63 billion cubic metres would also effectively end Russia's dependence on an existing pipeline running through Ukraine.