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. Last Updated: 07/27/2016

EU Probes Gazprom's Italy Contracts

The European Commission is wrapping up a yearlong investigation into whether gas contracts between Gazprom and three Italian suppliers break EU antitrust regulations on fair competition, the European Commission said Tuesday.

The commission, which acts as the EU's antimonopoly watchdog, could decide within weeks whether to object to clauses in the contracts that limit the sale of Russian gas in Italy to the three companies — Enel, Snam and Edison — while forbidding them from reselling the gas to third countries.

Gazprom provides 20 billion cubic meters of the 60 bcm of gas that Italy consumes each year. About 750 gas suppliers operate in Italy.

European Commission spokes-woman Amelia Torres said the commission would decide shortly if the clauses in the contracts were illegal and would debate what action to take, Reuters reported.

The commission could fine each of the Italian companies up to 10 percent of their global turnover.

EU Competition Commissioner Mario Monti said late last week that he believed some of the clauses in the contracts breach European antitrust rules.

"We are finishing a study of certain clauses in contracts to import natural gas from third-country companies that forbid selling the imported gas to another country," Monti told the La Repubblica newspaper Thursday, Reuters reported.

Gazprom officials were unavailable for comment Tuesday.

A spokeswoman for Snam, Italy's biggest gas importer, would only say that "no official statement for the press has been released so far."

Officials at the other two companies could not be reached for comment.

The investigation comes as the EU steps up its bid to deregulate the gas market, a process started when EU officials signed a directive to that effect in 1998. Ministers at the EU summit in Stockholm last weekend renewed the call for a level playing field in the gas market.

The Gazprom contracts were signed after the directive took effect in August 1998.

Stephen O'Sullivan, head of oil and gas research at United Financial Group, said the clauses are "fairly standard."

"Gazprom and the Italian gas importers may just be the first in a series of actions that the commission will take," he said.

Sergei Isayenko, head of the Moscow office for the Wood MacKenzie energy consultancy, said any action taken by the EU over the contracts would hurt the Italians much more than the Russians.

"[Gazprom] cannot be fined because Russia is not a member of the EU," Isayenko said. "And I think that Italian firms would be more likely to include the fines in their expenses. So I think that ultimately Italian consumers would have to pay."

Isayenko added Gazprom might even be pleased with a decision finding the Italian contracts illegal.

"They would be glad to use the opportunity to reduce the contract volumes they export because gas resources are declining in Russia," he said.

But O'Sullivan argued that exporting gas is the only "real money" that the gas giant is earning due to low domestic prices. Gazprom simply cannot afford to slash its exports, he said.

And those prices are set to go even lower.

Gazprom head Rem Vyakhirev said last week that Gazprom is planning to reduce its prices to domestic consumers even more as part of a company restructuring plan.

"[We must] sell gas cheaper to Russian consumers and more expensive to foreign ones," Vyakhirev was quoted by Interfax as saying.

Speaking last June at a World Gas Conference in Nice, Vyakhirev dismissed as "a mess" the EU plan to liberalize its gas market, saying the proposal would be "out of fashion in a few years."

"We look on with an open mind as the EU keeps on bringing out directives. French and Germans know where their interests lie, and we shall not run after buyers," he was quoted by the online Oil and Gas Journal as saying.

Gazprom supplies about 30 percent of the EU gas market.

Vyakhirev said that Gazprom is prepared to lose money if the European market is liberalized.

"Saving a dollar here and there is not important. We have 30-year contracts, and if we lose money in the process, this is not important."

Gazprom is a major state-controlled integrated global energy company. With headquarters in Moscow, it accounts for about 25 percent of world gas production and has 23.5 percent of the world's proven reserves, according to its own figures. It controls 70 percent of Russia's gas reserves, 94 percent of gas production and 100 percent of the domestic gas pipeline network.