European Union energy companies court Moscow

Their ties with Kremlin-backed Gazprom are vexing EU efforts to create an energy security policy that would lessen dependence on Russia.

Burckhard Bergmann, chairman of the board at German energy supplier E.ON Ruhrgas, holds another title not likely to appear on his business card: Russia's honorary consul in the state of North Rhine-Westphalia.

Mr. Bergmann took the post late last year, raising some concern about conflicts of interest between Germany's largest energy company and one of the world's largest energy exporters.

"President Putin told me, 'You are my new employee in Germany now,' " joked Bergmann – the only foreigner with a seat on the board of Gazprom, Russia's energy giant – during a recent interview in Der Spiegel, a prominent German news magazine. "But he was laughing when he was saying that."

Brussels isn't laughing. As European Union (EU) leaders – meeting Thursday for a two-day summit – struggle to establish a unified energy security policy that will lessen the bloc's dependence on Russia, the close ties between many European energy companies and Moscow pose a signficant challenge.

In a bid to secure a foothold in Russia's vast natural-gas reserves, E.ON, Gas de France, and Eni of Italy have in the past year signed new, long-term contracts with Kremlin-backed Gazprom that allow it direct access to their markets and consumers. The result is that Gazprom's grip on European markets is growingstronger, controlling not only the exploration and delivery of natural gas, but, increasingly, the sale of it as well.

"This is a problem for Europe," says Katinka Barysch, chief economist at the Center for European Reform in London. "What we're trying to do in Europe is create an integrated, open, and liberal gas market. You can't do that if you have one company controlling the entire gas supply chain."

A call for more deals with Gazprom

Last month, officials from E.ON, Gas de France, Eni of Italy and others joined Gazprom at the Russian House of Science and Culture here for an energy conference – less than a week after an EU-Russia summit collapsed in part over differences on energy policy. At the conference, executives called for a thaw in EU-Russian relations and said more dealings, not fewer, with Gazprom are the key to energy security.

The relationship between Gazprom and different European energy companies often goes deeper than simple supply contracts (see box).

In a prearranged deal, Eni bid this spring on behalf of Gazprom when valuable assets of the now-defunct Russian energy company Yukos went on auction. After selling Yukos assets to Gazprom, Eni was granted access to Gazprom's gas fields.

Gazprom produces 90 percent of Russia's natural gas and owns most of its pipelines. Europe gets 25 to 40 percent of its natural gas from Russia, a figure that could double two decades from now, according to Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University.

Brussels has scrambled to address this dependence following two consecutive winters that saw Russia briefly disrupt energy supplies to Europe during price rows with Ukraine and Belarus. But to date, Brussels's only concrete answer to Moscow's energy dominance is the EU's planned $6 billion Nabucco pipeline, which could begin pumping gas by 2012 from Central Asia via Turkey to Austria.

But even those plans are uncertain: Russia made key gas deals in Central Asia last month, and several of the energy companies behind Nabucco, including Hungary's state gas company, MOL, have close dealings with Gazprom.

Brussels has pushed for Europe to open its markets and create more competition, says Friedemann Müller of the German Institute for International and Security Affairs. "But does Gazprom in this market mean more competition?" he asks. "There are doubts, of course, because it acts as a monopolist."

Political will vs. business goals

One key thing Brussels could do, some experts say, is limit the kind of contracts European energy companies sign. Recent deals with Gazprom lock the firms in for 20 to 25 years. "What Brussels can say is that we don't want to see these kind of [long-term] contracts anymore," says Claudia Kempfert, an energy expert at German Institute for Economic Research.

But political will is up against business interests. Even as national governments try to set an EU policy on Russia – continuing to clash with Moscow over missile defense and the fate of Kosovo – businesses within their borders are dealing directly with Moscow.

Perhaps no country is as divided as Germany. The grand coalition governing the country is split between Chancellor Angela Merkel's Christian Democrats and the Social Democrats loyal to her predecessor, Gerhard Schröder.

Mrs. Merkel, who grew up in the former East Germany and speaks Russian, has taken a harder line against Russia, particularly on human rights abuses. The Social Democrats favor more engagement with Moscow. Mr. Schröder himself is out of politics, but still influential. He heads the German-Russian North Sea pipeline project, and his former chief of staff is now the country's foreign minister.

For seven years Schröder's governemnt urged close business ties between Germany and Russia, particularly the country's energy giants. E.ON now owns stakes in Gazprom worth $17 billion.

"You can't ask private businesses to think politically," says Joerg Himmelreich, an EU expert at the Berlin office of the German Marshall Fund of the United States. "They are under the pressure of daily profits, and they will run after Russian business as long as they get something out of it."