Today’s news that Spanish energy champion Gas Natural has signed an LNG deal with Gazprom for the Shtokman Field comes at a crucial time for the energy security of the country vis-a-vis Russia. The agreement, which will allow for faster, easier spot market transactions of LNG from Gazprom (as well as possible future pipeline deals), was signed within the context of Moscow’s rapidly advancing energy strategy to encircle the EU, staple down control of supply of natural gas from North Africa (where Spain gets 1/3 of their supply from) as well as push for a bigger future role in the LNG trade, everywhere from the Barents Sea to Bolivia. According to Zoe Grainge of Global Insight, this deal might be an “in” to the Iberian market, which could springboard to a raft of future deals. An analyst from Dresdner Kleinwort quoted in the same article argues that “the beauty of this deal is that it is giving Gas Natural access to a significantly higher portfolio of natural gas. From Gazprom’s point of view, it is getting access to the tankers of Gas Natural.” Up until quite recently, Spain was relatively isolated from Gazprom’s occasional political bullying, mostly thanks to its advanced LNG market (one of the largest in Europe). However, the Spaniards do receive close to 1/3 of their natural gas supply via two pipelines – one which brings Norwegian gas from France, and the other being the critically important Maghreb-Europe Gas Pipeline from Algeria via Morocco. According to a 2007 survey by the EIA, Spain represents one of the fastest growing natural gas markets in Europe, with consumption tripling between 1994 and 2004 related to the rise of numerous combine cycle electricity generation plants.
Though the Kremlin doesn’t quite yet have the ability to “shut the lights off” in Spain, there is increasing concern over Gazprom’s advance in North Africa – no doubt punctuated by the recent offer to buy all of Libya’s gas. Unlike the Italians, who crumbled in defeat once the Russians secured a loose memorandum of understanding with Algeria’s Sonatrach (though they never did enforce it), the Spaniards appear to be taking a much more intelligent approach of political integrity under the leadership of Antonio Brufau, executive chair of Repsol (the largest stakeholder in Gas Natural).Many executives in the energy sector take on a distinctively different public tone in their local markets after signing any major deal with the Russians. In fact, in many cases, these corporate leaders can be found lobbying on behalf of Russia, pursuing everything from striking down efforts by the European Commission to regulate supply and distribution monopolies (i.e. protect against Gazprom-style price manipulation), to advising their close friends in government to turn a blind eye to abuses of human rights and democracy in Russia, including the expression of any support for the Khodorkovsky case. I am speaking from personal experience and trusted sources.Yet even within this difficult environment of scarce access to energy resources and example after example of corporate disregard to ethics, social responsibility, nor even national interest, Spain has provided the model example of how to work with Russian energy and maintain integrity – going against the trend set by their contemporaries in Italy, France, Germany, etc.Antonio Brufau recently spoke clearly and unapologetically in an interview with the Financial Times, lambasting European politicians for becoming disaggregated, incoherent, and above all weak before the Russian energy threat: “In terms of energy, Europe is not advancing in the right direction,” he said. “We have to have one single voice, one single policy, one single market.” The fact that Germany negotiated bilaterally with Russia for gas showed that “Europe was failing”, he said.You really do have to admire Mr. Brufau as a responsible business leader when one day he can talk about the dangerous imbalance that is being created between state-owned energy companies and the private sector, as well as Gazprom’s apparent “ownership” of the European market, and then two weeks later sign a mutually beneficial deal with the company. I have always said that Europe will continue to buy oil and gas from Russia no matter what, however it is the terms of these transactions that are so often abused and politically charged. We shouldn’t be duped into thinking that there is a direct trade-off between access to Russian development projects and a company’s willingness to diminish transparency, engage in the political corruption of their partners, who act as a powerful lobbyist for an authoritarian state. European energy companies have a choice in these matters, and a rigid insistence in upholding national as well as shareholder interests, respect for international law, and a strictly commercial, rather than political, relationship can be possible and positive in working with Russian state-owned companies. Let’s stop the race to the bottom to see who will do the most tap-dancing for the Kremlin to keep proximity to power … let BP be the reminder of how temporary this good favor can be.I hope that the Gas Natural example is one that we see repeated, and I congratulate the leadership of the company.