Russian energy giant targets UK market

Terry Macalister
Wednesday January 18, 2006
The Guardian


Gazprom, the Russian energy giant, is planning an assault on the UK market with plans to provide 20% of Britain's gas by 2015, possibly through the £10bn takeover of a company such as Scottish Power.

The world's biggest gas producer admits the recent spat with Ukraine has damaged its image but insists this is because western politicians have reverted to "cold war" rhetoric.

In an interview with the Guardian, Gazprom's deputy chairman, Alexander Medvedev, insisted Britain had nothing to fear from sourcing energy from his company, and from Russia. "We now have a good wholesale business in the UK with big industrial customers and power stations. We are aiming to secure 20% of the market by 2015," he said.

Gazprom has so far steered clear of supplying domestic users directly, in the way British Gas does, but it also has ambitions in this area. "To start from scratch in retail would be impossible - but through acquisitions, yes, we do not rule this out," Mr Medvedev said. One way of speeding up this process would be to acquire an existing energy supply business such as that of Scottish Power which has 5 million domestic energy customers in Britain and was in recent takeover talks with E.ON, the German energy services provider.

"We are looking at such opportunities now. We are not afraid of such size as Scottish Power but we have no concrete plans at this moment," said Mr Medvedev, who pointed out that such an acquisition would give Gazprom a direct route to UK householders.

The purchase of a big oil company in Britain or elsewhere has not been ruled out either. The acquisition of Russian rival Sibneft gave Gazprom a substantial oil presence for the first time and it would like to add to that, he said. Gazprom spends $10bn (£5.6bn) a year on investment "and with our credit rating it is not hard to raise more money. The banks are happy to lend to us", said Mr Medvedev.

The ambitious Russian plans will alarm some British politicians and local gas company rivals but come at a time when the UK is seeing a dramatic fall-off in domestic North Sea oil and gas supplies.

An energy review is to be launched by the government on Monday to examine whether the UK needs a new generation of nuclear power stations or whether it can find another means of securing supply and lowering greenhouse gas emissions.

Atomic power alongside renewables is seen as one way of preventing the country becoming overly dependent on foreign gas imports which some experts say will provide 90% of our gas by 2020.

The decision by Russia to cut off supplies to Ukraine on January 1 was seen by some in London and Washington as a wake-up call. They believed the spat was a symbol of how Vladimir Putin could use Gazprom as a vehicle for geopolitical ambition.

This shook confidence in Russia as a gas provider and led to the former UK energy minister Brian Wilson telling the Guardian that it pointed up the dangers of Britain becoming dependent on Moscow gas.

Mr Medvedev said of the Ukraine row: "We as Gazprom acted in this as a commercial organisation. If Russia wanted to use gas as a political weapon then surely it would have used it after the [Orange] revolution period. We started negotiating with Ukraine about 2006 gas deliveries in March 2005 and used European rules as initiated by Ukraine. In the absence of such agreement on January 1 we had to stop deliveries. But there was only one day when Ukraine took gas [bound for western Europe] from the export pipeline."

The problem was exacerbated by politicians in the west "taking all the terminology from the cold war times", Mr Medvedev said. He said they should have been looking at the details of the deal: the fact that Ukraine was paying $50 per thousand cubic metres when continental Europe was paying $250.

Gazprom, which controls a quarter of the world's gas reserves, had successfully delivered gas to Europe for 30 years without interruption throughout a series of domestic and other political and economic crises, he added.