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HomeGeopolitical CompassEurope, Russia, OceaniaShaping the Eurasian Gas Market: The Geopolitics of Energy Market Regulation

Shaping the Eurasian Gas Market: The Geopolitics of Energy Market Regulation

Author: Anatole Boute

Affiliation: Faculty of Law, Lee Shau Kee Building, The Chinese University of Hong Kong, Shatin, SAR China

Organization/Publisher: Geopolitics Journal 

Date/Place: July 5, 2022/ UK

Type of Literature: Journal Article 

Number of Pages: 32 

Link: https://www.tandfonline.com/doi/full/10.1080/14650045.2022.2094778

 

Keywords: EAEU, EU, China, Russia, Gas Market, Geopolitics, Energy Market.

 

Brief:

When it comes to countries’ approaches to external energy relations, the EU is often classified as having a liberal approach while Russia and China are included in the realist approach. By contrast, other literature focuses on external energy relations in the EU and Russia as a tool for lobbying and exerting influence. In this regard, Anatole Boute aims to try to understand the role of energy market bases in shaping geopolitics in the post-Soviet region.

The first section of the article discusses the geopolitics of external organizational convergence strategies in Eurasian space. The author believes that the EU seeks to export its own energy model in order to strengthen its extraterritorial policies in neighboring countries (post-Soviet countries) by influencing energy trade rules. This it does as a means to counter the Russian Gazprom’s dominance in this strategic area and undermine Russia’s political and economic influence on the region, especially after its invasion of Ukraine. It hopes to do so by linking foreign energy policy to the rules and principles of the EU’s internal energy market based on a legally binding framework. Many critics, however, considered the European Union’s liberal energy model to be imperialist and dependent on regulatory power as a means of controlling other countries.

On the other hand, the literature on Russian foreign policy and energy relations illustrates how Russia uses energy supplies to exert political influence over its neighbors and maintain influence in former Soviet countries through economic coercion along with military action. Based on the country’s huge reserves and strategic location in the Eurasian Hartland, Russia aims, through the Eurasian Economic Union (EAEU) market and regulatory system, as well as through bilateral investment and energy agreements, to “play a key geopolitical role by positing itself as an essential supplier for major regional energy markets.” The author also explains that the creation of the EAEU was due to several reasons, most notably EU competition as it urged importers to choose between the EU or Russia as a clear geopolitical option. This was in addition to Russia’s concerns about China’s growing regional influence, despite their close interests in the region.     

China, in turn, seeks to achieve energy security but in a manner different from Russia’s normative competition with the EU. Instead, it focuses on cooperation agreements where it exports its technical and industrial standards for energy infrastructure development as part of the Belt and Road Initiative. This is in exchange for countries allowing it to make full use of existing bilateral and multilateral cooperation mechanisms to promote the development of regional cooperation. According to the writer, this may increase China’s influence on the development of global, regional and national energy markets. For example, China can oppose market reforms or demand their reform if they conflict with its strategic interests.

The second section attempts to compare the methods used by the European Union, Russia and China to price gas and access pipelines alongside their geopolitical effects. At the outset, the researcher considers that gas prices have become an important geopolitical tool in controlling the energy market by pursuing gas-subsidized export policy and threatening price increases, which he believes could cause price deregulation.

The author argues that Russia pursues this policy as a weapon to keep the countries of the former Soviet Union in its sphere of influence and position in the field of energy. He believes it aims to move local and regional gas prices to the price levels paid by European buyers. Nonetheless, it gives some price advantages and preferences to some countries of the former Soviet Union in exchange for political concessions. Russian gas-importing countries also enjoy price reductions in exchange for joining the Eurasian Economic Union, which exempts gas-importing countries from paying any export duties. In addition, Russia also offers attractive offers to poor countries to join the Eurasian Union through bilateral gas deals. This enhances the appeal of Russia’s trade offers and makes joining the Eurasian Union an economically and strategically attractive option for these countries to meet their energy needs. For example, Russia is committed to subsidizing the gas supply of Armenia, Belarus and Kyrgyzstan in exchange for Gazprom’s acquisition of strategic gas assets and their commitment to not reform their domestic gas sectors.

Meanwhile, the EU energy model aims to create a competitive price market that enables consumers to choose their suppliers freely, which it does by abolishing price regulation and encouraging competition in the energy sector. Nevertheless, the model faces challenges of government intervention in gas prices, which contradicts the concept of a free market and price competitiveness. In contrast, the Chinese government is working hard to liberalize LNG prices and introduce free market prices in provinces with competitive gas. Thanks to the establishment of gas exchanges, China can provide an alternative price and gain pricing power in the Asia-Pacific region. However, China’s competitive price development is challenged by the lack of adequate transparency in supporting gas supplies. With growing fears of price volatility affecting social protection, the central government is paying significant attention to encouraging long-term contracts and tolerance of mutual support. But according to the writer, the benefit that China will derive from promoting competitive prices for pipeline gas in Eurasia is unclear.

Accordingly, the author asserts that regulating the supply of European and Asian gas on the basis of competitive prices requires first overcoming geopolitical obstacles. However, the liberalization of gas prices and the development of gas exchanges are not fully compatible with bilateral deals and long-term contracts governing Russia’s approach to external gas supply. On the other hand, market-based pricing weakens the geopolitical use of gas supplies. In the absence of a sufficiently strong definition of free market pricing and instant trading, this means that Russia can provide gas to strategic partners through long-term bilateral agreements and at preferential prices. China may benefit from supporting the EAEU’s net pricing agenda in order to create an alternative price standard that depends on it. However, given the world’s current energy crisis caused by the war in Ukraine, the article suggests that rising gas prices with the absence of market reform will expose Russia’s Eurasian partners to geopolitical deals that lock them on the trajectory of Russian energy dependence. 

The article then moves to compare the methods of access to gas pipelines. In this regard, new arrivals are seeking market access to gas pipeline systems to demonstrate their competitiveness. The author argues that access to gas pipeline systems carries significant geopolitical implications. On the one hand, the requirement of open and non-discriminatory access to pipelines may make it difficult to finance new investments in gas transportation capacity. On the other hand, allowing exclusive use of pipelines by a major gas supplier could hinder the development of competition and potentially threaten energy security.

The EU, Russia and China recognize the principle of third-party access to pipelines but under their domestic gas laws. The EU model ensures that these parties have open, transparent and non-discriminatory access to energy networks in order to attract more suppliers, increase liquidity in trading centers and discover fair and effective prices based on supply and demand. However, it requires that the gas transport system is only concerned with areas that are compatible with the EU’s geopolitics. In contrast, the above cannot be applied to the Eurasian gas market because this will reduce Russian control over regional gas supply. Instead, the Eurasian Union subjects third-party access to pipeline systems to significant restrictions that effectively cripple its application. For example, members of the Eurasian Economic Union are not allowed to deal with third countries in the purchase, sale and transportation of gas. Meanwhile, China is generally committed to equitable and non-discriminatory third-party access to gas pipelines. This is the case in its efforts to link its market to Central Asia and overcome these countries’ dependence on Russian gas.

In conclusion, the writer asserts that the main reason for the failure of the gas market regulation is due to regulatory competition and regulatory imperialism concerns between the EU and Russia. Thus, this is an obstacle to the necessary market reforms to ensure energy security and systems with high efficiency and long sustainability. Thus, it hampers the possibility of reducing reliance on Russian gas. 


By: Ryma Meddah, MA in IR and International Law

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