Russian Gas to Europe: From Long-Term Contracts, On-Border Trade and Destination Clauses to …?

Abstract

In the coming decades Europe will remain strongly dependent on external energy supplies, and particularly on gas supplies from Russia. The author analyses the economic and political background of current contractual structures of Russian gas supplies to the EU in its historic context. He argues the objective character of these structures which consists of four major elements: long-term ‘take-and/or-pay’ contracts (LTCs); on-border (EU-15) trade; destination clauses; and the major role of transit. New contractual structures, which are influenced first of all by developments in the internal EU gas market, need to reflect the balance of interests of exporters, importers of gas and of transition states. The author analyses the still-important role of LTCs, both in external Russia-EU gas trade and in internal EU gas trade. He analyses the effect of the recent cancellation of destination clauses in Russian Gazprom's LTCs with ENI (Italy) and OMV (Austria). He explains the economic consequences of EU enlargement on Russia-EU ‘on-border’ gas trade and on gas transit in particular. The author analyses the role of the Energy Charter draft Transit Protocol in minimising transit risks; outlining three outstanding issues between Russia and the EU, which are to be settled by the two contracting parties to successfully finalise multilateral Transit Protocol negotiations.