Embrace Russian oil investment?

Marketplace Staff Jun 27, 2006


MARK AUSTIN THOMAS: Ministers from the G8 group of leading industrialized nations meet in Moscow on Thursday. The goal is to finalize the agenda a July summit in St. Petersburg. Some European officials are worried about Russia’s attempts to invest in European gas infrastructure. But Commentator Vijay Vaitheeswaran says the best thing for Europe to do is to embrace Russia.

VIJAY VAITHEESWARAN: Judging by Europe’s hysterics, you’d think there’s an Abominable Gasman stomping around Siberia just waiting to choke Europe’s energy supplies.

Of course, it’s nonsense.

Even during the darkest days of the Cold War, the USSR didn’t dare cut off gas to Europe.

Pipelines are a lousy tool for imposing an embargo. Gas that’s piped has to go through those pipes. It can’t be redirected to anywhere else.

So any embargo against a gas customer means losing money needed to feed people. That explains why Russia immediately backed down during the Ukraine standoff in January when its best customer, Germany, squawked.

In March, Russia announced it will build a $10 billion gas pipeline from Siberia and China. That upset the Japanese and Americans who fear that Russia may try to set up a cartel of natural gas producers.

But that idea also makes no sense. Global gas reserves are far bigger and better distributed than oil reserves. Any cartel-minded regime opposed to foreign investment will stagnate no matter how much gas it has.

But the most irrational fear surrounds Russia’s Gazprom buying distribution assets in Europe, including Britain’s Centrica.

If Russia wants to spend billions of dollars investing in gas distribution firms in Europe, then regulators should applaud.

That’s because Western Europe will have far more leverage over Russia if Gazprom owns assets that can be confiscated in the event of embargo.

What’s more, Europe can then leverage its openness to Russian investment to demand that Russia allow much-needed foreign investment in its creaking gas infrastructure at home.

In the end, a liberalized energy market is the best way to protect Europe against the Abominable Gasman.

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