Edited By Abdulkadir Develi and Selahattin Kaynak
Future of Russian Gas and its Energy Relations with the EU between now and 2020
Yuri Yegorov and Franz Wirl 1. Introduction The market for natural gas is a very dynamic industrial sector. Recent studies have shown the important role of geography, politics and technology for its evo- lution. The gas market differs from other markets due to its very high share of transport and infrastructure costs. Since investment is location specific, it in- volves geopolitical aspects. Russia and the EU are mutually dependent on energy relations and maintain a kind of monopolistic-monopsonistic relationship. Ericson1 analyses the Eurasian network of natural gas pipelines. The EU is concerned about its energy dependence on Russia. The technology and high infrastructure costs make gas markets highly inflexible. Very often economic considerations take second place to political issues. Astronomical up-front investment costs lead to the emergence of natural monopo- lies. The development of such a system requires long-term contractual relationships that tie producers and consumers together. Contrary to oil, natural gas is typically supplied through a singular gas pipeline network. The pipeline network can impose “lock-in” relationships between a producer and consumers. The EU dependence on Russian gas is about 30%. Gazprom receives 65% of its revenues from Europe, and generated 8% of Russian GDP in 2005. 40% of the Russian budget depends on the export of energy. Thus, a mutual dependence between buyers and sellers exists, and this raises security issues for both sides of this tied market. At the same time, EU policy towards Russia at present does not allow a mu- tually beneficial outcome. On the...
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