Consumer proximity

Russian company Gazprom Marketing & Trading has acquired German consumer energy provider Envacom Service in a move to expand beyond its wholesale natural gas business serving and enter the German retail sector.

"The acquisition of this business represents a significant step for Gazprom in our strategy to accelerate growth in our power business," Jozua Knol, managing director of Gazprom Energy in Germany said in a statement.

The move comes just one week after the official opening of the Nord Stream underwater pipeline that links Gazprom directly to Germany and suppliers in Western Europe via the Baltic Sea.

Fueled by nuclear power retreat

The acquisition also comes just a few months after the Russian state-owned gas company inked a deal with German energy utilities group RWE to form a partnership to build gas and coal-fired power plants in Germany and beyond.

That deal, in particular, was sparked by the German government's decision to close down its nuclear reactors and the need to find replacement facilities to still the country's gigantic appetite for energy.

In a weekend interview with the Süddeutsche Zeitung newspaper, Russian Energy Minister Sergei Shmatko said Germany would need up to 15 new power plants to fill the 10-12 gigawatt gap left behind when the nation's nuclear power stations are taken off the energy grid. Shmatko estimated building the new facilities, including coal- and gas-powered plants, would cost about 15 billion euros, which Moscow would help finance.

While analysts welcome greater competition in the German energy market, they warn against developments that would allow any one player to become too powerful - and also of the need for market reciprocity.

"There is nothing wrong with having additional service providers enter the market," Hendrik Biebeler, an economist with the Cologne Institute for Economic Research, told Deutsche Welle. "If these new players are able to increase efficiency and pass on those savings to consumers and enterprises, then they are more than welcome."

Dominant market position

Should, however, a player achieve a dominant market position, Biebeler warned, that situation would need to be reviewed by competition authorities.

Josef Auer, an energy expert with Deutsche Bank Research, agrees. "In principle, no one can be against greater competition in Germany, but then German companies and others should also allowed to offer energy services to Russian consumers," Auer told Deutsche Welle.

"Western Europe has opened its energy markets but in Russia, it is still not possible for non-Russian companies to drill for natural gas and export it to Western Europe. Gazprom has an export monopoly."

The company is making the most of its privileged status. The Russian monopolist, which is believed to control one sixth of the world's natural gas reserves, has already carved out a 40 percent chunk of the German gas market. Now with Envacom, it appears hungry for even more.

The Wiesbaden-based company, to be renamed Gazprom Marketing and Trading Retail Germania, already sells electricity to 500,000 customers but has no experience in retail gas operations.

Tough negotiating partner

Gazprom says further acquisitions in Germany are under consideration. It has already established similar retail operations in Britain, Ireland, France and the Netherlands.

Yet, despite its growing presence in Germany and expanding retail operations in Europe, the Russian company has encountered a tough negotiating partner in the European Commission, which seeks to unbundle the gas pipeline infrastructure.

If Brussels gets its way, it would see Gazprom's extensive pipeline infrastructure open up to competition. So far, Russia has said "nyet" to that idea.

Author: John Blau
Editor: Sam Edmonds