Gazprom begins assault on Britain

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The Independent Online

Russia's Gazprom has started its promised invasion of the UK power market, making its first delivery of liquefied natural gas to British shores as part of a multi-pronged strategy to capture 20 per cent of the gas market by 2015.

Earlier this week a tanker containing 140,000 cubic metres of liquefied gas arrived at BP's Isle of Grain terminal in Kent.

The shipment was organised by UK-registered Gazprom Marketing and Trading, a 100 per cent-owned subsidiary that is supposed to be the Russian energy giant's Trojan horse into the lucrative British gas market.

Though the shipment is modest in size, it is a sign of serious intent.

On Wednesday the state-controlled energy giant held talks with the Dutch government concerning the supply of gas to the UK though a new North Sea pipeline from the Netherlands that is expected to come on line by the end of this year.

The meeting, between Gazprom's deputy chairman, Alexander Medvedev, and the Dutch Economics Minister, Laurens Jan Brinkhorst, was high level. There is also talk that a "UK branch" may be added to Gazprom's flagship North European gas pipeline to Germany, giving it yet another point of delivery into Britain. That pipeline is expected to become operational by 2010.

Nor is Gazprom, the world's biggest gas producer, thought to have abandoned plans to buy a strategically important UK gas supplier, such as Centrica or Scottish Power. Such a prospect has alarmed sections of the Government who fear that Britain could become overly dependent on Russia for its energy needs. They point to the plight of Ukraine, which earlier this year had its Russian gas supplies switched off in the middle of a bitter pricing dispute at the height of winter. However Gazprom argues that Britain has nothing to fear, that it has been supplying gas to Europe without interruption for the past 30 years, and that the decision to turn off the tap was purely commercial, and that any Western energy supplier would have acted in the same way. In the UK's case, it makes no secret of the fact that it wants to cut out intermediaries and sell Siberian gas directly to UK consumers as North Sea oil and gas stocks dwindle.

With 60 per cent of Russian gas reserves at its disposal, it believes it is well-placed to fill the vacuum. Sources at the company in Moscow told The Independent yesterday that the company was as determined as ever to occupy a fifth of the UK market.

The company currently supplies Britain with 4 billion cubic metres of gas a year, mainly to big industrial customers and power stations. The gas is mostly supplied through the so-called interconnector pipeline from Belgium to Bacton in Norfolk and amounts to about 2 per cent of the UK's gas needs.

However Gazprom wants to increase that figure to 10 billion cubic metres by 2010, and to 20 per cent of the market by 2015. It is said to be frustrated with the lack of capacity in the interconnector, a common complaint about the pipeline.

The "Dutch option" would see it supply an extra 3 billion cubic metres of gas a year to the UK through the soon-to-be built rival to the interconnector, a pipeline that will run from Balgzand in the Netherlands to Bacton.

Gazprom believes that Britain's gas market offers higher profits than the Netherlands and Germany, its other big target market. In Russia it generates 20 per cent of the country's tax revenues, supplies 90 per cent of its gas, exports gas to 27 countries including the UK, and employs 330,000. The Russian government owns 50 per cent plus one share.