Russia: EU energy talks at impasse

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MOSCOW, Oct. 26 (UPI) -- Talks with Moscow over the European Union's newly enacted energy market reform package have reached a stalemate, Russian Energy Minister Sergei Shmatko says.

Shmatko told RIA Novosti at a Moscow energy conference Monday that efforts to work out a compromise over the EU Third Energy Package's push to "unbundle" natural gas production, transportation and pricing haven't been realized.

The measures, which went into effect in March, force the state-owned gas monopoly Gazprom to sell its product through third-party transit operators -- something it says makes supplies unreliable.

"Unfortunately, I must say that our talks with the European Commission on how Russian interests could be respected within the current European legislation, the Third Energy Package, have reached an impasse," he said.

The energy minister asserted the European Commission had rejected all of Russia's suggested compromises.

"We're seeing a basis for confrontation being formed," he said. "We have issues that are hard to compromise. A modernized infrastructure, long-term contracts that would ensure steady payments and clear price formulas, all these things are sacred cows in a way. It will be difficult for us to abandon them."

The "clear price formula" favored by Moscow is the one in effect now, which ties Gazprom's natural gas prices to the price of oil in long-term contracts.

German customers such as E.ON and RWE, however, are seeking to establish a spot price mechanism to obtain cheaper gas, the Russian news agency reported.

They could be hoping to emulate Italy's Edison S.p.A, which filed a lawsuit against Gazprom this summer in a successful bid to introduce a spot element into its price formula.

Shmatko warned "speculative" new players in the European market could result in unexpectedly high gas prices for residents -- making them more appreciative of the current long-term pricing continuity.

Shmatko also said Gazprom's troubles with the EU have prompted Moscow to look harder at the Far East for new natural gas consumers.

"We've already decided to change our energy policy and are now reviewing its development strategy," he said. "We have to define its eastern trend."

The new emphasis on Asian markets comes as Russia and China appear to be close to wrapping up a long-sought $1 trillion natural gas deal.

Russian Prime Minister Vladimir Putin and Chinese Premier Wen Jiabao said this month the gas agreement is "very close" after negotiations over Gazprom's prices had dragged on for more than a year, CNN reported.

Under the deal, Russia would supply 68 billion cubic meters of gas every year to China's growing industrial sector, which is largely dependent on liquefied natural gas and pipelines from Turkmenistan.

"We're discussing opening new energy transportation routes," added Putin, referring to planned new oil and gas pipelines that would stretch between the two countries.

A major oil pipeline opened in January running from Daqing in northeastern China to Skovorodino in eastern Russia -- a 621-mile route that will carry 15 million metric tons of oil annually to China, the U.S. broadcaster said.