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EU Vs. Gazprom


Every time Europe bites the hand that feeds it gas, Gazprom bites back.

Gazprom (GAZP.ME) has Europe's natural gas market in a stranglehold and Europe is attempting to fight back, first with a raid last year on the Russian giant's offices and then with a probe launched earlier this week against its allegedly illicit efforts to control the EU's natural gas supplies.

The bottom line is that the same natural gas revolution in the US, which was enabled by hydraulic fracturing (fracking), is now threatening to loosen Gazprom's grip on the EU.

To head off a potential natural gas revolution in the EU, Gazprom is pulling out all the stops, and EU officials say that the company has been illegally throwing obstacles in the way of European gas diversification.

Poland's situation is a case in point. Last year, a US Department of Energy report estimated Poland's shale gas reserves at 171 trillion cubic feet. In March this year, the Polish Geological Institute suddenly felt compelled to contradict that report, saying reserves were only around 24.8 trillion cubic feet. In June, Exxon Mobil (XOM) announced it would pull out of its shale gas projects in Poland. Investors started getting cold feet and shares began to drop. Chevron (CVX)and ConocoPhillips (COP) are plodding along with their shale gas operations, for now.

Still, 24.8 trillion cubic feet is no paltry volume, and it is enough to ensure that Gazprom remains nervous. And then there is Ukraine, which also has sizable shale gas reserves and where the Russian noose is even tighter.

Right now, the only thing keeping the shale gas revolution from hitting Europe as it has in the US is technology: The shale reserves in Europe are on land that is more inaccessible, there is a lack of necessary infrastructure and fracking equipment, and protests against the environmental impact of fracking are more serious. But the biggest problem is Gazprom.

EU governments are both desperate to break the Russian stranglehold by developing shale gas reserves and wary of going up against a gas giant on whom they depend for supplies. It's a tough position and the outcome will depend on how the EU hedges its bets: Can it develop enough shale gas reserves quickly enough to take on Gazprom?
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