Oil, Gas & Energy Law Intelligence

2.2 Result of decisions of historic pastWhen I just became a first-year student at the Energy Faculty of the MoscowInstitute for Engineering and Economics in September 1970, almost at the first lectureof the “Introductory Course to Energy Economics” one of the greatest Soviet energyeconomists, prominent specialist in system studies in the energy field, academician LevA. Melentyev, reading the named lectures to us, accented the words, which Iremember, and repeat, in turn, nowadays to my own students: "In the field of energywe live in the era of investment decisions, adopted 15 years ago". However, the highlevel of capital intensity of investment projects in energy and their long lifecycles(especially in upstream in development of giant fields) has increased significantly. Sonow we live in the era of investment decisions, taken not 15 years, but even somedecades ago. This note can be fully applied to Gazprom and to its operations in Europe,since in todays’ gas market we face a situation in CEE as the result of investmentdecisions taken a few decades ago. Europe has inherited the current configuration of itsgas infrastructure and the mode of its operations in gas since the historical past of the1960s.The current monopoly position of Gazprom on the current CEE market, where thecountries of Central and Eastern Europe are already members of the EU, is the result ofinvestment decisions for infrastructure development carried out during another politicalera and in different economic conditions. It was the then divided Europe during thetime of the Cold War, when the CEE countries were members of the CMEA and formeda part of the world centrally planned system, when this infrastructure was createdbased on realities of that political era. That political era has now gone, but its materialresults (configuration of the capital intensive immobile infrastructure) are still in placepredetermining the configuration of gas flows and their underlying economics.I think that, first of all, it is not Gazprom who is responsible for the lack ofdevelopment of the gas transportation infrastructure in the CEE, though it is Gazpromwho is nowadays blamed for this. The infrastructure was created primarily in "pre-16