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An 800-pound gorilla in the market, the legacy of a wasteful socialist monopoly and notorious for its high-handedness towards customers, Centrica is turning to Russia for help... Photograph by Yuri Kadobnov — AFP/Getty Images

EU probe isn’t stopping Gazprom’s European expansion plan

May 13, 2015

Russia's national gas champion OAO Gazprom took its biggest bite into the U.K. market to date Tuesday, signing a deal with the country's biggest utility that will give it access to some 15 million household and business customers.

The state-controlled giant, which last month became the subject of an official European Union antitrust probe, agreed to extend a 2012 agreement with Centrica (which sells through the British Gas brand), raising annual supplies from just over 70 billion cubic feet a year to 146 bcf.

The deal, which runs through 2021, means that Gazprom will be the source of over 5% of annual U.K. gas demand, even before its trading arrangements with other U.K. utilities are taken into account. Supplies will be managed from Gazprom's global trading portfolio, rather than sourced to specific fields and pipelines in Russia, however,

The deal illustrates the changing face of the European energy market. The U.K. for a long time produced more than enough gas in the North Sea to meet its own needs, but now has to import over half of the 2.56 trillion cubic feet a year that it consumes as those fields deplete. Gazprom, which supplies over a quarter of Europe's gas, was generally unable to penetrate it.

With the U.K., like the rest of Europe, highly reluctant to allow shale gas to replace the North Sea resources, there are few alternatives, at least in the short term, to Gazprom's (Centrica is already leaning heavily on the most obvious one, committing itself in a separate deal Tuesday to take 256 bcf a year from the Norwegian company Statoil ASA (stohf)).

But by the same token, Gazprom needs new European customers just as badly, having lost one of its biggest and most profitable export markets, Ukraine, to a bitterly politicized dispute. The U.K. is one of the few markets in Europe where it can increase its presence without becoming conspicuously dominant.

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