Across Europe, a new nationalism is in the air. France can take some of the blame for eroding the sense of inevitability that was once attached to European political unity. After all, it was the French voting public who, along with the Dutch, rejected the proposed EU constitution in mid 2005.
Though not necessarily as a direct result of the French and Dutch "no" votes, the past two years have seen a succession of cross-border curmudgeons protesting international corporate deals, many of them involving energy utilities.
For its part, France decided last year to create a "national champion" worth nearly 90 billion euros by joining its state-run energy firm Gaz de France with privately run Suez. That move came after the Italian utility company Enel bid for Suez. The Suez-GDF deal still has not been completed.
There was also the case of German utility E.ON, which pursued its Spanish rival Endesa only to finally be supplanted this month by Spanish company Acciona and the aforementioned Enel. The Spanish government, following in the footsteps of its northern neighbor France, wanted to create a national energy champion, so it gave its support initially to Spanish company Gas Natural.
Eventually, Enel got its wish for an international advance after the Italian government helped it push the European Commission (the EU's executive branch) for clearance on its Endesa bid.
The EU is constantly trying to juggle its primary concern, energy security, with seemingly opposite desires to eliminate protectionism while limiting continent-dominating mammoth utilities.
This past weekend, EU Trade Commissioner Peter Mandelson said that it could be acceptable in some cases for national governments to employ "golden shares" of equity, like preferred stock, to block acquisitions in a way that would normally run counter to the EU's free-market bent.
Rather than inter-European energy mergers, this "golden share" method seems aimed particularly at national investment companies that have been formed in oil-rich Persian Gulf states like the United Arab Emirates (especially Dubai), Indonesia's Temasek Holdings, and of course, the nascent Chinese national investment company that will soon be slinging a trillion dollars in cash around the world like a kid in a candy store.
To the east, a specter is haunting Europe--the specter of Russian gas! While the EU gets wishy-washy about what its member states can jealously guard and what they can't, the Kremlin has final say. Snapping up companies like oil major Yukos (which was privatized during the mob-heavy and under-the-table post-Soviet nineties), Russia has wrested control of its national energy endowment away from stillborn private enterprise.
Now, the government and its state-run companies Gazprom and Rosneft respectively control all of the country's natural gas and oil exports. Russia holds the world's largest national gas reserves, is #2 in coal, #8 in oil (though it is the second-biggest exporter), and most importantly it is the world's #3 consumer of energy.
With 6.7% GDP growth in 2006, leading the G8, Russia needs juice for its batteries. So no wonder that last October Gazprom chief Alexei Miller announced on television that his company would take 100% control of all of the exports and licenses from the Shtokman gas field, currently under development in the Russian Arctic.
French leaders and executives at Total got a shock from this, as they thought they were getting a nice chunk from a deal they cut for 25% of the Shtokman development company through French hydrocarbon company Total.
Instead, Moscow will only deign to let Total work on the field's development, while the first deliveries, expected to start in 2013, carry enough gas to power all of Europe for three years. The French won't see a dime.
Though Total and the French find themselves in a better position than the British, new French President Sarkozy can't get too cozy with his Siberian compeers. Napoleon provides a heck of a precedent for what happens when sanguine Frenchmen go jaunting into the Russian snow.
On the Russian side, some of the true colors are showing. This Wednesday, Russia's Audit Chamber chief Sergei Stepashin conceded that maybe, just maybe, some of the bad blood currently staining the ground at the Russian and British embassies could have spewed from the Sakhalin Island spat with Shell, where Gazprom got a majority stake after accusing Shell of harming salmon spawning habitats and forced renegotiation on that profitable project.
Whatever happens, the European energy picture isn't getting any clearer. More sparks will fly and diplomatic conflagrations will result as peak energy supplies squeeze everyone from Reykjavik to Vladivostok.
Regards,
Sam Hopkins
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