Excellencies,
Ladies and Gentlemen,
Let me start by thanking the College of Europe, and in particular its Energy Policy Chair for organising this conference. Actually the creation of the Energy Policy Chair is itself an indication of the growing importance – and popularity – of energy issue. One could say one thing the energy sector is not suffering from is a lack of experts.
Without claiming to be one I would like to address Russia-EU energy cooperation that was, still is and – I’m convinced - will continue to be developing on a long term basis and to the benefit of both Parties. This cooperation embraces all types of energy resources and products, conventional as well as renewable, extends to electricity and nuclear power generation; it covers not only trade operations but also such areas as scientific research, promotion of innovation technologies and energy efficiency, energy market studies, elaboration of common approaches to many global challenges in the energy sphere.
While speaking about energy matters it is difficult to avoid some figures which illustrate the importance of energy issues for both Parties.
It is common knowledge that for Russia energy commodities represent one of the most important sources of income for the state budget, while the European Union represents the most important market. 90% of the total exports of Russian oil, 70% of total exports of gas, 50% of exports of coal go to the EU.
At the same time Russia is the most important provider of energy commodities to the EU. Some 34% of the total EU imports of gas (120-130 bln. cub. m per year, 136 bcm in 2013), more than 30% of imports of oil (175 mln. t), 23% of oil products (80 mln. t), 24% of coal (60 mln. t), 30% of nuclear fuel and materials, 30% of imported electricity (16 bln. kilowatt-hours) are of Russian origin.
Energy cooperation allows Russian state treasury to replenish its financial resources and the EU – to have predictable and stable access to energy which is a prerequisite for economic development. In other words, cooperation in the energy sphere is indispensable for economic development of both Parties, for preserving and increasing employment, maintaining and improving the well-being of people in Russia and EU countries.
Our interaction is pursued on different levels – governmental, parliamentary, business, academic, and in different formats – bilateral and multilateral, with the European Commission and the Governments of EU member states.
It was back in 2000 when at the initiative of the then President of the European Commission, Romano Prodi, the Russia-EU energy dialogue was launched, paving the way for other sectoral dialogues, over a dozen so far. Today energy cooperation is well structured, institutionalized and has a solid legal base. I will omit the enumeration of joint institutions, bodies, Working and Thematic Groups created by the Parties to promote mutually advantageous cooperation. I will also refrain from mentioning numerous bilateral and multilateral agreements and arrangements which govern directly or indirectly such cooperation, though all of them are of great importance. It will also be difficult to enumerate all achievements in our cooperation; in this respect I will try to limit myself only to those examples that are strictly necessary. Instead I would rather concentrate on problems which exist today in energy sphere between Russia and the EU and which became particularly acute in the context of the current political and economic crisis in Ukraine.
These problems concern mostly the gas sector – which may seem surprising, taking into consideration the fact that the volume of oil in Russian exports to the EU is 4 times larger than that of gas, in money terms.
Why so? What are the causes of these problems? Are there pragmatic solutions for these problems?
Let me start with brief outline of past experience.
The start of our cooperation in the gas sector dates back to almost half a century ago. The first contract for export of gas from the USSR was signed on 1 June 1968 with Austria, followed by contracts with Italy (in 1969), Germany (1970), Finland and France (1971). All Eastern and Central European countries – then members of COMECON (Council for Mutual Economic Assistance – in case young people present here today are not aware) as well as Yugoslavia (which participated in the COMECON activities but was never a member) – became importers of gas from Soviet Union.
In 1980 the first long-term contract for a period of 25 years was concluded with the Federal Republic of Germany. The agreement (which was nicknamed “gas for tubes”) allowed the construction of a trunk pipeline from Siberian gasfields to western border of the USSR. The pipeline was 4.5 thousand km long and allowed to deliver to Germany 10.5 bcm of gas annually. In 1989 a new export pipeline became operational, which brought gas to Europe from Siberian Yambourg gasfield. In 1990 exports of gas from the USSR reached 110 bcm. The share of Russian gas in total imports by countries-members of European Communities was at that time 75% a figure much higher than today’s. And nobody was worried about “overdependence” of Europe on Russian (actually Soviet) gas.
Political tensions and ideological divergences between the USSR and countries of Western Europe, typical for the “Cold War” period didn’t prevent them from developing mutually advantageous cooperation.
The pragmatic attitude of the Parties to their cooperation in energy sphere continued after the collapse of the USSR.
I have a personal account of the moment when the European Union expressed for the first time its energy security concerns and linked them to the issue of assumed “overdependence” on Russia’s energy resources. The date was October 5, 2005, and the venue was London. At the final press conference after a Russia-EU summit Tony Blair, then the UK Prime Minister, was asked whether the EU is worried with energy overdependence on Russia. Visibly surprised, he said that those links had been established decades earlier and had been working without any problem. Nevertheless, an hour later all TV channels were full of stories and expressions of concern over the issue – as if a signal had been given. So much for freedom of the media…
Nowadays the issue of energy security, which is often understood in the EU as necessity to escape dependence on Russian supplies, became predominant. What causes particular concern is that as a result the focus of international attention is misplaced. Instead of addressing the critical situation of the energy sector of Ukraine which is facing major financial and technological challenges, while continuing to serve as a major transit route for Russian gas flow to the EU and agreeing on combined international efforts to Ukraine from irreversibly becoming a failed state in the middle of Europe, the debate rotates around the much less acute issue of diversification of energy supplies.
The first question to ask is whether the EU is really overdependent on Russian gas? Here we may hear different points of view.
Some accuse Russia of trying to exercise “energy dominance over Europe” and even to blackmail the EU, though no reliable evidence has ever been produced. Others insist that European dependence on Russia in energy sphere is largely overestimated. For example, Claude Mandil, former Executive Director of the International Energy Agency said recently: “we [Europeans] are not very dependent on Russia. It provides only a quarter of our gas in Europe. That makes 10% of primary energy consumption in Europe. Can we react to a risk of cut-off of 10% of our supply? Of course. We can find gas elsewhere – liquefied natural gas, which will obviously cost more. We can replace it with coal, which of course is not very good for the environment. We can be more energy efficient. We can delay the shutdown of certain nuclear plants. There are many possibilities. The fact is that we should absolutely not be afraid of our dependence on Russia”.
For me the discussion of the issue of dependence or on the necessity to gain independence from Russia is sterile.
In reality Russia and the EU are mutually dependent on each other, both Parties are in need of each other and consequently both Parties are interested in preserving the level and quality of energy cooperation. This interdependence creates in reality an additional factor strengthening energy security in Europe – contrary to allegations of the opposite. I agree with the opinion of the former head of BP Tony Hayward who once said “Energy security is appropriate and desirable. Energy independence (in a globalizing world) is expensive and apparently unachievable”.
The notion of energy security is of a complex character and shouldn’t be reduced to the problem of dependence or independence. Such elements of energy security must be singled out as security of infrastructure, including its physical safety, compliance of infrastructure to the needs of consumers and suppliers, diversity of supply routes, availability of energy resources – national and foreign, conventional or unconventional, fossil or renewable. One should not forget economic aspects of energy security including the issues of prices and costs, as well as legal or technological dimensions of the problem and, last but not least, political aspects of the energy security issue. None of these elements can be considered separately. Energy security is ensured by the combination of all of them. Weakness of some may be compensated by the solidity of others.
Today the issue of price turned out to be in the centre of discussions. This discussion was instigated especially by the so-called shale gas revolution in the United States which resulted in particular in significant price differentiation between Europe and the US.
To make prices in Europe go down some experts suggest to remove the ban on export of shale (and any other) gas from the US and allow this energy resource to come to Europe. But will American gas come to Europe and if the answer is affirmative – what will be the terms and conditions of its marketing in Europe? What will be the final price for American gas in Europe? Many doubt that the desired effect is guaranteed. Let me outline the reasons.
Today there is still no global market for gas, but a number of regional markets, all of which have their specificity. It is true that gas prices in Europe are higher than in the US, but at the same time they are lower than in Asia. What would happen if exports of gas from the USA start? According to the rules of market economy – or simply arithmetic – it will go to the markets with more interesting prices, that is to Asia, where energy prices might really go down, thus correcting the existing distortion of competition between Asia and Europe. If Europe wants to compete with Asia for American gas it should propose more attractive price and pay a price premium, thus further equalizing competitive environment of the EU and Asia. In this context exports of American shale gas will be more beneficial to Asia than to Europe. However Europe will also benefit from export of shale gas but in a specific way. Removing the US ban for gas export will result not in decreasing prices in Europe, but in increasing gas prices on the American internal energy market – and as result make all US Exports more expensive and less competitive. This will help correct the market distortions between the USA and the EU, create more fair conditions for competition between American and European economies.
No matter where shale gas will go – to Asia or to Europe or in both directions – Russian gas has all the chances to preserve its role for the EU economy. That means the necessity for both Russia and the European Union to continue their work on enhancing energy cooperation according to previously agreed plans and in the existing institutional framework. We face a number of common challenges, and it is important to concentrate efforts on overcoming obstacles which still exist on the way of development of cooperation. The Russian side is optimistic in this respect. We took note of the recent statement by Commissioner Gunter Oettinger, made on Sunday 20 April. The European commissioner spoke against “scaling back or even cutting gas links with Russia in the coming years” and said that he had an impression that Russian company Gazprom “will fulfill its contractual obligations and want to supply the gas”. I may confirm that the position of the Russian Federation in favour of continuing Russia-EU energy cooperation, including cooperation on gas issues, remains constant. I really very much hope that both Parties will make their best efforts to allow Gazprom and EU energy companies to continue their reliable partnership. These efforts are needed because in today’s world and specifically today’s political situation not everything may depend on a private company.
The Russian Federation demonstrates its willingness to find mutually acceptable ways that would allow to continue deliveries to Europe and preserve uninterrupted transit of Russian gas to Europe. Further to the already released 3 bln credit the Russian side demonstrates patience as regards the arrears of Ukraine for the gas delivered by Gazprom. The debt already exceeds 2.2 bln US dollars Nevertheless the Russian side has postponed – once again – the decision to switch on to the system of advance payments, which is stipulated in the contract concluded between Gazprom and Ukrainian “Naftogaz”.
But it wouldn’t be fair (and wise) to expect that the problems might be resolved only through unilateral efforts of Russia and of the Russian company. The European Union also has a number of instruments, including legal, to stimulate Ukraine to continue uninterrupted transit of gas through its territory. One of these instruments is represented by the Energy Charter Treaty where both - Ukraine and the EU - are the Contracting Parties. Article 7 of that Treaty directly forbids transit countries to cut off transit even in case of a dispute related to transit. The fact that Ukraine is a member of Energy Community, which is functioning under the auspices of the European Commission, should be taken into consideration as well.
In any case the interests of both Russia and the EU require de-escalating of unfriendly and sometimes even hostile rhetoric. The Russian side calls on EU institutions and Member States to refrain from irresponsible appeals to stop energy cooperation, to stop construction of “South Stream” pipeline, which is aimed, by the way, at helping the EU diversify the routes of supply of energy resources.
Here I would like to quote the CEO of the French company “Total” Christophe de Marjery who once said: “I would certainly not consider that diversity as such means security. Security is a question of quality of relationship”. Unfortunately today the quality of Russia-EU relations has deteriorated and consequently energy security has suffered.
It is obvious that Russia and the EU will continue to co-exist side by side and will be in constant need of each other in all areas of their interaction – political, economic, cultural, scientific, humanitarian etc. The less damage one Party tries to cause to the other today the easier it will be to restore normal relations tomorrow. Nobody should forget the golden rule in politics which reads that perception determines reality.
