MERIDIANS OF ENERGY PARTNERSHIP
Ambassador Vladimir Chizhov, “Oil of Russia” No. 1, 2011
Cooperation in the energy sphere is a major element in Russia-EU relations
A key priority in the strategic partnership between Russia and the EU is, undoubtedly, collaboration in the energy sphere. After all, it is quite obvious that, in the foreseeable future, it is precisely the European Union that will remain Russia's key partner in hydrocarbon production, transportation and sale, electricity trade, encouragement of energy efficiency/saving, energy diversification, providing for the physical security of the vital energy infrastructure, and addressing climate change and sustainable development issues.
Strategic cooperation
Quite naturally, being neighbors, Russia and the European Union are striving to develop mutually beneficial relations in these spheres on the basis of consideration of each other's interests and a focus on developing common approaches to addressing the most pressing problems. Both Russia and the EU have already formed their approaches to creating mechanisms for regulating energy markets, this having engendered a serious transformation of the legislative framework. The most material and, I would say, broadly discussed changes took place in the European Union with the adoption of the so-called Third Energy Package. In 2010, Russia adopted its Energy Strategy - 2030, focused on innovative development of the fuel and energy complex. All this necessitates that the parties once again align themselves on aspects of both bilateral and multilateral cooperation.
At the Russia-EU Summit in Rostov-on- Don on May 31 - June 1, 2010, a Partnership for Modernization program was approved, its implementation mechanism in the energy sphere being the Russia-EU Energy Dialogue, which has already celebrated its 10th anniversary. This indeed is a potent tool for collaboration, providing not only for regular dialogues at different levels, but also an opportunity for rapid response to any threats that arise to energy security on the continent of Europe.
In this connection, it is appropriate to recall the background to the existing Russia-EU Energy Dialogue, which has already demonstrated the effectiveness of its format. During the European energy crisis in the late 1990s, the then President of the European Commission Romano Prodi proposed to Russian President Vladimir Putin that strategic partnership be launched between the parties in the format of an energy dialogue. At the end of September 2000, the so-called Prodi Plan was put forward, thus launching the energy dialogue between the EU and Russia.
The priorities of the Energy Dialogue are discussed at meetings of the EU-Russia Permanent Partnership Council (PPC) in the format of Energy Ministers. In addition, regular meetings are held between the Energy Dialogue Coordinators, who are today Russian Energy Minister Sergey Shmatko and European Commissioner for Energy Gunther Oettinger. Preparatory and operational work is performed by the officials authorized by the Coordinators - currently Deputy Energy Minister Anatoly Yanovsky and European Commission Director General for Energy Philip Lowe.
Topical aspects of cooperation are discussed at regular meetings of thematic groups and subgroups (on energy strategies, market developments and energy efficiency). Information on the state of and prospects for development of cooperation within the scope of the Energy Dialogue is published annually by the parties in joint Progress Reports presented at autumn Russia-EU summits.
In November 2009, the Energy Dialogue Coordinators signed a Memorandum on an Early Warning Mechanism (EWM) in the energy sector. The EWM provides for an early evaluation of potential risks and problems related to the supply of and demand for natural gas, oil and electric power. In addition, the document prescribes in detail the early warning and rapid response mechanism in the event of an emergency or situation or a threat thereof. It should be noted that the parties have already had occasion to use this mechanism. The results of its application have proved its effectiveness and have been highly appraised by both parties.
Yet the Memorandum on the Early Warning Mechanism is not just a real (or virtual) "red alert book". The mechanism envisages the parties promptly notifying each other of prepared or planned innovations in the sphere of legislative or administrative regulation of the energy sector.
In November 2010, the 10th Anniversary Conference of the Energy Dialogue was held in Brussels, in conjunction with the annual Permanent Partnership Council meeting. Goals were outlined for effective implementation of the national energy development strategies of the EU member states and Russia. For this purpose, a cooperation Roadmap for up to 2050 is being drawn up by Russian and European Commission experts.
The aim: energy security
The fundamental instrument behind Russia-EU cooperation is the 1994 Partnership and Cooperation Agreement, a New Basic Agreement is being drawn up to replace it. A separate article of this document will be devoted to energy matters. During the negotiations on the New Basic Agreement, Russia is governed by the energy security principles laid down, in particular, in the final documents of the St. Petersburg G-8 Summit in 2006. I am convinced that, given reciprocal political will on the part of our partners, the talks will result in mutually acceptable wordings.
We are, of course, counting on a fruitful discussion of the Convention on International Energy Security, drawn up by Russian experts in pursuance of the provisions of the Conceptual Approach to the new legal framework for international cooperation in the energy sphere, proposed by Russian President Dmitry Medvedev. We hope that the Russian initiative will find support among our colleagues in the European Union.
It is an important task for both the EU and Russia to ensure energy security on the continent of Europe. Significant practical steps have been taken in this direction recently. In particular, construction has been launched of the Nord Stream gas pipeline, to minimize transit risks through direct supplies of nearly 55 billion m3 of gas a year to EU markets. It should be noted that, throughout implementation of this project and agreement of its parameters with the Baltic states, it enjoyed the consistent support of the European Commission, which justifiably considers this project to be an important tool guaranteeing uninterrupted gas supplies to the EU. This is why the gas pipeline has been included by the European Commission among the priority projects within the scope of the Trans-European Energy Network (TEN-E) program.
We believe that the joint work between Russia and the EU in implementing another, equally important project, South Stream, will be as much effective and that the European Commission will, in the very near future, consider the possibility of including it among the priority projects, given the role it has to play in ensuring the energy security of the EU and Europe as a whole.
At the same time, a few words should be said about our positions regarding other gas transport projects in this region. Abstracting from the deliberate politicization of the competition between the transport routes and focusing on purely economic aspects (profitability, competition for sales markets, resource base, etc.), South Stream and Nabucco may be considered as mutually supplementary projects called on, in the medium and long-term future, to satisfy the demand for gas in Central and South-East Europe. According to leading gas industry experts, including from the International Energy Agency and Eurogas, by 2030, the demand for gas in the EU might rise from the current 480 billion m3 a year to 570 billion m3 annually or even more, while the share of gas in the EU's energy balance will go up from today's 24% to 31%, primarily owing to an increase in demand in the electricity generation sector. Domestic gas production in the EU and Norway will fall to 33% of total consumption by 2020 and to 25% by 2030.
The maximum capacity of the South Stream pipeline is known to be 63 billion m3 a year and that of Nabucco - 31 billion m3 a year. Thus, even when South Stream, Nabucco, Nord Stream, the Turkey-Greece-Italy interconnector and possibly other projects are completed, the gas of these pipelines will be in stable demand on European markets. The argument that South Stream and Nabucco are mutually exclusive is, therefore, nothing more than a counterproductive attempt to gain political points from creating a negative background to the two projects. Besides, such statements are seriously detrimental to the gas industry as a whole, the activities of which have already been subject to unprecedented politicization in recent times.
Briefly about so-called shale gas, referred to by some specialists as an alternative to traditional types of hydrocarbons. Yes, indeed, production of shale gas is promising and economically feasible in some countries, such as the Unites States. In Europe there also are shale gas fields and several wells are producing it on an experimental basis. At the same time, it is at least premature to speak of the possibility of commercial production of shale gas in the countries of Europe, since a whole series of legislative, technological and environmental issues are involved and its cost exceeds that of producing many other energy resources. Conventional gas remains, therefore, the main type of environmentally clean energy source, and will remain so for the foreseeable future.
One more issue recently under active discussion has been the problem of implementing the provisions of the EU Third Energy Package. Its requirements have to be taken into account in the national legislation of the European Union member countries by March 11, 2011, yet by the middle of 2010, Russian and EU partners had already encountered problems in implementing trade and investment projects. In particular, the signing of additional protocols on supplies of Russian gas to Poland and its transit along the Yamal-Europe gas pipeline came up against a number of difficulties engendered by the need to change the bilateral Russian-Polish long-term agreement signed back in 1993 and the European Commission's demand that agreements be brought in line with the Third Energy Package's provisions. The paradox in this situation lies in the fact that the Third Energy Package, according to its authors, should heighten the energy security of the European Union, but its literal application, without taking into account the actual situation in each individual case, might, as the Polish example shows, have a diametrically opposite effect. In Lithuania, application of the new model for market regulation has created a situation tantamount to actual nationalization of the assets of Russia's company Gazprom and Germany's E.ON Ruhrgas into the gas company Lietuvos dujos, which should not but give rise to a negative reaction among shareholders.
All these and other pressing problems were analyzed within the scope of the Russia-EU Energy Dialogue in 2010. Mutually acceptable solutions were found for many of them but such solutions still need to be found for some others. New issues requiring resolution will inevitably arise and this demonstrates the vitality of our cooperation mechanism.
The cooperation between Russia and the EU in the energy sphere will thus, given the forecast growth in the demand for energy resources in the European Union, gain in strength. It is no secret, of course, that the interests of the European Union as an energy consumer and of Russia as an energy supplier do not coincide with respect to all parameters. Even so, they are united by a common goal of ensuring stable growth of the economies of the two sides by creating conditions for fruitful collaboration between their energy sectors. In the final count, one important task facing the politicians determining the energy cooperation vector along interstate lines is to create favorable conditions for market operator companies, and the interests of Russian business and EU energy companies undoubtedly coincide with respect to growth of mutually beneficial partnership. And I can assure you that Russian diplomacy will apply all its efforts to achieve this goal.
