Intervention by Ambassador Vladimir Chizhov at the conference "Third Investment Energy Summit", organised by «The Economist». Brussels, 29 May 2013


Energy cooperation between Russia and the EU may well be qualified as one of the most intensive and at the same time most contradictory areas of their interaction. Such situation can be explained, of course, by the sheer volumes of energy resources traded between Russia and EU Member States, their mutual interdependence in this sphere and by a traditional split that always exists between the interests of any buyer and seller. But this explanation seems to be only partially true. In my today’s intervention I will try to give the Russian vision of achievements in Russia-EU energy cooperation as well as of some of the problems that exist in this sphere.

Let me start with a little bit of statistics. Russia is one of the leading countries in the world energy sector, and its role in global energy markets cannot be overestimated. Each year 600 mln. tonnes of oil and 670 bln. cubic metres of natural gas are produced in Russia. A little bit more than 1/3 of the oil produced and about 30% of gas are exported. In 2011 Russia exported 219 mln. tonnes of crude oil for the sum of 172 bln. US dollars, and 190 bln. cubic metres of gas for a total sum of 64 bln. US dollars. Overall, energy resources represent 53.5% of Russian exports. The share of oil in total export equals to 39%, that of gas – to 14%.
Russian trade turnover with EU Member States in 2012 reached 306 bln. euros, or 410 bln. US dollars, roughly half of the total turnover that Russia has with the whole world. At the same time Russia, which accounts for almost 8% of the total EU foreign trade, is the third most important trade partner of the EU (after China and the US). Russia is one of the main suppliers of energy resources to EU countries. 30% of oil and gas, 25% of coal imported by the EU, are of Russian origin (annually Russia delivers to the EU market 150-160 mln. tonnes of oil and 110-120 bln. cubic metres of gas, 60 mln. tonnes of coal). EU imports from Russia also include oil products (80 mln. tonnes per year, 23% of the total EU import), nuclear materials and electricity.

The above figures show the intensity and importance of Russia-EU relations in the energy sphere for both Parties. In order to tackle issues of energy cooperation back in 2000 Russia and the EU launched a bilateral Energy Dialogue. By the way, it was originally proposed by the then President of the European Commission Romano Prodi, as a way to ensure energy security for the EU. The Energy Dialogue is co-Chaired by the Russian Minister of Energy and the European Commissioner for Energy who designated their representatives to lead practical work on promotion of the various aspects of the Dialogue, namely a Deputy Minister of Energy of Russia and Director-General for Energy of the European Commission. Four Thematic Groups have been created to discuss at expert level issues of practical interest: on energy scenarios, on electric energy, on nuclear energy and on energy efficiency and innovation. The Energy Dialogue also comprises the Advisory Gas Council. Sessions of the Permanent Partnership Council on energy issues are held at Ministerial level on an annual basis. Last March the Parties finalized important work on developing a Russia-EU Roadmap on Energy cooperation for the period until 2050. The Roadmap provides an analysis of scenarios and their impact on Russia-EU energy relations, looks into the consequences of these scenarios for the energy sector, examines long-term opportunities and risks of the overall energy supply and demand situation, investigates the potential for long-term cooperation in the field of energy.

The Roadmap acknowledges that EU and Russian energy policies are different and independent, but there do exist areas where they converge and thereby mutually beneficial synergies may arise. The EU and the Russian Federation are closely interconnected through a dense energy network, notably carrying gas, oil and electricity. Although both sides will continue their respective diversification policies, close cooperation on existing and new infrastructure will continue to be mutually advantageous. 

The Roadmap is based on both parties’ commitment to long-term strategic energy cooperation.

In the framework of the Energy Dialogue the Parties not only discuss the state and prospects of their cooperation, elaborate projects of mutual interest, but also discuss problems that arise from time to time in bilateral relations.

One of these problems is the EU’s notorious Third Energy Package.

The Russian side acknowledges – quite obviously – the sovereign right of the EU and its Member States to regulate their internal energy markets according to their needs and understandings. However, we reserve the right to explain to our partners our concerns regarding the impact of specific provisions of the Package on international cooperation, on activities of private investors and the EU investment climate in general as well as to draw attention to the necessity to follow the basic principle underpinning our whole relationship, namely the principle of Rule of Law, in implementing the Third Energy Package.

The Third Energy Package declares the noble aim of liberalising EU energy market, facilitating access of economic operators to energy transport infrastructure, increasing competition and thus stimulating economic effectiveness. In many aspects these goals have proved to be achievable. But some provisions of the Package have brought results opposite to those expected. The Package has been hindering investments in construction of new infrastructure: all major projects under consideration today demand exceptions from the rules of the Package. Meanwhile construction of new and modernisation of existing energy infrastructure is of utmost importance if the goal of completing a single energy market is to be reached. I may also recall attempts to confiscate Russian and German assets in Lithuania under the pretext of implementation of the Third Energy Package. These acts represent a blatant violation of international rules established by the existing bilateral Russian-Lithuanian agreement on protection of investments and do not correspond to Russia-EU Agreement on Partnership and Cooperation, article 34 of which reads: “The Parties shall use their best endeavours to avoid taking any measures or actions which render the conditions for establishment and operation of each other’s companies more restrictive than the situation existing on the day preceding the date of signature of the Agreement”. Unfortunately, the European Commission which is usually very exact in its requirements to third countries to follow the rules prefers not to notice this situation.

The Russian Federation is committed to ensuring energy security in Europe. We are convinced that true energy security may only be achieved by joint actions which take into account the rights and legitimate interests of all Parties involved. It is important to understand that security of supply and security of demand are in fact two sides of the same coin.

In recent years Russia undertook substantial efforts to improve energy security by diversifying routes of supply of gas to the EU. Construction of the “North Stream” gas pipeline with capacity to deliver additional 55 bln. cubic metres of gas annually has significantly reduced transit risks. However here again we see the deficiencies of the Third Energy Package which unreasonably hinders the possibility to run this pipeline at its maximum capacity by requiring to guarantee the so called third party access, while in fact there is no “third party” in this region which could even in theory deliver gas through this pipeline. Nowadays we negotiate with the European Commission in order to find possible solutions to this issue. I am convinced that artificial barriers preventing normal exploitation of the pipeline are not in line with the interests of the EU itself, as in this situation economic background turns to be less favourable for efforts aimed at price reduction.

By the way, as I touched upon the issue of gas prices, I would like to quote the European Commissioner Gunther Oettinger who recently visited Lithuania and used the occasion to declare that prices for gas should be the same from Vilnuis to Berlin or to the Hague. It is unacceptable, he said, that gas prices in Lithuania are 20, 30, or 40 percent higher than those in neighbouring states or in my country Germany. At this point I would like to remind that you could hardly find a commodity for which the price is one and the same in different countries. The price for the same German car will never be the same in France, or in Belgium, or in Greece, or elsewhere. This is the law of commerce, which is driven by differences in prices and could not have existed otherwise. Several years ago the European Commission studied this issue and published a special report which stated that even a single market wouldn't equalise prices across the EU.

Of course, nobody can deny that a single market can play a significant role in making prices more homogenious. But creating such a single market is the task of the EU itself and its Members States, not of private companies like „Gasprom“, which have no other choice but to play according to the rules established in the EU.
Now let me come back to the topic of diversification of routes of supply.

In December 2012 the construction of the “South Stream” pipeline began. This pipeline is supposed to diversify routes of supply of gas to Southern and South-Eastern Europe. The annual capacity of the pipeline will be 63 bln. cubic metres of gas. Its construction is expected to be finished by the end of 2015. The project is of international character: apart from the Russian “Gasprom” company, which is a majority shareholder in the project, Italian, German and French companies participate in its realization. The pipeline will cross the Black Sea from the Russian coast to Varna, Bulgaria. From there it will split into two pipelines: North-Western line (Bulgaria-Serbia-Hungary-Slovenia-Northern Italy) and South-Western (Bulgaria-Greece-Southern Italy).

Implementation of the above-mentioned project, which is technically sophisticated and requires significant financial support, is evidence of Russia’s true intention to continue to ensure energy security of the EU. We consider the EU as a strategic partner and are convinced that our mutual interdependence guarantees energy security.

It is important to stress that notions of energy independence and energy security must be distinguished. Energy security is appropriate and desirable. Energy independence is expensive and apparently unreachable especially in today’s globalized world.