Speech by Ambassador Vladimir Chizhov at the Conference "Geopolitics and natural gas". Amsterdam, September 30, 2011

Russia and the European Union are extremely important and well-established partners in the gas field. They share almost 40 years of common history and tradition, a unique experience of mutually beneficial cooperation that successfully withstood the frosty winds of the Cold War, dramatic socio-economic changes and difficult transition from a socialist to a market economy. Today Russia supplies more than 20% of EU gas consumption and 40% of imported gas. And around 65% of the Russian gas export goes to EU countries. In future our interdependence in this domain may further increase on the account of long-term deferred gas demand.

That is enough reason why both Russia and the EU should aim at development of partnership in this domain based on mutual respect of interests and desire to work out common approaches to finding solutions to existing problems in this field.

First of all, we should envisage joint steps to increase transparency, stability and predictability of energy markets, improvement of investment climate in the energy sector, promoting energy efficiency and energy savings, diversification of energy mix, ensuring physical safety of vital energy infrastructure, as well as tackling climate change and sustainable development issues.

At the end of the day, one of strategic goals of Russia-EU cooperation in the energy field is ensuring both accessibility of energy resources for EU consumers and stable supply to EU markets for Russia.

Being one of the world leaders in gas production, my country will do its best to keep on doing this job, providing stability and prosperity for the whole European continent.

More specifically, we view major infrastructure projects like «Nord Stream» and «South Stream» as a crucial Russian contribution in implementation of EU policy of diversification of energy transportation routes.

We also believe that any discussion on construction of large-scale infrastructure projects should exclude politicisation of this dossier. It is simply too important to be exploited for political gains - be it domestic, regional or even global. In this context I would like to stress once again that it would be groundless to claim that «South Stream» will be directly competing with «Nabucco» and that there will be room for only one of these pipelines in the future gas transportation system of South-Eastern Europe.

According to estimates by well-recognised experts, by 2030 gas demand in Europe may hit the level of 700 bcm per year. The tragic events in Japan and the consequent "Fukushima effect" that have led some EU member states to revise their positions regarding nuclear energy may be an additional argument in support of such scenario. Drastic reduction of nuclear capacities in Germany, referendum results on nuclear energy prospects in Italy, possible «freeze» of nuclear energy development plans in a number of other EU member-states will require compensation of lost energy volumes by consuming more energy from other sources. With all due respect to renewables, they will hardly be able to handle that burden in the foreseeable future. So the importance of natural gas for ensuring sustainable economic growth of the EU is hard to underestimate. And there will be enough room for all pipelines in the market. As Commissioner Gunther Oettinger characteristically declared recently, «all pipelines would be welcome». Moreover, if the «Nord Stream» pipeline can be considered as an additional significant factor of stabilising gas supply to North-Western Europe, then both «South Stream» and «Nabucco» can be seen as mutually complementary projects whose destiny is to meet the challenge of growing gas demand in Central and South-Eastern Europe.

Thus, the thesis on mutually exclusive character of these two pipelines is nothing more but a counter-productive attempt to gain political dividends by creating a negative background around them. By the way, such statements, regretfully coming sometimes from high-level EU officials, produce a serious negative impact on the whole gas industry that has already suffered from unprecedented politicisation over the last few years.

Of course, any pipeline needs a resource base sufficient enough to make it economically viable. This is exactly what «Nabucco» lacks, in our opinion. But this is an issue of commercial risks and should be a source of concern for investors.

Implementation of major infrastructural projects like «Nord Stream» and «South Stream» which requires billions of investments will significantly enhance security of supply in EU countries. But one should not forget that security of supply goes alongside security of demand. These are two sides of the same coin.

That is exactly why Russia and the EU have launched joint work on harmonisation and coordination of their respective Energy Strategies, first of all in the context of preparation of a Russia-EU Energy Road Map until the year 2050.

We firmly believe that the EU will need new pipelines, because, to put it plainly, there is no real alternative to natural gas - even taking into account high dynamics of energy efficient technologies development, increase of share of new energy sources in the energy mix and forecasted increase of LNG supplies.

Neither will shale gas be able to effectively replace natural gas in the foreseeable European prospective. There are a few reasons for that. First of all, a wide variety of composition of mineral rocks in Europe might require significant alterations of production technologies. Secondly, its deposits, as distinctly different from those of natural gas, are more often than not in direct proximity to densely inhabited areas, and technologies used in shale gas production imply use of a mixture of water and hazardous chemicals, plus numerous underground explosions. High environmental standards of the EU might become an additional factor limiting shale gas production on a commercial scale (for instance, this was the reason why the US Company «Cheasapeake Energy» could not start shale gas production in the State of New York). And finally, its production can become economically sound only if relatively high market prices are in place. It also requires investments which are 2 to 5 times superior to costs of natural gas production.

Of course, both Russia and the EU should keep in mind that energy cooperation in the gas field is a two-way street, and ignoring the interests of the partner may cause serious and even unjustified damage to partnership and, above all, to mutual confidence which is so important in this field.

In this connection I can not avoid mentioning a recent decision by the Council of the EU on a European Commission mandate to negotiate a trilateral legally binding agreement with Turkmenistan and Azerbaidjan on a framework for implementation of a Trans - Caspian gas pipeline.

The Russian position on the issue is well-known and actually quite simple and transparent – implementation of any major infrastructure project across the Caspian Sea is not possible while the legal regime of the Sea is not determined. Unfortunately, the Commission aims to promote this project in cooperation with only two states of the Caspian basin without taking into account the views of other three states. This can only be interpreted as deliberate neglect of the current international legal and geopolitical situation in the Caspian Basin. Let me remind you that the Caspian Sea is actually an inland lake and as such is not covered by the UN Law of the Sea Convention. Negotiations on a specific convention on the legal status of the Caspian Sea are continuing. In the meantime, the five Caspian littoral states have agreed that all major issues of Caspian Sea-related activity can only be tackled by these countries by consensus, and this principle was reflected in the Tehran Declaration signed by their Heads of State on October 16, 2007 at the end of the Second Caspian Summit. 

The plans for constructing a major trans-border pipeline in a confined water reservoir known for its high seismic activity and considerable sea-bed tectonics inevitably affect all coastal states, not just those whose coastlines it will link. Attempts to interfere in Caspian affairs from the outside, especially in an area that is extremely sensitive to all members of the «Caspian Five», can seriously destabilize the situation in the region and adversely affect the on-going five-party talks on a legal regime of the Caspian Sea. Decisions on large-scale projects should be taken with the participation of all littoral states.

The European Commission has been informed of the position of the Russian side. I do hope that our partners will refrain from unilateral actions that might create new irritants in EU’s bilateral relations with countries of the region as well as jeopardizing the EU`s own credibility as an international player which spares no effort to continuously declare its commitment to international law.

Apart from issues of development of energy transportation infrastructure, another important direction of Russia-EU energy cooperation is investment climate. It is not a secret that the Russian side has serious concerns regarding the way the Third Energy Package is being implemented in several of its member-states.

We believe that the process of implementation of EU legislation should not lead to abuse of investment interests of companies from third countries, including Russian ones, in EU markets.

Unfortunately, these concerns have only grown after the announcement of an anti-trust procedure launched against Gazprom-related energy companies in EU countries in the upstream sector, preceded by massive inspection raids on the offices of those companies.

Of course, the interests of the European Union as a major corporate consumer and those of the Russian Federation as a major producer can not match by 100%. But what is important is that these interests are united by a common goal – facilitating stable economic growth of the two sides by creating favourable conditions for fruitful cooperation between their energy sectors.

This is why both Russia and the EU aim to continue elaborating substantive energy provisions of their New Basic Agreement.

Overall, so far we have been capable of overcoming difficulties in our energy relations, and I am confident that we will keep on successfully finding mutually beneficial solutions to existing problems. Russian diplomacy for its part will do its best on this track.