The EU-Russia Energy Partnership: Overcoming the Challenges[Over]August 11, 2010 09:22AM Online Forum
was held from Wednesday March 31 (13.00 hours CET until Sunday April 4 (23.00 hours CET) Please click here to access the discussions which have taken place during the online session EGF Online EU-Russia Energy Forum: the View from Moscow The energy trade between Russia and the countries of the European Union (EU) is of fundamental significance for the energy security of each party. Despite the close proximity of the EU-Russia energy relationship, however, the legal and political basis underpinning this relationship, particularly with regards to the gas trade, has proven itself inadequate in guaranteeing the energy security of both parties. Russia's recent announcement of its intention "of not becoming a member" of the Energy Charter Treaty, and new proposal for global energy security has created further uncertainty. While it is hoped that a new government in Kiev will lead to an improvement of Russian relations with Ukraine, Ukraine's national gas transportation operator remains in a difficult financial position and another gas crisis embroiling Ukraine, Russia and the EU, whilst hardly imminent, cannot be entirely ruled out.
Major challenges continue to underpin the energy partnership between the EU and Russia, therefore, raising a number of concerns at both policy and industry levels, including:
To view Summary Document please, click here
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Comments 39
Forum Leaders
As the Moderator of this unique online session, I am delighted to announce that the first EGF EU-Russia Energy Forum: Overcoming the Challenges, has now started.
Opening Remarks from the Moderator to follow
March 31, 2010 13:26PM
Forum Leaders
This is now the second EGF online forum, and follows on from our Geopolitical Challenges: Prospects and Scenarios for 2010 Forum held in February. A link to the summary of the discussions held in that meeting appears on the front of our website.
Our current online session follows on directly from a conventional roundtable we held together with Russian and international energy experts in Moscow on February 26. The summary document from that meeting, which you may have already seen, will be posted on this website shortly.
The topic of our current session, EU-Russia related energy policy challenges, is outlined directly above, and although we discussed these at some length in Moscow, this session should give us more of an opportunity to elaborate on some of the questions which remain unanswered, at least in my mind, with respect to the future direction of the EU-Russia energy relationship.
March 31, 2010 13:42PM
Forum Leaders
Elena Medvedeva, a Russian energy professional with a long career with well known Moscow energy institutes and international energy companies. Elena served for one year as a Russian national expert on secondment at the Brussels based headquarters of the Energy Charter, and has strong familiarity with the EU – as well as Russian – energy policy processes and structures
We are also joined by Andrei Belyi, another Russian energy professional (and scholar of international law) who has familiarity with the Energy Charter from the inside, having worked for some time at the Charter Secretariat. Andrei’s views on global governance in the international energy sector, particularly with a view to the Russian position towards global governance, will be quite valuable to our discussion
Also joining the discussion is Professor Anatoly Zolotukhin, a professor and Vice-Rector of the Russian Gubkin State University for Oil and Gas, who previously served for many years with the international energy companies as a senior director, particularly with reference to Norway’s Statoil
Konstantin Simonov, a frequent conference speaker on the Russian energy sector, author of several books on Russian oil and gas, and now Moscow TV personality also joins us to share his views – welcome Konstantin !
Finally, we are likewise joined by Ambassador (and Dr) Urban Rusnak, a project leader in the sphere of energy security in the Ministry of Foreign Affairs of Slovakia, who has excellent experience in Central European and former-Soviet Union energy policy matters, given that he was the Slovak Ambassador to Ukraine during the last gas crisis.
I believe most of the participants have now registered or are in the process of registration, and it is also possible that several other Forum Guests will join us during the course of this week's discussions
Again, a warm welcome to all participants !
NB: fuller information on people's speaker bios should be available in the “Participants” section of the website
March 31, 2010 14:10PM
Forum Leaders
SOME BRIEF POINT OF HOUSEKEEPING JUST BEFORE WE START:
Please feel free to respond to my questions in either Russian or English (although English responses are encouraged where possible). I will try to arrange translation for our non-Russian speaking audience where possible
The Forum lasts till Sunday evening (April4). I tend to log into the event in the morning and in the evenings, posting comments and replying to others then. I work on other projects during the day so please feel free to work this around your schedule. This is the whole idea of an online Forum – time flexibility, written communication and working from any location where you have internet access.
As "Decision Makers" you can make a comment at any time, and this does not have to be "filtered" by the moderator, so I look forward to your comments
Dip into the "Terms and Rules" section of the website - its all pretty straight forward: Chatham House Rules (ie, comments should not to be cited in the press unless permission given by the speaker or EGF), no spam or junk comments, no drama if there is the odd spelling mistake or typo in your comments, its all live, more or less
Feel free to bring a friend to the Forum as a “Forum Guest” and use all the resources of the EGF website (publications, documents, news, etc). Its all open access.
March 31, 2010 14:20PM
Forum Leaders
If I recall correctly you mentioned at the meeting in Moscow last month that the Energy Charter Treaty (ECT) contains both disadvantages as well as benefits for Russia. Particular reference is made here to Article 7 of the ECT, (ie, the provision on Transit), which in principle can serve to protect Russian gas transiting via Ukraine to the EU (and hence protecting Russia’s position as a gas producer). However the other side of the coin is that Article 7 also hinders Russia’s position since it would likewise compel Russia to act as a transit state for West bound Central Asian gas, which Russia has traditionally bought at the border and re-sold more profitably as part of its own energy export mix.
How do you ready this and is there a logic here ?
Is it simply that the disadvantages outweigh the benefits ? or is Russian (energy establishment) public opinion so entrenched in its opposition to the Energy Charter that talking about the benefits of the Charter to Russia is like talking about the benefits to Russia stemming from M Saakashvilli’s NATO policy ?
March 31, 2010 14:44PM
Decision Makers
Moreover, the crisis of 2009 demonstrated even further hw the securitization can be reinforced after that crisis. and the securitization plays against Russia.
about transit of gas from Central Asia: i do not personally beleive that is a problem for Russia per se. but Gazprom perceives it as such. and as long as it perceives it as such, it will always condition the ECT art 7 to the right of first refusal. Here the strategic question which I asked during the forum in Mgimo: do we really need a gas export monopoly? (i do not an univoque answer)
March 31, 2010 15:29PM
Forum Leaders
If I read you correctly, you imply above that it would have been far more advantageous for Russia to pursue internationally acceptable arbitrage mechanisms to resolve the dispute with Kiev in Jan 06, rather than using the more hard line, lets say “energy weapon” approach, of (gas) flow reduction or termination. This had disastrous implications both for Russia and for the EU-Russia energy relationship, which became highly politicised and problematic thereafter.
But on what basis could Russia have sued Ukraine in the international courts back then ?
first of all, as you mention in the article and as is well known, Russia had not ratified the ECT and therefore it is not at all clear that any ECT arbitrage mechanisms would work in Russia’s favour. Second, you also mention that international arbitration clauses are absent within the context of the Moscow-Kiev gas agreements. And finally, going through the courts is a very long and tedious process for all parties, and is unlikely to have brought a quick resolution to the crisis.
I don’t know what you think about this ?
Now had Russia ratified the ECT earlier, and if a culture of rule of law based mechanisms as a means of dispute resolution established itself in the ex-USSR, then we could have a different story. Confidence building measure could then slowly be built in the Kiev-Moscow relationship.
Also, a couple of issues with your (very well argued) article:
You are a lawyer so you probably interperate many of the rather vague provision of the ECT better than I, but I thought that the ECT states clearly that it DOES NOT oblige Contracting Parties to provide mandatory third party access (Understanding IV (b), P.25 of the publication Energy Charter Treaty and Related Documents of 2004). I know in Russia the view is generally to the contrary and everyone thinks the ECT is about giving IOCs access to Gazprom’s grid
Also, you say in the article that if the 2006 gas crisis were to repeat itself, EU (Euro-Commission) policy towards Russia would harden even further (it became much more aggressive after Jan 06 according to the article). Well, Jose Manuel Barroso and Co. were off course “outraged” by January 2009, but I would say that the position of the Commission towards Russia has been relatively soft during 09, at least at the level of rhetoric. The Commission has been less inclined to “harass” Russia into ratifying the ECT (H1 09) and after Moscow’s decision to pull out of the Charter (H2 09), there has been plenty of words of acknowledgement in Brussels of the Medvedev plan (April 09) and proposals to discuss the Russian initiative within several dialogue frameworks
Your thoughts ?
However I do agree with you that the main problem is that there is no effective agreement (between the EU and Russia) and transit (and trade) of gas, despite the existence of the ECT and Article 7. This flause in the EU-Russia energy relationship is further reflected by the collapse and ultimate failure of negotiations between the sides on an additional ECT Protocol on Transit, and the EU has not really done much to assist possibilities of breakthrough in these miserable negotiations, particularly in summer of 2006, when an agreement was in principle reached, but the EU negotiators pulled out at the last minute – without any clear understanding why ? V Feigin spoke about this in Moscow on Feb 26.
You don’t mention this in your article and I wonder if this was a consequence of “your 9/11” argument ?
Finally, your correctly say in the Article that the agreement b/w Gazprom and Naftogas in Jan 06 was nothing more than cosmetic, and that a crisis could therefore reoccur at any time. You were off course right – two subsequently have. Do you think more should have been done through the Charter Process to foresee (in fact all 3) the crises, in order to raise “the falling stock price” of the Charter concept ?
V Feigin telephoned the Charter Secretariat to warn them of an impeding crisis in December 2005, but there did not seem to be much interest from this end as Brussels was pre-occupied with Christmas shopping. No lessons learned – a similar story repeated itself in December 2008.
I don’t know if you have looked at my suggestions to reform the Charter, but I argue that its mandate should be fundamentally altered in order for it to ultimately function as a crisis prevention instrument (rather than dispute resolution) – something which it has plenty of capacity to do but, largely due to leadership qualities, appears to have very little interest in doing
Taking all this into account, are the January 19 2009 Gazprom-Naftogas agreements anything more than cosmetic ?
April 1, 2010 13:49PM
Decision Makers
all could be discussable and also time consuming. as some classics said, a process is more important than a result. Hence, suiing Ukraine wouldhave a PR-related result in the first glance.
I am not a lawyer! and I agree that the art 7(7) does not 'oblige' the contracting parties to go for a court. But Russian request would create a better image.
as for ECS role: is not a UN Security Council, hence their action scope is limited. Even if legally they have a power to take any action before Russia requests for mediation! is quite important to balance between political understanding of the situation and legal prerogatives. Thats all lies in the complex theories of governance. and do not have an univoqual response to the issue.
About Brussels to be preoccupied by Shopping: in my view this was good for Russia. Moscow doesnt have any interest in the EU or ECS initiative on mediating the crisis! but there are different ways to resolve the crisis: one of them, using the DSM mechanisms.
January 19th agreement: if the agreement creates a basis for governance, it can become effective and not cosmetic.. April 2, 2010 14:04PM
Forum Leaders
Forum Leaders
...and you also spoke about this in Moscow, how effective to you feel Russian energy diplomats have been in engaging the Energy Charter Process and are they sufficiently informed of (both) the benefits and disadvantages to Russia stemming from the Treaty, which itself you rightly refer to as an instrument of international energy governance (a concept which I dont believe is very well developed in Russian thinking) March 31, 2010 14:47PM
Decision Makers
Then, in 2000s, the EU moved towards another regime and I beleive Russia could have used the investment provisions against the EU in turn of rejecting transit ones. kind of exchang of positions: transit vs investments.
would it then involve a proposal of an investment treaty (like supplementary investment treaty, which was aborted in 1998)? that could be a Russian position (I also argued for that in an article in Russia in Global affairs and in OilGasLaw early last year)
Now, all becomes difficult in the context of mixed messages on the Russian position towards the ECT. Could we really invoke aspects of reforming the ECT in the context of rejecting it? yes if we do not withdraw from the Treaty completely! March 31, 2010 15:35PM
Forum Leaders
That’s a good point, that last one you make. This is a bit like a game of chess. Much of the Russian Conceptual Approach is, in fact – at least on paper – a case of “invoking aspects of the Treaty, or the principles upon which it is founded, within the context of rejecting it”. If you endorse this argument then Russia is not really leaving the Treaty, but rather simply trying to usurp its leadership away from Brussels – by giving its own “contra-Treaty a different name
Will Brussels go for this and can a compromise on leadership be reached (have a glance at suggestions I make in our Summary Doc from the Feb 26 meeting)
However, at the end of the day, you cannot be “a little bit pregnant” and Russia needs to “stop dancing at everybody’s wedding” and clarify its position. You either say that we WILL stay in the Charter (and remain a member of the ECT) if you reform it (on the basis of the Feigin proposals at IMEMO, ie ECT Plus/Minus, etc)
…..or you pull out altogether and either join OPEC (which is not going to happen) or the Gas Producers Forum (weak organisation) and create further Cold Wars b/w producers and consumers of energy
The flip side of the coin is the recent $US98 billion ruling against Russia by the international courts in the YUKOS case – its probably much more healthy to your national budget to pull out of the ECT than pay the 98 billion.
I don’t know what Alexei Kudrin would think about this ?
April 1, 2010 14:09PM
Decision Makers
Forum Leaders
Konstantin seems to think that the Conceptual Approach is more a signal (from Moscow) to Brussels that we have reached the end of the road with the Charter (from the angle of Russian involvement) and that we now need to commence on a new round of negotiations for new post-Charter instruments.
However, as you say, the Russian hinted requests for a new round of negotiations are being largely ignored by the EU, or are being directed back into the framework of the Charter Process (as well as new PCA discussions). Hence we seem to have reached a “tupik”, or dead end !!
Do you address as to how to find a way out of the Tupik in your ERLF article ?
Konstantin and Elena: do you have any suggestions of a way out of the Tupik ?
April 6, 2010 09:35AM
Decision Makers
Forum Leaders
Turning to Konstantin Simonov:
We can talk about the negative aspects of the Energy Charter from a Russian perspective, but then again we have to ask ourselves what are the alternatives ? what other instruments can provide an institutional basis for the EU-Russia energy relationship, which is so vital for both sides ?
There is the so called Conceptual Framework for global energy security, or the Medvedev plan first announced in Helsinki in April 2009. The EU has acknowledged this proposal but there has been very little bilateral EU-Russia discussion about this subject as far as I am aware. Negotiations for a new EU-Russia Partnership Agreement are in their very early stages, as Michael Webb from the European Commission told us in Moscow.
Last year, you mentioned publically that “this was not the strongest of documents” – have your opinions changed since that time ?
Do you feel that this is a concept that Russia can “run with”, or do you feel it’s a diplomatic paper tiger designed to buy time until Moscow determines its options ?
Or indeed, Moscow’s attention may be diverted elsewhere all together, particularly given the so called “shale gas revolution” in the USA ?
March 31, 2010 14:56PM
Decision Makers
Forum Leaders
in fairness, M Webb did clearly say in Moscow on Feb 26 that Brussels is happy to discuss the Conceptual Approach, albeit within the existing framework. is this purely a matter of honour for Russia ? why not discuss within the Charter or new PCA negotiations framework and deliver the same message from Moscow as would be delivered in an alternative framework ?
would this not be more constructive than ignoring the existing dialogue platforms altogether - as Russia has ignored the recent Charter working group meetings ?
I would also like to bring in Elena Medvedeva's view on this, as someone who has been on secondment at the Brussels Secretariat of the Charter during 2008-09
and Urban Rusnak's view on the first question posed above (on EU lack of flexbility)
April 1, 2010 14:17PM
Decision Makers
Но вопрос в том, что угроза Хартии теперерь исходит не от самой России. вот мне было бы любоптыно понять, как будут уживаться 3 пакет и Хартия. Это, кстати, серьезный вопрос и с точки зрения российской стратегии - газпром всегда хотел купить побольше активов в доунстриме, а тепереь выходит, что его права как инвестора в большей степенеи могла бы защитить Хартия. но как она будет работать с третьеим пакетом? April 1, 2010 15:19PM
Forum Leaders
I find it most interesting that, in this context, the ECT could in fact be a legal instrument which could protect Russian downstream energy investments inside the EU, which is in principle what it should be doing (ie, protecting energy investments) and also fits in with Andrei’s earlier comments that it is in Russia’s interest to pursue arbitration based solutions to disputes, rather than “siloviye methodii (19th Century Bismarkian solutions applied to the energy sector) such as flows reduction or termination
We need Michael Webb or someone else from the Commission to offer us some guidelines on how the ECT and the Third Package could live together within the context of the EU internal energy markets. I know that the ECT basically says that it is able to live together with other pieces of legislation but as long as that legislation does not contradict the ECT
I don’t know what Andrei and Elena think about this ?
April 1, 2010 15:38PM
Decision Makers
Forum Leaders
That’s a very good comment. I fully agree with your assessment of the ECT. Then would you not say that’s its in Russia’s interest to stay in the ECT ?
Since it does not need the ECT to settle its disputes with Ukraine (and the ECT is largely irrelevant/incapable of protecting Russia’s interest over Ukraine gas transit issues), but can be useful for Russian companies inside Europe, why then is Russia withdrawing from the ECT ?
Do we come back to the YUKOS issue ?
April 6, 2010 09:42AM
Decision Makers
Yukos is an interesting case as now arbitrator stated that Russia is bound by the Treaty (and still is for 20 years ahead). April 6, 2010 13:42PM
Forum Leaders
I also want to bring Urban Rusnak and Elena Medvedeva into the discussion and will start by asking Urban:
We have talked quite a bit about the Energy Charter above and I wanted to ask you for your view on EU solidarity and institutional confidence building measures for Energy Security, speaking as an independent.
You mentioned to me once that when Russian gas stopped flowing from Ukraine to Slovakia in January 09, that there was much more solidarity expressed at the bilateral Czech-Slovak level than at the EU level (vis a vis Slovakia’s immediate concerns) or in terms of the capacity of instruments such as the ECT or the Charter Process to resolve this dispute (and thereby assist its member, Slovakia).
Was there any realistic thinking in Bratislava that either Brussels or the Charter (Treaty or Process) could alleviate Slovakia’s energy security concerns at the time by meaningfully contributing to the resolution of the gas crisis, or indeed, by providing some sort of effective crisis response measures to Slovakia – which was perhaps the EU country hit hardest by the crisis ?
Further, Slovakia saw both Russia and Ukraine as reliable partners before the (Jan 09) crisis. Slovakia’s relationship with Moscow is now not bad but has been rather damaged with Ukraine. It may improve now under Yanukovich. Did Slovak policy makers not need to heed/learn any lessons from the January 2006 crisis (and indeed, March 08) as implied by Andrei Belyi above ?
How confident are you in the measures being taken under the auspices of the Visegrad Group to improve Slovakia’s energy security and that of CEE as a whole ?
You are also welcome to comment on other points arising out of Andrei’s earlier interventions
April 1, 2010 14:49PM
Forum Leaders
Elena:
Do you feel that there is adequate enough understanding in Russia that the European Commission’s Third Package, including its provisions on unbundling of vertically integrated energy companies, is primarily aimed at European energy monopolies rather than being constructed as an anti-Russian measure ? I believe Andrei or Konstantin raised this issue in Moscow
What does Russia have to gain by further cultivating the view that the Third package – or at least some of its clauses – are ostensibly anti-Russian ?
Also, some in Europe feel that the quicker the EU moves to a commonly accepted set of rules on a unified internal energy market (for gas and electricity), the better it will be for EU energy security and its capacity to guard itself against energy disputes between Ukraine and Russia.
Would you agree with this view ? Do you believe that there is sufficient consensus inside Europe to make a unified internal energy market a reality or will resistance to unification (and surrendering energy competence) at the national level continue to delay realisation of such objectives inside the Union ?
April 1, 2010 15:02PM
Decision Makers
Forum Leaders
But negotiations for what exactly, and in which framework ? please see the comments between myself and Andrei above. If you say that Putin and Medvedev are not going to return to the topic of the Charter in their negotiations with the Europeans, that’s fine but what then do they want for their institutional basis for energy cooperation with the EU if their own plan is not meant to be an alternative ?
This is like the chicken and the egg a little bit – you are not going to return to the Charter but you don’t really have a fully fledged alternative, and you have not fully left the Charter, yet you don’t participate in discussions about new instruments in the context of the Charter process as requested by the E Commission.
This is a no war, no peace situation. So what do they want ? Do they want a new agreement with the Europeans such as the old (still existing) PCA and for that to cover energy ? or are they just playing with the EU and want better relations with Kiev in order to better “regulate” energy transit ?
April 1, 2010 15:52PM
Forum Leaders
First of all, on some of Russia’s upstream gas exploration projects, such as Shtockman, and some of the projects in Yamal, how do you generally view the Russian upstream strategy in these quasi-crisis conditions in which our economies continue to find themselves ?
You know the general paranoia which exists on the consumer side about Russia not having sufficient gas to fulfil its obligations to consumers and concerns that Gazprom is not investing anywhere near as much as it should be into upstream projects (with greater emphasis being placed on the geopolitical pipeline projects). At the same time existing fields are nearing depletion and there is concern that these are not sufficient new exploration projects coming on stream. Then again gas demand in Europe (as well as Ukraine) has been down, LNG supply is becoming more abundant, and my general impression is that Gazprom’s decision to invest into new upstream projects is tied to pending long term supply agreements
What are your thoughts about the Russian upstream scenario and do you feel that in the current oil price environment it is almost inevitable that both the major projects (like Shtockman) and the smaller exploration projects will be subject to continuous delays ?
April 1, 2010 22:16PM
Forum Leaders
What do you make of all of the shale gas discussion and the fact that the US overtook Russia last year as the world’s largest gas producer, due to the drilling technologies applied in the American market and other methods ?
They say this is revolutionising the American gas market and, together with the fact that you have all this excess LNG about, the (technological) revolution could spread to Europe, which will result in Gazprom (eventually) losing market share in Europe. Your thoughts ?
I would also be interested in Konstantin’s opinion on this matter – you spoke briefly about it in Moscow on Feb 26 ?
April 1, 2010 22:19PM
Decision Makers
Marat, sorry for responding late and happy Easter to all. I will go then through your questions passed to me earlier. Answeres you will find right after your questions in the body of the text.
Do you feel that there is adequate enough understanding in Russia that the European Commission’s Third Package, including its provisions on unbundling of vertically integrated energy companies, is primarily aimed at European energy monopolies rather than being constructed as an anti-Russian measure ? I believe Andrei or Konstantin raised this issue in Moscow
For the time being - yes, there is quite normal attitude to the Third Package, I think Moscow does not feel that the Third Package primarily aimed to make any damage to the Third Countries. It s major aim to create new rules for setting up their competitive and transparent, liberised the EU gas market. Meanwhile when in 2007 there was Third Countries Clause in the Gas Directive pressing on reciprocity which was very difficult implement in practice due to for example difficulties to compare assets of the different values and make some strict requrements for cooperation, it was more negative attitude expressed from Moscow towards new rules of the game.
What does Russia have to gain by further cultivating the view that the Third package – or at least some of its clauses – are ostensibly anti-Russian ?
Also, some in Europe feel that the quicker the EU moves to a commonly accepted set of rules on a unified internal energy market (for gas and electricity), the better it will be for EU energy security and its capacity to guard itself against energy disputes between Ukraine and Russia.
Well, it is difficult process to agree common rules on energy management in between 27 member states, so I do not think it will be ever quick at all. The past procedures of agreeing EU member-states positions on the current version of the Third Package within 2 years demostrates the actual speed. The adopeted version is also not perfect at all and needs to be clarified via additional explanatory notes and regulations. New packages are being added to the major ones. As for example special Infrastructure Package has been devloped nowadays. So, my short answer would be - yes, properly developed clear rules will be good for the EU energy security, but they should not be developed without keeping in mind international cooperation with the third countries suppliers and keep them assured in the security of demand and proper business friendly environment at the consuming market. So the idea is to develop Security of Supply Regulation with the proper business dialogue with the suppliers, otherwise the components of the international business chain could be under risk of unclearity and retaliation. This should be avoided in particular.
Would you agree with this view ? Do you believe that there is sufficient consensus inside Europe to make a unified internal energy market a reality or will resistance to unification (and surrendering energy competence) at the national level continue to delay realisation of such objectives inside the Union ?
Well, I believe in their success in the internal energy market setting up in the long-term perspective. It will not be quick and will go via several stages - from national to reginal cooperation and further. I feel that it will be no way to come back to purely national markets.
The big challenge while centralisation at the all levels would be also to find the right balance in between market forces and imposed regulation (I mean risk over-regulation) as well as properly allocated compentences in between all energy markets participants - industry, national regulators, ACER, EC. It would be a good subject for separate discussion may be. April 4, 2010 18:04PM
Forum Leaders
So the problem for Moscow was not so much with the Third Package per se, but rather with the reciprocity clause – yes, I do recall discussion of this when you and I were both at the Charter Secretariat back in 2008
Regarding Security of Supply regulations and a dialogue with the suppliers – you are starting to hit the nail on the head as this is the core issue, in many ways: an adequate dialogue platform for producers and consumers. However, I don’t think that such platforms have been effectively created in the EU-Russia context, despite the existence of the Charter process, etc
I don’t know if it was ever realistic to view the Charter as a platform which could have provided for such dialogue ? Russia and Norway never ratified, and beyond that, there were never any real producers as Contracting Parties – hence the wide perception of the Charter as an EU driven “Consumers’ Club “
On your last point, do you think the European Commission is trying to “over-regulate” the market ?
April 6, 2010 09:58AM
Decision Makers
Marat, you addressing to me very challenging topic associated with Russian strategy with regard to development of huge and resource-wise potentially very attractive new areas such as Arctic offshore.
Lack of long term supply agreements and, moreover, lack of clear understanding of potential market(s) for Russian gas makes prospects of the development of the Russian Arctic offshore fields uncertain. Recent achievements in technology of shale gas production and plans of fast growth of new LNG trains in Qatar, Indonesia and Australia make these prospects even more uncertain, if not illusive.
You are absolutely right saying that Gazprom’s decision to invest into new upstream projects is tied to a lack of clear understanding of the future of the Russian arctic gas demand. Investments into Arctic development by 2050 are, according to different estimates, huge varying from nearly 3 to 6 trillion USD. Approximately 25-30% of that amount needs to be invested into exploration projects.
Clearly, Russia cannot make it alone. Such a giant exploration project requires international collaboration, both technology- and investment-wise. However, involvement of foreign participants in such projects requires stability, transparency and predictability of the Russian law: huge and long-term investments into Russian Arctic offshore are alluring prospects but should be secured.
We can’t forecast technology development but we know that it is continuously developing. Now Russian Arctic gas is too expensive to compete with gas produced in low latitudes. However, its resources are huge and technology can soon make it equally attractive. It does not mean that we have to wait and see when it happens. Arctic exploration program should be started as soon as practically possible. In this context I use the word “exploration” in a broader sense embracing in addition to seismic and exploration drilling evaluation of new potential markets, supply routes and ways of delivery (piped gas, LNG, CNG, gas hydrates, gas-to-wire, etc.).
Transfer of potential resources into [proven] reserves allocated for potential markets (including European one) will enable Gazprom to secure its position and role on the global scene. April 6, 2010 07:32AM
Forum Leaders
That’s a great comment, Anatoly, and reflects your massive experience in the (Russian upstream energy) industry.
The last comment you make is perfectly logical, but the question (from an upstream strategy perspective) is whether it is realistic ?
Given what you say above (ie, uncertainty about new fields, need for clarity and transparency, our inability to forecast about new energy technologies, etc), can Gazprom take the lead in transferring potential resources into proven reserves for potential markets to not just secure, but expand, its role in the global energy scene ?
I realise this is a very open question, but do you feel the company’s current business strategy is taking business into this direction ?
Konstantin: what do you think ?
April 6, 2010 10:16AM
Decision Makers
Thank you for the question. It is targeted right into the spot!
Transfer of potential resources into proven reserves of the Arctic is the state (not GAZPROM’s) responsibility. The company (in fact, both GAZROM and Rosneft) are set to be responsible for the development of the Russian Arc tic offshore.
To be responsible, in my mind, is to have (at least, to a certain extent regulated /controlled by the state) the right to make decisions regarding conceptual development of resources, investments proposals, ability to select partners that bring environmental, technological and financial security to the project. Again, this is a state responsibility. Lack of a clear strategy towards development and utilization of Arctic resources creates uncertainty and even doubts about the future of our petroleum resources. Lack of that strategy, at least, in my mind, creates doubts in the companies’ business strategy that makes the future of the Arctic resources even more uncertain. As I said before, lack of clear policy towards development of Arctic resources combined with recent breakthrough in shale gas technology, continuous developments in heavy oil production methods and steady growth of new global gas supply centers may have an irreversible impact on Shtokman project, in particular, and on the Russian Arctic resources, in general. This world’s treasure can’t be wasted, and Russia should come to a decision regarding development of these resources. The sooner, the better.
April 9, 2010 03:31AM
Forum Leaders
OK, Anatoly; I think the message is becoming quite apparent:
Much uncertainty and unpredictability within the Russian upstream energy strategy context, which in essence undermines investor confidence in the realisation of some of the major upstream energy projects, and, in the end, likewise undermines Gazprom’s capacity to translate potential resources into proven reserves. This particularly applying to the Russian Arctic offshore. Not a very optimistic – albeit most likely realistic – scenario
April 12, 2010 11:52AM
Decision Makers
So the problem for Moscow was not so much with the Third Package per se, but rather with the reciprocity clause – yes, I do recall discussion of this when you and I were both at the Charter Secretariat back in 2008
We can`t say that for Moscow there are "no problems with the Third package" at all. Of course there are very big concerns - first what is the future of Gazprom transportation assets already in place and what are the possibilities of the Gazprom particiaption at the EU gas market other than being external supplier. As soon the Third Package imposes new sets of rules for the EU gas market functioning and regulation, it requires that all the participants of the EU gas market (including Third countries) follow these rules. It is blocking the possibility for gazprom to participate in the assets management in gas transportation. Also certification rules of TSOs in the EU require full independence of transportation activity from production, which is not the case of Gazprom at all. There are more requirements to which the Third countries should be in line with, otherwise it is prohibitted by the package to work actively at the liberised EU gas market.
Regarding Security of Supply regulations and a dialogue with the suppliers – you are starting to hit the nail on the head as this is the core issue, in many ways: an adequate dialogue platform for producers and consumers. However, I don’t think that such platforms have been effectively created in the EU-Russia context, despite the existence of the Charter process, etc
Security of Supply regulation (SoS) primarily aimed to protect internal EU gas market from gas supplies failures in future. So now they are more concentrated at their owm scheme development ( to prepare sets of efficient instruments - technical, operational, administrative etc. to prevent any crisis). I do not see that this process is supported by the dialogue with the gas producing countries. At least I have not heard about that.
I don’t know if it was ever realistic to view the Charter as a platform which could have provided for such dialogue ? Russia and Norway never ratified, and beyond that, there were never any real producers as Contracting Parties – hence the wide perception of the Charter as an EU driven “Consumers’ Club “
Well, I have some doubts that this platform will be used. At least there are no clear signals from both sides that this dialogue is needed.
On your last point, do you think the European Commission is trying to “over-regulate” the market ?
No, it doesn`t mean that EC is trying to over-regulate it on purpose, not at all. I meant that the right balance should be found in between gas market self regulation ability and the imposed regulation measure from NRA, ACER and EC. In case it will not be well balanced it might lead to over regulation from the side of these old and newly created regulating bodies. April 6, 2010 13:45PM
Forum Leaders
Thanks, Elena, for these very good comments, which I think are very well balanced in their outlook at the questions of:
• EU internal energy market regulation
• Balance (or a lack thereof) in the consumer – producer discussion
• The Third Package rules being overly demanding on energy companies from third countries (ie, Russia) wanting to pursue business inside the EU
I like the fact that the you suggest that the Third Package will present some practical problems for Russia; agree with you that the Charter platform is (now) unlikely to be used in the producer-consumer dialogue context (Andrei’s earlier comments also imply this) but I feel that the question of whether the Commission is over-regulating the market (or not) needs to be debated further, as I believe there are many voices in Europe that feel that indeed it is (trying to over-regulate). I think its fascinating that Russian experts such as yourself, do not feel that it is trying to impose to much regulation (or control) over the market
April 12, 2010 12:04PM
Decision Makers
we are turning around! i suggested before as a question: that Russia d need investment provisions while would be reluctant towards the transit onces. the situation for the EU is opposite. Yukos is an interesting case as now arbitrator stated that Russia is bound by the Treaty (and still is for 20 years ahead).
You are absolutely right! April 6, 2010 13:52PM
Forum Leaders
Well, quite a topical point of debate on which to leave our discussion – meaning that we will have to continue this in another online session !
Thanks everyone for your contributions to this seemingly never ending EU-Russia energy debate, which is becoming more and more complicated, unpredictable and shrouded with uncertainty
Again, just as I felt after our IMEMO roundtable in Moscow on Feb 26, many of my questions remain unanswered but this session has nevertheless taken my understanding of the context of the EU-Russia energy relationship a notch further, for which I would like to thank you all once again
I now bring this EGF Online session to an end
A summary document of key points for decision makers coming out of our session will be in the pipeline (for your review and comments) shortly
April 12, 2010 12:17PM