Toespraak Piebalgs tijdens de Internationale Week van de Energie in Moskou (en)

SPEECH/06/646

Energy Commissioner

Global Energy Industry

Russian "International Energy Week"

Moscow, 31 October 2006

Prime Minister Fradkov, Minister Khristenko, Mr Primakov, Ministers, Ladies and Gentlemen,

I am very pleased to be here today at this important event in the Russian energy calendar.

Energy is a key sector of mutual benefit, where increased cooperation and integration can break down cultural, political and economic barriers and enhance the security of all concerned. One only has to take a map of our European continent to see the interwoven energy networks binding our countries together to understand the reasons for the community of interest and the prospects for heightened cooperation which exists in the energy field between Russia and the EU.

It is clear that, over the last couple of years, the world has entered a new energy landscape.

Rising demand for imports from a larger number of countries, geopolitical complexities about energy supply, the challenge of climate change and volatile prices, supported by a mix of unexpectedly strong demand, the risk of terrorism and an ageing infrastructure; all have brought home the unsustainable nature of our energy situation.

G8 statement

I very much welcome the fact that Russia, recognising these challenges, put energy security at the top of its G8 agenda. The declaration on global energy security agreed in St. Petersburg in July is a clear demonstration that the real challenges have been clearly identified and that there is a general agreement on how they should be tackled.

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  The commitments to open, transparent, efficient and competitive markets for energy production, supply, use, transmission and transit services were recognised as key to energy security.
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  Transparent, equitable, stable and effective legal and regulatory frameworks, including the obligation to uphold contracts, are fundamental for providing the necessary impetus for the significant investments necessary in the energy sector.
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  Sustainability - the need to promote the environmentally sound development and use of energy, and the promotion of energy saving and energy efficiency are key to the development of a more sound energy system.
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  And, in our uncertain world, the safeguard of critical infrastructure, co-operation on emergency responses and addressing the energy challenges for the poorest populations in developing countries are obligations we all face.

Following this successful summit in July, now comes the hard part - putting words into action. Now we must work together in a practical way to ensure that the principles and approach are coherently and actively applied to our mutual benefit and that of global energy security.

Energy Dialogue

With respect to the EU and Russia, many of these issues are already being pursued in the context of our bi-lateral Energy Dialogue. Since 2001, this dialogue has become a key element in our bilateral relations, with the clear objective of "enabling progress to be made in the definition of an EU-Russia energy partnership.

Our Energy Dialogue is a balanced dialogue; a focused dialogue based upon a clear mutual interest and which is driven by a pragmatism which is a clear prerequisite for an effective strategic partnership between Russia and the EU.

This dialogue is balanced because, put simply, in the energy sector, Russia needs Europe as much as Europe needs Russia. The energy that Europe buys from Russia has been one of the key factors in Russia's economic revival and stable flows of reasonably priced energy has been an important motor for Europe's economic growth. In the energy sector, in other words, we are reinforcing each other.

For Russia, energy is vital from the economic point of view. Not only does it represent more than 25% of its GDP, but it is also a significant component of the 6.5 GDP growth rate that Russia has been experiencing over the past five years. In addition, it should be noted that some 63% of the oil Russia exports goes into the EU, as does some 65 % of its gas exports.

For the EU, energy from Russia is clearly very important. Russia is the largest single external supplier of oil, accounting for 30% of EU total imports or some 27% of total EU oil consumption. Russia also accounts for some 44% of EU gas imports or around 24% of total gas consumption.

One has to recognise that Russia has, over the past 30 years, been a reliable and dependable source of energy for Europe. It has always respected its commitments, even when our common continent was undergoing fundamental political and economic changes.

Investment

Russia has the largest hydrocarbon reserves in the world, but it needs significant levels of investment over the next 20 years. By its own estimates, Russia will need as much as 680 billion €uro in the energy sector, with oil and gas alone accounting for up to 390 billion €uro. For investments on such a scale, security is needed:

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  First of all, a secure and attractive investment climate which reduces, as far as possible, the level of commercial and non-commercial risk. Worries or uncertainties about the legal, legislative or taxation regime increases the "risk premium" element in the discounting rates that investors, Russian or foreign, use in evaluating investment projects. This can cause the costs of capital to rise significantly, thereby encouraging potential investors to look to other regions of the world to invest.
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  And secondly, security of demand, which implies long term relationships between producers and consumers that can be used as a collateral for the project financing.

The single EU energy market is an attractive and reliable market which gives every indication of requiring, in the future, additional supplies of gas from third countries. And Russia is in a favourable position, given the necessary investments both in production and transportation, to supply a considerable amount of the additional gas the EU requires.

However, our demand for natural gas is expected to increase by some 60% over the same period. With anticipated decrease in domestic production, this will mean that the EU could import over 75% of the gas it consumes by 2020, compared to just over 50% today.

It is clear that this presents significant opportunities for a neighbouring gas supplier such as Russia provided, of course, that the gas is competitively priced and the necessary investments are carried out both upstream and in the transportation infrastructure. And we fully recognise the very important role that Russia will continue to play as a reliable supplier of natural gas to the EU. However, there are concerns that the Russian Energy Strategy to 2020 issued in May 2003, while foreseeing an important expansion in Russian gas production, does not foresee a sufficient expansion in gas exports for Russia to maintain its current 24% share of the EU market. This has led to concerns within the EU about the important gap which needs to be filled although the recent announcement about the intention of Russia to use the Shtockman field to supply Europe, and the practical implementation of this policy, could go some way to reducing these concerns. However, this threat of a supply gas has been one of the major reasons for the increase in security of supply concerns in the EU, which has led to calls for enhancing supplies from other countries as well as from Russia.

But, by the same token, this difference between the foreseen Russian exports and the anticipated EU demand does offer real opportunities for increasing co-operation between the EU and Russia. For this reason, in the framework of the Energy Dialogue, we jointly hosted a conference yesterday on the convergence of EU and Russian energy strategies to exchange views on energy policies and energy scenarios in order to help us to get a better understanding of where we are, where we want to go and how best we can get there together.

At a technical level, clearly joint efforts to increase energy efficiency both in the industrial and household sectors, as well as in reducing the flaring of associated gas at oil production sites in Russia could make additional quantities of gas available for export. Various studies have estimated that the yearly potential for energy savings in Russia by 2020 could reach the equivalent of 75% of the current Russian gas production.

In addition, further reform of the Russian gas sector could also encourage increased foreign investment, particularly upstream investments, if the key concerns of EU companies are adequately addressed.

Energy demand

One area in which I believe we should concentrate our efforts is energy demand.

A more intelligent use of energy brings an effective answer both to energy security and environmental security. The need to save energy was brought home to us in the 70'ies following the two oil crises, when there was a flurry of initiatives and measures to reduce oil demand in particular. However, since then, the efforts have gradually dwindled. Nowadays the EU is again at the forefront of endeavours to introduce effective energy savings policies and programmes. Indeed, we have very recently issued an action plan with a whole raft of cost-effective energy efficiency improvement initiatives designed to provide our citizens with energy efficient buildings, appliances, vehicles and energy systems.

However, energy savings and energy demand management should not just be viewed as an issue for energy importing countries. It is just as important for energy producing countries. While we have calculated that the EU could save 20% of its energy consumption by 2020, I am convinced that considerable energy savings are achievable in Russia.

Investment in energy conservation can often be more cost-effective than developing new oil or gas production capacities and infrastructures, and certainly a more efficient use of scarce resources.

One key area, for example, is addressing the terrible waste of resources that is represented by gas flaring. This is one practical example of a win-win situation. Reducing the flaring of associated gas in Russia would be beneficial in terms of the environment, in terms of revenue for the companies involved and for Russia's state budget!

The time is now opportune to explore new ways of enhancing the EU-Russia relationship towards a still deeper energy partnership. This has been confirmed by the European Council earlier this year and discussed the week before last again in Lahti with President Putin. This will be developed in the context of the new overall agreement which is due to replace the current EU-Russia Partnership and Co-operation Agreement at the end of 2007.

Ladies and Gentlemen,

The Energy Dialogue between Russia and the EU has provided a very useful and practical framework for discussing energy issues of mutual concern, and for working together to address our common energy security concerns. But the key priority at the current time is to enhance our mutual trust and confidence so that the EU and Russia mutually reinforce each other in the energy sector of our common European continent. And a key element of this, I believe, is transparency - a regular exchange of data and information on the flow of energy from production field to final consumer and of potential or actual issues which may impact on supplies. It is a lack of information and transparency which undermines mutual trust. Therefore, it is imperative that we find the practical means and mechanisms through which the flow of information can be increased.

As I have indicated, over the coming months we will be discussing a new energy agreement with Russia as an integral part of the new overall framework for EU-Russia relations. Increasing mutual trust will need to be a key objective and clearly the principles laid down and agreed at the G8 summit earlier this year will be a key element.

I thank you for your attention.