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SPEECH/06/653












Andris Piebalgs

Energy Commissioner




EU and Russian energy strategies


























EU-Russia Energy Dialogue Conference
Moscow, 30 October 2006

Minister Khristenko, Ladies and Gentlemen,

I am very pleased to be here today to open, together with Minister Khristenko, this important conference in the framework of our dialogue on energy.

The Energy Dialogue between the EU and the Russian Federation has been a key element in our bi-lateral relations since 2001. And I would briefly like to recall that the objective set out at the Summit in October 2000 was to "enable progress to be made in the definition of an EU-Russia energy partnership".

Energy is a sector of mutual benefit, where increased integration can break down cultural, political and economic barriers and enhance the security of all concerned. One only has to look at a map and see the interwoven energy networks across the European continent 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.

Our Energy Dialogue is a balanced dialogue; a focused dialogue based upon a clear mutual interest and driven by 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.

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 impressive 6.5 GDP growth rate that Russia has been experiencing over the past five years. In addition, it should be noted that over 60% of both the oil and the gas Russia exports goes into the EU.

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 and some 44% of EU gas imports.

However, 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 these factors have brought home the unsustainable nature of our energy situation.

I 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 challenges have been identified and that there is a general agreement on how they should be tackled. The commitments to open, transparent, efficient and competitive markets for energy production, supply, use, transmission and transit services are key to energy security, as are transparent, equitable, stable and effective legal and regulatory frameworks. All these elements will prove the necessary impetus for the significant investments necessary in the energy sector.

The ratification by Russia of the Energy Charter Treaty and agreement on the Transit Protocol would send a strong signal that these principles will be implemented in practice.

Challenges

Both the EU and Russia face practical challenges.

For the European Union, as with all energy consumer countries, there are a number of strategic challenges, including:

  • in the absence of the Commission’s recent Energy Efficiency Action Plan, our increasing reliance on imported energy, the fact that 70% of the EU’s energy consumption could be covered by imports by 2030, 80% as far as natural gas is concerned ;
  • the need to promote transparency and predictability on world energy markets;
  • the need to continue improving energy efficiency and energy savings;
  • the need for open and competitive energy markets;
  • making sure that new investments in oil and gas production, refining and transportation are all made in good time;
  • ensuring a diverse energy mix, with an increased share of indigenous, low-carbon and renewable energy sources;
  • and the need to diversify our energy supplies and our energy supply routes.

I would like to dwell a few moments on this last issue of the diversification of our energy supplies as there has been much written in the press on this subject.

The first point I would like to stress is that Russia has been, even during the tremendous political changes that occurred in the early nineties, a stable and reliable supplier of natural gas to the European Union.

The second point is that energy demand in the EU is foreseen to continue to grow. Our forecasts, which we will be discussing later today, indicate that, in a business as usual scenario, primary energy demand is set to increase by 20% by 2030 as compared with the year 2000.

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 three quarters of the gas it consumes by 2020, compared to just over half 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 contribution that Russia will continue to have as a reliable supplier of natural gas.

For Russia, key challenges include ensuring security of demand and a secure and attractive investment climate.

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, and I have to be frank here, there is some work to be done in building up mutual confidence. A regular flow of technical data and information will increase our mutual understanding and permit a more healthy spirit of confidence to be built up – ensuring, at the same time that fears amongst some in Europe on a perceived over-reliance on one external supplier can be overcome. And indeed I believe that our willingness to do this should be one of the main outcomes of the conference today.

I would also like to take this opportunity to underline that the European Union has consistently stressed, since the start of the Energy dialogue with the Russian Federation, that long term-contracts for natural gas can facilitate the investments that need to be undertaken to meet future demand. Such contracts create the credit worthiness that attracts both Russian and European investors. It is a matter of fact that, under the EU competition rules, contracts that promote new investments and other benefits are, in principle, viewed favourably.

And Russia also needs to ensure 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.

Key time for enhancing our relations

This conference comes at a key moment in our bi-lateral relations.

At a wider level, Russia and the EU are about to embark in negotiations to develop a new overall legal framework for our relations to replace the existing Partnership and Cooperation Agreement which is due to expire in November next year. Energy will necessarily be a key element in any new bi-lateral agreement.

At the same time, within the EU, there is a recognition that Europe needs a more coherent and focussed external approach, particularly as our import dependency is continuing to grow. Europe needs to put its external instruments at the service of more secure and competitive energy. And in the numerous papers which have been issued over this year and in the informal meetings of our heads of state and governments, one issue has stood out – the necessity to enhance our energy relations with Russia – to our mutual benefit.

There is a need for secure and predictable investment conditions for both EU and Russian companies. There is also a need for a level playing field in terms of market access and access to infrastructure, including non-discriminatory third party access to pipelines in both Russia and the EU.

We understand that the Russian Federation needs the predictability and certainty that the EU market will, in the medium to long term, take the gas that will result from the huge new investments required.

The EU, on the other hand, needs the transparency and certainty that those investments will be made, and made in a timely manner. This will provide the mutual confidence that needs to continue to underpin our energy partnership.

Minister Khristenko, Ladies and Gentlemen,

This conference is an important bridge.

  • On 20th October in Lahti in Finland, there was an open and frank debate over dinner between the EU heads of state and President Putin on energy issues, and a clear recognition of our mutual interest in enhancing our energy relationship.
  • The reports of the four joint thematic groups on investments, infrastructure, trade and energy efficiency have just been submitted and will be presented here later today.
  • These reports will then be further discussed and recommendations endorsed at the second Permanent Partnership Council on energy in Brussels on 21st November.
  • Ready for the EU-Russia Summit in Helsinki on 24th November where it is hoped that the negotiations on the new framework agreement on overall bi-lateral relations will be launched to follow on from the existing Partnership and Co-operation Agreement.

This event today is the bridge that should help us reinforce our mutual trust in the energy sector. The exchange of information today will help us to achieve a common understanding of our mutual energy priorities and lay the practical foundations for an enhanced energy relationship that is foreseen to be within the new agreement.

The four thematic groups have produced good, solid reports with a number of key recommendations. I trust that these, combined with the discussions that we will have here today, will assist in focussing on the priorities that will enable us to enhance trust and confidence so that we mutually reinforce each other in the energy sector.

I thank you for your attention.


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