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European Commission

[Check Against Delivery]

Günther H. Oettinger

European Commissioner for Energy

EU-OPEC dialogue: one of the key priorities of EU international energy relations

11th Ministerial meeting of the European Union and the Organisation of Petroleum Exporting Countries (OPEC)

Brussels, 24 June 2014

Dear Ministers, Secretary General, distinguished guests,

Welcome to Brussels!

In the past decade our Energy Dialogue has been one of the key priorities of EU international energy relations. It has allowed both parties to share expertise and knowledge, produce joint studies, take part in site visits as well as cooperating in difficult times when confronted for example with oil supply disruptions.

Our last Ministerial in November 2013 was only seven months ago, but a number of unexpected developments and challenges occurred since then. It was precisely last November that a new chapter in the relations between Ukraine and Russia was started and which led Russia to eventually activate the pre-payment clause with regard to supplies of gas to Ukraine, as of last week. All of sudden EU supplies could be taken hostage of a conflict affecting its neighbours. It is for this reason that the Heads of State and Government asked the Commission last March to come up with an analysis of EU's dependence on energy imports and a plan to reduce such dependence. It has been also for that reason that I have been asked to mediate between Russia and Ukraine in its talks regarding gas supplies.

Meanwhile, political instability in Libya has continued to affect its energy market.

Most recently, the events in Iraq have raised the question worldwide of their implications on the global energy market and on Iraq itself given the predominant role of energy in Iraq's economy and the important role of Iraq's energy resources for global markets. We would like to express our sympathy to our colleagues from Iraq and express the wish that stability can be recovered soon.

All these developments and challenges testify a gain of the global nature of energy and of the energy market as well as the need to tackle them in cooperation with each other. This is why our cooperation and our energy dialogues are so important.

Since we met last November, the Commission has adopted two key strategic documents which set out our broad energy strategy, namely:

  1. the 2030 energy and climate framework, adopted in January 2014 and

  2. the European Energy Security Strategy, adopted on 28 May 2014.

Let me start with security of supply.

The EU imports 53% of the energy it consumes. Energy dependency relates mainly to:

  1. crude oil (already almost 90%),

  2. natural gas (66%) and

  3. to a lesser extent to solid fuels (42%).

Against this background and the latest geopolitical developments, it is not surprising that the EU Heads of State and Government have taken a close interest in Europe's energy security. As I indicated before, in March we were requested to present an in-depth study of EU energy security and a comprehensive plan to reduce energy dependency. On 28 May, we presented a comprehensive Energy Security Strategy with a series of detailed proposals.

It sets out that short term and mid/long-term measures are required to strengthen EU's energy security.

With regard to short term measures, we need to act now in view of securing supplies this winter. Existing European emergency and solidarity mechanisms should be reinforced. The Commission, together with the Member states, will launch a series of Energy Security Stress Tests. The Union must also engage with its international partners to develop new solidarity mechanisms for natural gas and the use of gas storage facilities – we have the intention to cooperate notably with the International Energy Agency (IEA) and bearing in mind the G7 orientations on these matters. In this sense, cooperation with you is equally key.

With regard to the mid- and long-term, the European Union has ambitious decarbonisation objectives, even though when it comes to oil, it is and will remain a key component of the EU energy mix in the short to medium term. Moreover, all our scenarios indicate that in the short-medium term, our oil import dependence will increase considerably, up to more than 90%, due to the progressive depletion of EU oil reserves.

When it comes to security of oil supply, I wish to praise the key role of OPEC in cushioning against oil supply disruptions in the past few months. Recently, as I have outlined at the beginning, some producing countries have been confronted with political instability which led to reduced oil production. Despite such unrest, OPEC has managed to maintain its production level at around 30 million barrel per day, providing stability to the oil market.

I would also like to express my personal appreciation for a recent declaration of Saudi Oil Minister Ali al-Naimi indicating availability to compensate for any potential oil shortages which could be caused by the current situation in Ukraine.

With regard to oil security in the mid and long-term, what can we do to minimize risks?

First of all, I want to emphasise the importance of adequate spare capacity from producing countries as the best "safety net" against any possible oil supply disruption.

Consuming countries also have to do their "homework"; this is why we have implemented in the EU, and also in the IEA, a mechanism of emergency oil stocks which can be released in case of supply disruption. The emergency stocks maintained by the 28 EU Member States amount to 130 million tons, nearly 1 billion barrels. For comparison, the stocks held by the US Strategic Petroleum Reserves amount to 696 million barrels.

We are interested in promoting further international cooperation and transparency concerning oil stocks and oil markets, involving notably major new consumers, such as China and India.

As far as the European oil market is concerned, the interdependence in relation to oil between the EU, US, Russia and OPEC as main producing countries, the availability of oil stocks, and the ability to trade and transport oil globally, means that there is no immediate threat for the EU in relation to its oil supplies.

There are, however, issues that need to be closely monitored and that require a more strategic coordination of the EU’s oil policy, notably with regard to:

  1. diversification of crude oil supplies to EU refineries;

  2. ensuring access to oil export markets and limiting trade distortive practices by promoting strong energy-related trade disciplines;

  3. Identifying EU-wide strategic assets in the oil value chain and coordinate action to ensure that consolidation of the EU’s refinery capacity occurs in a manner that improves the EU’s energy diversification;

  4. Cooperating with the IEA to monitor the oil value chain and promoting transparency of data on flows, investments, and ownership.

Let me now say a few words on oil price and on volatility.

Beyond these areas, a decisive element in the oil security is obviously the price.

The 2008 global financial crisis had a serious impact on oil demand and, as a consequence, on investments in the upstream activity. 2008 was subject to high volatility of the oil price, going up to more than 140$ per barrel in July 2008 and then down to 30$ in December 2008. This extreme fluctuation was harmful for both producers and consumers.

In the past three years, oil price volatility has actually decreased. This positive fact should be acknowledged as it has provided stability in the oil market. However, the latest trends in oil price are not so positive. Oil prices have recently climbed above the 110 $ per barrel band for quite some days.

Producers and consumers might have different views on what should be a desirable oil price. However, I think there is a broad agreement that an affordable oil price is a prerequisite for economic growth of all economies, both for the producer and the consumer side. In other words, excessive oil prices will be damaging to our economies.

This has also to be taken into consideration that high oil prices will affect gas prices, as many gas contracts are still indexed to oil prices.

Oil prices are set by markets, and we should not interfere with them. There is a mutual interest of both the EU and OPEC, through our Energy Dialogues, as well as through initiatives in other forums such as the International Energy Forum (IEF) and IEA, to enhance cooperation and mutual understanding of the oil price mechanism.

Today, we need to assess how we can deal with the challenges that I have briefly described for the benefit of all parties. I am looking forward to a frank exchange of views on what can be done, and I am confident that our cooperation will continue to develop in the spirit of mutual trust and collaboration.

Further, I am glad that OPEC experts visited the Commission's Directorate-General Energy last December to share with us your views on short and medium term perspectives, to present in full detail the 2013 World Oil Outlook and to discuss with us our 2030 scenarios and strategies.

I have therefore instructed my services to continue this fruitful exchange and organise similar meetings in the next few months to discuss our respective assessment of energy developments and policies and how OPEC can best contribute thereto.

Finally, I would like to conclude my presentation on a positive tone. We are confronted with radical changes, challenges and political instability in some parts of the world. However, despite all those challenges, our economies show signs of growth steadily gaining momentum. This is leading to a more optimistic economic outlook for the European economy as whole. All our efforts should lead to create the best conditions for the uptake of the EU economies, in the interest of the citizens of our countries.

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