Turning to the gas industry, the energy market is currently facing extraordinary challenges because of current global oil price volatility and the shale gas revolution.
Energy Market
Energy is fundamental to economic development and so it has become a priority policy area for many countries. There are also implications for regional and international security. Fossil fuels are, and will remain, very important. Nonetheless, countries should look beyond those sources. Some countries have already announced national policies in this line, e.g. Germany’s decision to move from fossil fuels and nuclear towards renewables. The transition to green energy requires significant technological innovations.
Turning to the gas industry, the energy market is currently facing extraordinary challenges because of current global oil price volatility and the shale gas revolution. The marginal price dynamics at European hubs are influenced by oil-indexed pipeline contract prices. The shale gas revolution, although it is taking place in the USA, has consequences for Europe. For example, the construction of the LNG terminal by Lithuania gives that country more flexibility in negotiations of natural gas prices with Russia.
At the same time other processes, which influence energy market, are going on, e.g. the establishment of European Energy Union, continued liberalisation and integration of energy markets, and improved interconnections and access to transport capacities.
More countries around the world are seeing the benefits of the multilateral cooperation in the context of the new International Energy Charter. This new Charter is to be adopted by 80 countries on 20-21 May in The Hague, The Netherlands.
Russia and the Energy Charter
Back in April 2014, when the Energy Charter Forum in Moscow was held, Russian officials acknowledged the value of the Energy Charter as an instrument of cooperation between energy producers and consumers.
Transit issues
The international community has seen that Gazprom has recently moved on to the construction stage of the Turkish Stream offshore gas pipeline. There is a need to continue open dialogue and consultations on how Russian gas could be delivered to the centres of demand in Europe and other parts of the world.
At the same time, Ukraine's GTS (Gas Transportation System) is of particular importance for the EU. Its value is determined not only by its transit role but also by storage facilities which ensure gas supply to the EU during peak season in winter. Another aspect of the Ukrainian GTS is the interconnection of its main pipelines which provides an uninterrupted supply of gas in the event of emergency situation. This is something that no other routes of transportation (Yamal, Blue/Nord/South Stream) provide. I wish to recall that Ukraine, Turkey and Greece are important countries on the route of Russian gas to Europe.
The Energy Charter is the only existing legal framework with a geographical scope covering major energy trade and transit routes in Eurasia and beyond. My message has been, and continues to be, that the Energy Charter with its extensive membership continues to be an effective international cooperation framework that greatly benefits to the Russian Federation.
Gazprom is the only supplier of Russian natural gas to Europe. Gazprom's supply contracts are largely based on long-term contracts, with oil-indexed prices and with the take-or-pay commitment.
Recently the European Commission sent a Statement of Objections to Gazprom alleging that some of its business practices in Central and Eastern European gas markets constitute an abuse of its dominant market position and so is in breach of EU antitrust rules. The important question here is how effectively the parties of the dispute might have addressed the issue earlier on.
The Energy Charter Treaty (ECT) Article 6 contains rules on competition in the Energy Sector and provides a mechanism on cooperation between Contracting Parties’ competition authorities. However, since Russia withdrew from the ECT in 2009 the mechanisms of the Article 6 can no longer be used by the EU or any other non-EU ECT Contracting Party.
In conclusion, I wish to state that there is no alternative mechanism to international cooperation in the energy sector. Partnership at different levels on bilateral and multilateral basis must be continued. The anticipated adoption of the new International Energy Charter is a window of opportunity, which will allow any interested state including the Russian Federation to engage in constructive partnership based on equality and mutual interest.
