On April 13, the Foundation for Development and Support of the Valdai Discussion Club held a conference in Berlin, entitled "Europe and Eurasia: moving toward a new energy security model". More than 150 experts discussed the radical changes unfolding in world politics and global energy markets in the 21st century.
The conference was opened by Andrei Bystritsky, Chairman of the Board of the Foundation for Development and Support of the Valdai International Discussion Club.
Speakers at the first session – Eurasian energy and geopolitical risks: can the future be predicted? – identified several key areas for further discussion. Among the global trends, the participants mostly focused on the numerous conflicts unfolding on the continent and along its border. According to the conference participants, there exists a situation of uncertainty, which will last for several years.
The participants in the first session came up with several different perspectives on these issues, including the need for drafting a new energy strategy, reducing carbon emissions and creating a satisfactory situation amid falling prices.
“The world is now in a situation where it cannot afford a geopolitical battle for resources. It is imperative to separate the energy from the politics, and to separate gas from politics,” said professor Leonid Grigoriev, Head of Chair of World Economy, Department of World Economy and International Affairs, National Research University – Higher School of Economics.
There were lively debates around ways to move away from the dependence on oil and gas. The current situation is politically difficult, the participants said. Major companies don’t want to invest, export or produce more.
The vital issue of building the Turkish Stream gas pipeline was also discussed. The political situation prompted Russia to choose a more commercially-oriented option. The construction of the South Stream was cancelled and a new project, the Turkish Stream, arose.
“The Turkish Stream is a project that will benefit all sides, including Europe, since it won’t lose Russian gas and will increase its strategic importance, while Russia, in turn, won’t lose its European customers,” said Gurkan Kumbaroglu, President of the International Association for Energy Economics.
According to the participants of the session, Ukraine remains the most challenging issue. For the EU, the fact that Kiev receives transit payments is an important factor supporting Ukrainian economy. But gas transportation infrastructure needs significant amounts of investment to upgrade and properly maintain it. This problem was unresolved even before the crisis. There are no prerequisites for the parties to find a mutually acceptable solution, such as, for example, establishing a tripartite consortium to operate and upgrade the gas pipeline.
Summing up the first session, it must be stated that the Berlin meeting does not represent a full-fledged start of talks between the EU and Russia on the energy sector cooperation parameters. It's rather an opportunity to launch a full-fledged negotiations process openly, with the active participation of experts on energy from the EU, Russia and Turkey.
The second session of the conference, Europe and Eurasia: moving toward a new energy security model, was opened by Alexei Miller, Chairman of the Board of Gazprom.
Gazprom chose to move from the European strategy to the Eurasian strategy of operating on the energy market. A new Eurasian gas megamarket began to take shape. There are objective prerequisites for such a transition. First, Gazprom has begun to build gas facilities in Siberia, which will connect gas transport systems of the East and the West. Second, it is important for Gazprom to have new strategic megamarket partners. All of that directly affects the European energy security strategy.
Gazprom sees very serious risks in the new EU energy security model, which includes diversified supplies.
The discussion focused on pricing, among other things. Clearly, the Asian market will become a factor in pricing in the near future. Gas prices in different European countries are determined by the energy balance of the states and regions.
In particular, Gazprom is being accused of setting different gas prices for consumers in different countries. Yes, prices are different indeed, but that’s the objective situation. However, some accuse Gazprom of setting extremely low prices for certain consumers and extremely high ones for other consumers. Thus, we must give it some thought and move toward equalizing prices, Miller said.
Miller also said that the EU is purposefully and unilaterally transferring all the risks on the gas supplier, including the risks of building production and transportation facilities.
He also said that the current gas price for Ukraine is much lower than the price paid by many EU countries and noted that it had instantly affected reverse supplies.
“As compared with the maximum number of reverse supplies to Ukraine in the first quarter, the amount of reverse supplies in the second quarter is down 15 percent. Hungary stopped reverse supplies altogether; they no longer make economic sense.”
Gazprom rebuffed the detractors of the South and Turkish streams who seek to preserve the transit of Russian gas through Ukraine by stopping supplies.
Miller said: “We can double exports of Gazprom's gas to Europe just like that, overnight.”
According to him, the fact that European politicians blocked the South Stream served just one purpose, which is to maintain the status quo of transit across the territory of Ukraine. There’s no other reason for blocking the South Stream. However, if anyone thinks that they will achieve this goal by blocking the Turkish Stream, they are deeply and seriously mistaken. First, these supplies may go to other markets. Second, we have a competitive edge, because Russia can afford to take a pause.
At the end of the second session, Alexei Miller said that the current transit contract with Ukraine is valid until 2019. After that, Gazprom plans to drop Ukrainian transit in favor of the Black Sea bypass.
The third session, Eurasian energy security amid global turbulence: how to ensure reliability? began with remarks delivered by Minister of Energy of RF Alexander Novak. The third session was a logical continuation of the previous discussion.
Novak said that Russia hopes to remain the gas market leader until 2040. Plans are in place to increase output and exports, which will allow Russia to maintain this position. The share of imported natural gas will grow significantly in the EU by 2035, with Russia still accountable for about one-third of fuel supplies to Europe.
Russia has all the capacity it needs to meet Europe’s future demand for energy at competitive prices. Russia is willing to meet the future gas needs of its European partners at absolutely competitive prices.
“If you take an unbiased look at the way things are, it turns out that the balance of energy relations between Russia and the European Union that has formed over several decades is in crisis today. Europe is not interested in preserving the existing system of relations, which, above all, increases Europe's energy security risks,” Novak said.
At the same time, according to the minister, Russia sees no fundamental reasons for changing the existing balance of relations with its European partners.
The imposition of sanctions in the energy sector is politically motivated and detrimental to all the parties, and threatens energy security, Novak said.
“On a separate note, I would like to point to a significant recent increase of the role of politics in the energy sector. The politically motivated sanctions imposed by certain countries on certain companies or even entire sectors of the economy of other countries are likely the most vivid example of that,” Novak said.
He also noted that normally such sanctions do not achieve their goals, resulting instead in economic losses on both sides.
Rosneft, Gazprom Neft, Transneft and NOVATEK came under financial sanctions. NOVATEK is only on the US list, while others are on the EU lists as well. These companies have limited access to Western capital markets.
In addition, Rosneft, Gazprom, Gazprom Neft, LUKOIL and Surgutneftegaz came under US technology sanctions. These companies have limited access to goods, services and technological equipment for exploration and production at deep offshore fields, in the Arctic seas, as well as for shale oil projects. Novak said that Russia sees political implications in the EU's refusal to renew the energy dialogue with Russia, as well as the situation surrounding the South Stream and Opal pipelines.
He also said that Russia proposes depoliticizing cooperation with buyers of Russian gas and creating a mechanism for coordinating energy policies of the Eurasian countries.
“We are prepared for various scenarios in our relations with the consumers of Russian gas, but we would like to see these relations free of politics, stable and mutually beneficial,” Novak said.
The last discussion session was the logical conclusion of the two previous discussions. It summed up the results and answered the main question of the meeting: what could a new energy security model look like?