Fundamental Mistake
In the energy sphere both Europe and Russia are making a fundamental mistake. Europe considers diversification of gas imports to be the main task, while Russia thinks of diversifying its exports. Both approaches are erroneous • Europe’s main problem is not dependence on Russia but its own declining production • Russia’s main problem is not the lack of Chinese market supplies but its production • Vicious chain: Europe is threatening Russia with diversification, while Russia is threatening Europe with Asian markets.
China vs. Europe
Russia’s 2008 mistake: leaving the European market that was immediately filled up with other producers. Now there is hope on China – a 20 year contract on supplies of 300m tons of oil through a new oil pipeline (with the option to prolong the contract on oil supplies by railroad that expires in 2010). Energy minister Sergey Shmatko believes an 8% decline in oil production is a possible scenario. This means the Chinese contract is not diversification but gradual replacement of the European market, especially taking into account that the timeframe of putting East Siberia deposits (Talakan, Vankor) into operation is lagging behind the schedule Russia is leaving the European market for China – this is not diversification but substitution of one market for another.
Structure of Gazprom Clients (2008)
West Central Europe and East — 20,7%
Europe — 7,41%
CIS and Baltic — 13,98%
Russia — 57,91%
Chinese Pipe Temptation
At least 3 projects of gas pipelines to China are known
Crisis is good respite. Demand is falling and the problem is becoming less dramatic
But this respite is temporary But It should be used to unite Russia-EU efforts in the energy sphere.
Nabucco will not Save Europe
Nabucco is just 30bn cu m by 2013 at best. Moreover, huge dependence of the new transit route on the USA
Europe suggests that reciprocal influence should be replaced with competition thinking that the latter is more important. But competition has two problems – high price.
Competition is real on the oil market but not on Competition the gas market. The situation with gas will be more complicated.
Gas Starvation
Europe: 20-20-20 program is initially unrealizable. Gas production in Norway dropped by over 10bn cu m. In 2015 Norway will reach plateau production. Northern Africa will supply maximum 40bn cu m by 2015. Central Asia – big risks.
Dependence of Europe from Gas Import (IEA) | 2006 | 2015 (forecast) | 2030 (forecast) |
Europe: | 45% | 54% | 69% |
European Union: | 57% | 72% | 85% |
New Energy Agenda Draft
Russia refuses laying gas pipelines to China. The Chinese market is given to Central Asia states: Turkmenistan and Uzbekistan lay pipelines to China
Diversification of gas supplies to EU is achieved by LNG supplies, not by construction of new gas pipelines
Nabucco and South Stream are united into one project
Conditions of access of European companies to Russian upstream and Russian companies to European downstream are simplified. Intertwining of energy companies
From diversification to growth in interdependence.
Ukrainian Problem
Energy is followed by politics. Both sides refuse the enemy image
The 23 March agreement won’t be implemented. Europe won’t invest in modernization of Ukraine’s gas transpiration system. Actually for Russia this would be an ideal scenario if EU invested in modernization of the pipeline system that accepts Russian gas
Accession of Ukraine’s GTS into the European gas pipeline system implies application of European rules in Ukraine, which means Russia can directly sell its gas to Ukrainian consumers.
In January 2009 Russia liberalized access of Central Asia states to its pipelines.
Russia and EU support the same candidate at the Ukrainian presidential elections on 25 October 2009, who will create a trilateral gas transportation consortium that will solve the problem of political risks in gas transit.
Thank you!