1. Energy Security and Current Developments in the Russia-EU Energy Relationship Jack Sharples University of Glasgow

2. Introduction Aim: To discuss European and Russian approaches to the concept of energy security, and the role of energy security in current developments, including: 1)Transit corridors (Nord Stream, South Stream, Nabucco) 2)Gazprom in Europe following the launch of the EC antitrust enquiry 3)EU-Russian energy security in light of the political changes in Russia

3. Overview of Russia-EU Energy Relationship Soviet Union and then Russia a reliable supplier of gas to Europe for several decades Expansion of European Union in 2004 changed the level of overall EU dependency on Russian gas Energy Dialogue since 2000 In 2010 Russia exported 152bcm to Europe (EU-27, Turkey, Switzerland, Balkans) and 66bcm to FSU (not inc. Baltic States)

5. European Conceptions of Energy Security (1) EU is a net importer of energy, relying on external supplies for c. 53% of gas consumption Russia supplies 40 percent of EU gas imports Russia therefore supplies just over 20 percent of EU gas consumption But the actual dependency of different EU member states varies greatly For Europe energy security means security of supply Source: www.energy.eu

6. European Conceptions of Energy Security (2) Delivery – Are the supplies reliable? Volume – Can we purchase as much as we need? Price – Can we afford these supplies?

7. European Policies to Preserve Its Energy Security Diversification of supply routes (Nord Stream, Nabucco) Diversification of suppliers (increase LNG imports) Development of internal energy market Challenge to long-term contracts and aim for more flexible pricing formulae Limit overall gas consumption through energy efficiency and increase in renewable energy

8. Russian Conceptions of Energy Security (1) Russia is a net exporter of energy EU accounts for 69 percent of Russian gas exports, with almost 30 to CIS and small amount to Asia- Pacific region Energy accounts for 40% of Federal Budget revenue and 20% of GDP Russian energy security is based on security of export Source: www.gazprom.com

9. Russian Conceptions of Energy Security (2) Delivery – Are our export channels reliable? Volume – Is the demand for Russian gas stable and sufficient? Price – Is the price for Russian gas stable and is it high enough to make capital-intensive projects profitable in the long term?

10. Russian Policies to Preserve Its Energy Security (1) Diversification of supply routes in order to avoid unstable transit countries (Nord Stream and South Stream) Diversification of export markets (LNG from Sakhalin, pipeline gas to China, new markets in Europe) Long-term contracts to guarantee long-term returns on initial investments, with take-or-pay clauses to ensure sales volumes

11. Russian Policies to Preserve Its Energy Security (2) In such long-term contracts the gas price is linked to the oil price with a time lag of 6-9 months and is not based on supply and demand, or the cost of production Investment in, and control over, transit capacity and downstream direct sales to consumers in other countries, in order to guarantee reliability of delivery and stability of demand

12. European Perceptions of Russian Energy Policy Soviet Union/Russia longstanding reputation as reliable supplier to Europe Combination of price increases, EU expansion, increase in disputes and politicisation of energy Influenced by perceptions of Russian foreign policy and assertiveness on world stage Financial crisis shifted the balance of power and over the last two years relations have been much improved

13. Russian Perceptions of Russian Energy Policy EU energy policy non-existent prior to mid-2000s Financial and reputational losses in January 2006 were a big shock to Russia EU diversification of suppliers and uncertainties over future gas demand are a threat to Russia’s energy export security Russian companies, specifically Gazprom, excluded from European market European attempts to reduce gas prices also concerning for Russia

14. The Third Energy Package and the ‘Gazprom Clause’ Third Energy Package: EU attempt to separate production, transportation, and sales of gas Must be separate companies, or separate management, at each level EU hopes that Competition at each level will reduce prices and protect consumers ‘Gazprom clause’: Non-EU companies operating in EU must also act according to EU laws and regulation

15. Transit corridors and their prospects Nord Stream already reality South Stream: Real project, or just pressure on Ukraine? Answer in 2012 Nabucco: European project but delayed and lacking gas to fill the pipeline Nord Stream and South Stream will reduce Russian & European dependency on Ukraine/Belarus Nabucco European attempt to reduce dependency on Russia

16. Gazprom and the EC Antitrust Enquiry (1) On 27-28 September European Commission antitrust inspectors raided approximately 20 companies in ten EU Member states over suspected anti-competitive behaviour relating to gas supply contracts Target: Gas contracts between European energy companies and Gazprom

17. Gazprom and the EC Antitrust Enquiry (2) Similar investigations were conducted in Western Europe between 2007 and 2010 Raids coincide with EC legal action against 18 EU Member States for failure to implement Third Energy Package Concerted action against Gazprom, or effort to make EU internal energy market a reality?

18. Gazprom and the EC Antitrust Enquiry (3) The future for Gazprom in Europe – A choice: 1)Gazprom will have only minority stakes in European gas transit infrastructure and energy companies which sell gas directly to consumers Or 2)Gazprom to lose its monopoly on gas exports, and other Russian energy companies to play a role in gas transport and gas sales in Europe

19. EU-Russia Energy Security and Political Changes in Russia Not a great change in energy policy – Putin remained influential as PM and no dramatic change in policy 2008-2011 Importance of language, rhetoric, and trust in energy security Medvedev presented ‘friendly face’ to Europe Will PM Putin continue to use friendly language, or will he take a more strident tone in protecting Russia’s interests?

20. A Problem of Perception?

24. The Russian View? “Transcontinental Export Gas Pipeline: Urengoy-Uzhgorod”

25. The Russian View? “The gas for export will be right on time!” http://www.youtube.com/watch?v=A7RD5ONjv8M (REN TV 2 nd January 2009)

26. Thank you for your attention

27. Interactive session on energy security You are an EU-Russia Commission on Energy Security Two groups: EU and Russia 3 press releases (new pipelines; EC antitrust inquiry; political changes in Russia) 5 proposals for improving energy security in Europe Read, debate, and vote on proposals Demonstration of how EU and Russia may view same issue differently, and of areas in which EU and Russia can cooperate