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Context of the EU – Russia Energy Dialogue
Christian Cleutinx Senior Fellow - Netherlands Institute of International Relations
Energy security
• Supply security - source security - transit security • Demand security • Financial security • Economic security • Environmental security • Technological Security
2
EU Energy Roadmap 2050
The signalling of governments about their long term intentions can change the market dynamics.
Energy roadmap 2050, a case of backcasting based on 80 % reduction of GHG emissions. It is often treated as forecasting or as a policy action plan.
EU 2050 Roadmap : Gas Imports (000 toe) A spread in 2050 of 222 million toe (242 bcm)
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Ref
Ref LE
Ref HE
Ref HGDP
Ref LGDP
CPI
Eeff
DivSup
High Res
DelCCS
LowNuc
Source : European Commission, Energy Roadmap 2050 4
Russian Gas Pipelines supplying Western Europe (2012 - bcm)
Capacity 2020 Northern Lights RU-BY-Central Europe 25 25 Brotherhood RU-UKR-Central Europe 130 130 Trans Balkans RU-Balkan Countries 20 20 Finland RU-Fin 20 20 Yamal Europe 1 RU-BY-W. Europe 33 (33 ?) YE 2
Blue Stream RU-TR 16 16 Nord Stream (1 – 2) RU-D 55 55 ( 3& 4 : 55)
bcm) South Stream RU-Balkan-W. Europe (63) TOTAL 299 362 (417)
5
Energy 2050 Roadmap : Oil Imports (000 toe) A spread in 2050 of 463 million toe (9.3 million barrels/day)
0
100000
200000
300000
400000
500000
600000
700000
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Ref
Ref LE
Ref HE
Ref HGDP
Ref LGDP
CPI
Eeff
DivSup
High Res
DelCCS
LowNuc
Source :European Commission, Energy Roadmap 2050 6
Until 2025 : The EU at the forefront of oil geopolitics
0
2
4
6
8
10
12
14
2010 2015 2020 2025 2030 2035
USA
EU27
China
Source : Based on data from New Policies Scenario, World Energy Outlook, IEA 2011.
Oil imports : Mio B/d
7
US Security Strategy
« An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States, and such an assault will be repelled by any means necessary including military force » Jimmy Carter, Address at Joint Session of Congress, The Capitol, Washington DC, January 30, 1980.
« With most of the world’s nuclear powers and some half of humanity, Asia will largely define whether the century ahead will be marked by conflict or cooperation, needless suffering or human progress. As President, I have therefore, made a deliberate and strategic decision – as a Pacific nation, the United States will play a larger and long-term role in shaping this region and its future... » Remarks by President Obama to the Australian Parliament, November 17, 2011
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Production Cost of Natural Gas (US$ mmBTU)
Conventional * Shale gas*
US 3 - 7 3 - 7
EU 5 - 9 5 - 10
China 4 - 8 4 - 8
Russia 0 – 2 (1) 3 – 7 (2) -
Qatar 0 - 2
(1) West Siberia (2) East Siberia
**Cost of liquefaction : 1.5 – 2 **Shipping : .3 - .9 **Regasification : .3 Total : 2 .1 - 3.2
Sources : *AIE and **industry estimates 9
US Shale Gas : exports or no exports • Political battle over expansion of gas exports : “Exports could harm the
nation’s (US) ability to reach energy independence, combat pollution and preserve the environment and improve the economic competitiveness of American manufacturers”… “US might shortchange its new found domestic energy security with increased exports”
• But export market would stabilise US prices (reduce the volatility of the market) and encourage more gas-directed exploration
• Up to now only one export license for LNG (Sabine Pass Liquefaction Project)
• US not a low cost producer in terms of lifting costs • Handicap for renewables (low prices for electricity from gas) • Extremely high initial decline rates of wells with steep trends (may loose
more than 85 % of their initial output within the first 12 to 18 months) – significant decrease in the recovery factor
• TX Barnett and La Haynesville formations: to keep production flat needed over the last 12 months 2000 new production wells.
• Recovery efficiency of 8 to 12 % contrasting significantly with recovery efficiencies of 75 to 80 % for conventional gas fields
10
EU Security Strategy 2003 « European Security Strategy : A secure Europe in a better World »
« Energy is a special concern for Europe. Europe is the world’s larger importer of oil and gas. Imports account for about 50 % of energy consumption today. This will rise to 70 % in 2030. Most energy imports come from the Gulf, Russia and North Africa »
2008 Report on the « Implementation of the European Strategy – Providing Security in a Changing World »
« Greater diversification of fuels, sources of supply, and transit routes, is essential as are good governance, respect of rule of law and investment in source countries. EU policy supports these objectives through engagement with Central Asia, the Caucasus and Africa, as well as through the Eastern partnership and the Union of the Mediterranean. Energy is a major factor in EU-Russia relations. Our policy should address transit routes, including Turkey and Ukraine. With our partners, including China, India, Japan and the US, we should promote renewable energy, low carbon technologies and energy efficiency, alongside transparent and well-regulated markets »
11
Providers of Enrichment Services (tSW) 2011
12
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
16 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Others
USEC (USA)
Tenex & TVEL (Russia)
Eurodif & Urenco (EU)
Source : Euratom Supply Agency
EU Natural Gas Imports
34
30
15
10
4 3 2
1 1
2010 (%)
Russia
Norway
Algeria
Qatar
Nigeria
Libya
Trin. Tob.
Egypt
Others
13 Sources : BP Statitical Review of World Energy 2011, Congressional Research Service 2012.
EU Oil Imports
20
19
30
14
14 3
2011 (%)
Middle East
Africa
Russia
Oth FSU
Norway
America
14 Source : European Commission
EU-Russia Trade Flows (2010)
EU 27 Imports from Russia EU 27 Exports to Russia
Source : European Commission, DG Trade.
15
EU Trade with Russia is dominated by Oil
100,4
14,9
3,7
29,4
Imports from Russia in 2010 (000 mio €)
Oil
Gas
Coal
Other trade
Source : European Commission 2011 16
Russia : Export Revenue from Hydrocarbons is dominated by Oil ( bn US$)
Sources : Bank of Russia 2012, Industry, own calculations
17
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
revenue oil
revenue gas
total revenue
Natural Gas Prices (31 Dec 2012)
0 5 10 15 20
US HH price
EU import price
Japan import price
US$/mmBTU
Source : Ycharts, http://ycharts.com/indicators/
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Evolution of Prices for Russian Gas (as compared with oil prices)
0
20
40
60
80
100
120
0
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008 2009 2010 2011
Axi
s Ti
tle
European Price
FSU Price
Brent Oil Price
$/1000 M³ $/bbl
Source : own analysis on the basis of Gazprom data and other industry
Production of hydrocarbons per capita « Is Russia an Energy Superpower? »
0
20
40
60
80
100
120
Toe/cap
Sources : BP, own calculations
An economy dependent from energy Top ten Russian Companies (bn €)
2010 Sales
1. Gazprom 115
. 2. Lukoil 86
. 3. Rosneft 45
. 4. Russian Railways 44
. 5. Sberbank 32
. 6. TNK BP 31
. 7. Systema 28
. 8. Surgutneftegas 19
9. MRSK 18
10. Tatneft 15
Sources : Industry, IMEMO
21
Pct Changes in GDP and in Hydrocarbon Exports Revenue « Economy overdependent from Raw Materials»
-10
-8
-6
-4
-2
0
2
4
6
8
10
-50
-40
-30
-20
-10
0
10
20
30
40
50
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Hydrocarbons revenue GDP
Source : own analysis
22
Russian Production and Reserves
Reserves
Production
Res/prod
24
18,4
76
76
81,6
55
Other World
Russia
(years)
(%)
(%)
Source : BP Statistical Review of World Energy [2011]
Reserves
Production
Res/prod
5,6
12,5
20,6
94,4
87,5
46,2
(%)
(%)
(years)
GAS OIL
23
Russian Nord-West Oil Export Infrastructure
• Baltic Pipeline System Ust-Luga terminal : inaugurated 2012 : capacity 600 000 b/d (2013 upscaled to 1 mio b/d) Primorsk terminal : 1.5 mio b/d • Druzhba : 2 mio b/d. 2 branches : Nth - BY, Pol, D Sth - BY, Ukr, SK, CZ, H. • North-Western Pipeline System : 300 000 b/d
Polotsk – Ventpils (to be converted into a natural gas pipeline), Butinge (reversed to crude oil exports to crude oil imports)
24
A. Novak -
The Energy Dialogue (1)
• First Progress Report-2001 : “The European Union and the Russian Federation have decided to establish a Strategic Energy Partnership… at the (Paris) Summit (30 Oct 2000) to develop a political partnership”.
• Fourth Progress Report-2003 : “…the establishment of an institutionalised relationship between Russia and the EU in the field of energy, which would pave the way for the creation of a real Energy Community”.
• Communication from the Commission on the Energy Dialogue between 2000 and 2004 :
“The energy dialogue… arose from the notion that the European Continent constitutes a broad geopolitical area linked culturally, historically and economically…. The Russian Federation … could also to a certain extend play a moderating role on international markets … being in some way the most promising – and geographically the closest alternative to the Middle-East as energy supplier to Europe”.
26
The Energy Dialogue (2)
• The term “strategic partnership” did create expectations that are not yet fulfilled as such.
– A “partnership” involves some exclusivity, equal rights and a constructive discussion about the relationship.
– A “strategy” needs clearly defined common goals, timeframes and action plans and implies a common intention to reach these goals.
BUT
• the Dialogue has been very effective from the beginning on specific topics such as
– Destination clauses in gas long term contracts
– Maritime safety for heavy crude transport
– WTO negotiations
– Feasibility study on the synchronisation of EU/CIS electricity grids
– Defining Nord Stream as a project of common interest
– Contribution to the ratification by Russia of the Kyoto protocol
27
The Energy Dialogue (3)
MORE RECENTLY
- The implementation of an “Early Warning Mechanism” to prevent and manage energy crises
- Decision for a EU-Russia Energy Roadmap to make proposals for EU-Russia long-term
cooperation in the energy sector
- Creation of a Gas Advisory Council to assess the development of the gas markets and
provide independent recommendations for long term EU-Russia gas cooperation
To come for 2013 : Finalisation of the 2050 EU-Russia Energy Roadmap.
In addition to the regular work of the thematic groups and the Gas Advisory Council,
emphasis on areas of common interest such as alternative uses of gas and energy efficiency.
(Joint Press Statement EU-Russia Permanent Partnership for Energy, 12 December 2012, Nicosia.
CONCLUSION
The initial vision of an energy common market with its own institutions turned into a
problem-solving instrument and an excellent channel of communication but effective partnerships
are currently mainly being conducted at the level of several EU Member States.
28
EU-Russia Energy Roadmap to 2050
Progress report (July 2011) – Expert Papers (1)
• Current Context
Russia is a vital supplier of energy to the EU
A reliable supplier since 1968 (exception made of some “collateral damage” linked to commercial disputes with some CIS Countries)
The EU a neighbour with 500 million energy consumers is important to Russia
Energy relations are too often overly polarized and in certain quarters an element of political suspicion and controversy
Anxiety and uncertainty related to dependence from a single supplier or a single buyer or a single supply route generates tensions and defensive attitudes that can damage commercial relationships and impact political relations
Existence of alternative suppliers might not necessarily be detrimental to the volume in Russian gas trade, on the contrary it might attenuate fears linked with possible interruptions and paradoxically stimulate trade (cf : EU-Russia oil trade)
CO2 intensity of GDP, 0.39 kg per unit of GDP in the EU and 3.7 kg in Russia
Carbon leakage can lead to distortions of competition
The EU is committed to reduce by 2050 GHG emissions to 80-95% below 1990 levels
29
EU-Russia Energy Roadmap to 2050 Progress report - Expert Papers (July 2011)
The Way forward
Define the relations between the EU, Russia and their common neighbours
₋ By 2050 Russia and the EU are strategic allies
₋ Russia will be a diversified, modern and competitive economy
₋ Russia, its non-EU neighbours and the EU will have moved towards a common market supported by a further political rapprochement
Define an energy vision
₋ Energy security will no longer be a divisive issue
₋ Integrated energy market requires a gradual approximation of rules, standards and markets leading to greater reciprocal investment and technology exchanges
₋ Oil and gas remain for the next decades the core of the EU-Russia energy relationship : vital component for the transition towards a green continent
₋ At the same time the EU and Russia cooperate with the support of the EU-Russia Partnership for Modernisation in the development of an innovative green sector of the economy
₋ The long term future of energy relations could prioritise electricity through a transcontinental integrated grid based on renewable and clean electricity including CCS in order to transform the European continent into a low carbon zone.
Define a cooperation strategy
Agree on the main drivers, common themes and “no-regrets” options
Provide for a tolerable level of uncertainty in long term energy relations
Establish a broad cooperation plan with milestones (for example 2020, 2030, 2040) and recommendations.
30
Foreign Direct Investment Confidence Index Russia : investment opportunities
Thank you for your attention
E-mail : [email protected]
32
Is there a physical energy security problem from Vladivostok to Lisbon ?
Adding up the energy balance scenarios for the countries belonging to this continent and with adequate efforts in energy efficiency a perfect fit could
be reached by 2030 between supply and demand
With political will this Continent could rely on its own energy resources and be energy independent.
