The EU-Russia Energy Dialogue after the Russian Ukrainian Gas Conflict

Seminar: The Impact of the EU Enlargement upon the Energy Market

Munich 26 January 2007

Dr. Josephine Bollinger-Kanne

Causes and Results of the Russian- Ukrainian Gas Conflict

High fuel prices in the last years

Gazprom‘s price demands of $160 in November 2005 and $230 per 1,000 of cubic meters later in December 2005

No Pipelinedeal with Ukraine

Higher transit fee demands of Ukrainian negotiators

(1) Gazproms delivery stop of natural gas to Ukraine on 1 January 2006 at 10:00 am

(2) Agreement on 4 January 2006:

• RosUkrEnergo as purchaser of Gazprom‘s and Central Asian natural gas for the Ukraine

• Mix of Russian and Central Asian gas for $95 per 1,000 cubic meters

• Increased transit fee: from $1.09 to 1.6 per 100 km per 1,000 cubic meters

• no more barter

Impacts of the Gas Conflict on EU Member States

• Reduced gas supplies between 20 and 50 percent to EU Member States after the cut-off Russian gas to Ukraine on 1 January 2006

• Growing concerns about the Russian supply security• Awakening of the EU Member States to the vulnerability by their demand of

natural gas and to the poltical power of natural resources• Correcting of the European Energy Strategy - Green Book by the

responsible EU energy officals • Intensified EU-Russia Energy Dialogue negotiations and several summits

and conferences in 2006

Major Gas Pipelines of the Former Soviet Union

80 percent of Russian gas to Europe is transported across Ukraine

Structure of primary energy demand in EU25 and EU27

Source: EC DG TREN, European Energy and Transport.Trends to 2030 - Update 2005

4,4 5,8 7,9 10,4 12,212,7 14,4 13,7 12,1 11,116,7

22,8 25,5 28,1 27,3

38,3

38,4 36,9 35,5 33,8

27,818,5 15,8 13,8 15,5

5,9 8,0 10,3 12,14,4

14,3 13,5 12,012,2

11,117,9

23,0 25,6 28,2 27,4

33,435,236,638,0

37,9

15,914,218,827,4

16,2

0%

20%

40%

60%

80%

100%

1990EU25

1990EU27

2000EU25

2000EU27

2010EU25

2010EU27

2020EU25

2020EU27

2030EU25

2030EU27

Solid Fuels

Liqued Fuels

Natural Gas

Nuclear

Renewable En.Sourses

Gross Inland Consumption of Natural Gas 2005 and 2020 in %

12.513.7

24.623.8

30.0

34.535.4

38.5

42.0

49.0

45.2

17.114.6

28.129.5

37.436.239.0

46.549.7

51.7

38.0

0

5

10

15

20

25

30

35

40

45

50

55

Lithunia TheNetherlands

Hungary UK Romania Italy Slovakia Germanay Austria France Bulgaria

2005

2020

Source: EC DG TREN, European Energy and Transport.Trends to 2030 - Update 2005

EU-Russia Energy Dialogue

• Launching: at the EU-Russia Summit in Paris in October 2000• Aim: better energy relations between EU and Russia based on the assumption

of their growing interdependence: from the EU for reasons of security of supply and from Russia for reason of secure foreign investment and its facilitated access to EU and world markets

• Main topics: energy security, investments, infrastructures, trade and energy efficiency

• Results: six Progress Reports from 2000 to 2006 with one Interim Report in spring 2006 in the aftermath of the Gas conflict, first reports of the four thematic working groups in accordance to the main topics, various conferences and activities of the Dialogue Technology Centre

Two urgent Questions after Russia‘s New Year gas delivery stop to Ukraine:

What is the best way to deal with growing imports of Russian Natural Gas from 25 percent today up to 70 percent by 2030?

Is there enough Russian natural gas for all?

Russia‘s Production of Natural Gas in Billion Cubic Meters

Source: Gazprom, Economic Development and Trade Ministry and own computations

*averaged value

2001 2005 Increase 2001-2005 in %

2006 expected

Production in total 581 636 9 645Independent Producer 69 88 28 95Production of Gazprom 512 548 7 550Gazprom's Export to Europe

127 156 23

Gazprom's Export to CIS/Balticum

40 77 93

Russia's Energy Strategy 2003 and Gazprom

2010 2020 Increase 2006-2010 in %

Production in total 665 730 3Production of Gazprom 560 590 2Prognoses in December 2006

2010 2020 Increase 2006-2010 in %

Production in total 722 12Independent Producer 111 17Production of Gazprom 611* 674 11