Civil G8 2006

Civil G8 — is your opportunity
to discuss global problems!

News

Viktor Khristenko. Possibilities of energy dialogue

01.01.70

Viktor Khristenko, Russian Minister of Industry and Energy

Russia's energy strategy is coming to the fore on the global agenda, especially in 2006 when Russia assumed the rotating chair of the Group of Eight industrialized nations. Global energy security is one of the key issues on the agenda of the G8 summit. It would be absurd not to discuss it with Russia, the biggest oil and gas exporter in the group with a major influence on the world market situation.

This global issue can be divided into several tasks. The current situation on the global market is noted for four crucial aspects.

First, the energy requirements of the emerging Asian countries are growing rapidly (up to 45% of the prospective increment in the global oil demand).

Second, the divide between oil and gas consumption and production in the industrialized countries is growing. By 2020, Europe will import 60-70% of its gas requirements, whereas the majority of Asian giants already import more.

Third, this process is compounded by the inadequate oil refining and transportation infrastructure and the limited additional possibility of oil production.

And fourth, the global trade in "black gold" is insufficiently transparent.

Taken together, this puts the light on the issue of energy security, which Russia has raised not only as a domestic problem, but primarily as a common problem of reliable energy provision to the world's countries and nations, and therefore a problem of the international community as a whole.

In my opinion, the global dialogue on this issue should stipulate the drafting of common approaches to a number of comprehensive tasks, such as the stabilization of energy markets, extended investment into and efficient development of power generation and infrastructure. At the same time, we should maintain a balance between the development of the power industry and the environment.

Some measures taken in this sphere are contributing to the energy agenda of the G8, and we should encourage this connection. We are holding a relay baton of kinds. The issue of climate change, which was one of the two top issues on the agenda of the U.K. 2005 G8 presidency, is closely connected to the issue of energy security. Two-thirds of the task of reducing hazardous emissions are connected with the energy sectors. We should not go to extremes, though. What we need is find a compromise between environmental problems and the real conditions of economic development, which should take into account the specific features of all market players, both hydrocarbons producers and consumers.

Economic and political aspects of energy leadership

The economic importance of energy resources is indivisible from its political significance. Unfortunately, many players on the energy market are trying to make the solution of energy problems a political process. Such decisions should be purely pragmatic and should be taken within the framework of normal economic relations. Any political speculations on this issue should be precluded. We have good relations with consumer countries and hope to keep them good. Populist actions cannot be allowed to undermine the basis of our cooperation.

What does Russia's energy leadership mean, and how should we regard it? Leadership does not depend only on the volume of output and sale. Saudi Arabia not only produces a lot of oil, but also sells a great deal because its domestic consumption is relatively low, whereas Russia is one of the world's largest consumers of energy.

First, we should correctly formulate the global issue of energy security. Second, we should have the resources and possibilities for minimizing energy-related risks.

Russia's potential leadership in the sphere of energy can and should be interpreted as "leadership for security." In this sense, a monocultural exporter of raw materials depending on the world energy prices, or an industrialized state relying on high technologies and trying to get rid of deposit owners, cannot be regarded as the leading world power. The leader should take into account the interests of both producers and consumers.

As regards the issue of global energy security, Russia has an adequate understanding of the situation and a risk minimization mechanism, which all countries have.

There are many of them. Everyone sees the differences in prices of Russian Urals and Western Brent benchmarks. The market is highly volatile, which engenders the risk of uncertainty. This volatility depends primarily on the precise assessment of reserves in the producing countries. We assess Russia's reserves at 13% of the world's total, but the International Energy Agency assesses them at 8%, which is nearly half of the Russian assessment. This makes one wonder if the valuator was selling or buying at the time of calculation. Anyway, the sellers and buyers should operate with the same figure, otherwise it will be impossible to make forecasts and develop a policy of energy security.

We can analyze transportation, infrastructure, demand, reserve and political risks, to which the energy market reacts rather strongly.

This is why Russia regards itself as a major seller and buyer, one of the biggest transit territories, and a G8 country where such issues can be discussed. We now understand the tasks that will determine the long-run, not the spot or speculative, development of the situation.

There is one more thing I want to draw your attention to. The G8 is a wonderful place for presenting our stand and opinion to the world's leading countries and for outlining ways to solve problems. However, it is apparent that the G8 format is not sufficient for the fast growing economies of non-members, such as China, Korea, India and Brazil. They are major consumers and producers, and we believe it would be senseless to discuss strategic energy prospects without them. In fact, the issue is not limited to the G8. Knowing that it will not be settled overnight, we can assume that 30 years from now the G8 will have a different format.

Eastern direction of Russia's energy policy

The Asian, or rather Asian Pacific, energy and other markets are the most rapidly developing in the world. Experts say that the energy demand in Asia is growing faster than in all other countries, including by 3-4% for oil and 4-6% for gas. Russia is closely monitoring these changes and planning ahead. Although more than 90% of Russian energy exports are delivered to Europe now, the country plans to devote more attention to Asian Pacific countries.

On the whole, we plan to increase the share of Asian countries in the Russian oil exports from 3% to 30% in 2020 (to 100 million tons, or 735 million bbl) and in gas exports from 5% to 25% (to 65 billion cubic meters). We proceed from the assumption that the Asian market is part of the global market and therefore its problems should be regarded from the viewpoint of processes underway on the global energy market.

Therefore, we deem it expedient to offer the G8 to set up standing groups on the main aspects of energy security, which would consist of G8 representatives and delegates from energy producing and consuming countries, primarily major Asian ones. They will discuss issues of regional energy security and energy efficiency, in line with the G8 global agenda.

Russia stakes on energy cooperation with EU

Historically, the European Union was founded on the idea of a common market and common infrastructure. Russia is a large player that carries out large-scale projects, many of which cannot be developed even by a few countries together. We are trying to make the most of the opportunities offered by the Russia-EU dialogue in the system of decision-making on large commercial projects.

At the Russia-EU summit in Brussels in 2001, the parties adopted a joint declaration on energy dialogue, which determined a number of specific infrastructure areas of cooperation, such as streamlining the Russian and EU energy systems, settling the situation around Gazprom's long-term contracts and constructing an energy transportation system.

There is evident progress on the preliminary list of projects outlined at the Russia-EU summit in October 2001. An energy dialogue can be considered efficient only if it yields tangible results in the form of concrete projects. Such projects include the Yamal-Europe gas pipeline, which is to be completed this year, the Burgas-Alexandroupolis oil pipeline, the Baltic Pipeline System and the Druzhba and Adria oil pipelines.

In relations with our foreign partners, we use such civilized and respected forms of cooperation as an energy dialogue. There is an extensive energy dialogue between Russia and the European Union and Russia and the United States. Their consequences are evident; these are concrete projects, such as the North European Gas Pipeline. Quite recently, our European colleagues showed only interest in such projects, but now we have already made the decision on its implementation - the document on construction was signed in September 2005. In this regard, NEGP is one of the real routes of diversifying the supply of Russian gas. It is such schemes of reliable transit territories or exterritorial zones that should be looked for in the future.

Russia is now making active steps, many of which take the form of joint investment projects with foreign partners, both governments and businesses. It is important to diversify hydrocarbon supply away from exclusive routes that ship 80% of energy (as is the case with Ukraine, which has actually monopolized gas transit to Europe).

The experience of the Blue Stream project, which was once dubbed a "blue dream," has proved that an efficient infrastructure can be built even in very difficult conditions, at a 2-km depth, in the aggressive hydrogen sulphide environment of the Black Sea.

The most important area of Russia-EU cooperation within the energy dialogue is further work to bring their energy strategies and systems closer. A feasibility study is being prepared to see the possibilities for harmonizing electricity transmission lines of the West European Union for Coordination of Transmission of Electricity, the Unified Energy System of Russia and the CIS and the parallel energy systems of the Baltic countries. The project is especially important now that the Green Book has been adopted.

It was pointed out at the Russia-EU summit in October that Russian and European businessmen had finally received and realized incentives for active and targeted participation in shaping an economic space with an integrated market. In other words, the goals announced by the Russian and EU official authorities correspond to long-term interests of the business community. This means that we can expect major ideas and proposals from corporate structures and associations.

Shaping an open investment policy

The latest meeting of the Council on Foreign Investment presented a survey of Western businessmen that showed that 80% of foreign companies operating in Russia intended to further develop their business there. The opinions of those who did not work in Russia were divided 50:50. This shows that Russia's disadvantages lie in communicative coverage rather than in real activities.

The Russian Industry and Energy Ministry is now working on a bill that defines conditions of admitting foreign capital in strategic industries. The bill will be taken up at a government meeting soon. It is based on the concept of making decisions on specific transactions. This bill requires that clear criteria are set that describe industries where foreign investors will have limited access and their maximum participation (a blocking stake, a controlling stake, etc.). Only proposals that comply with clearly defined and transparent terms should be submitted to authorities that will make the final decision. By using this approach, we are in fact trying to restrict restrictions. As a result, investors will be aware of game rules, and the amount of non-transparent transactions and approvals will be reduced.

In investment cooperation, it is worth mentioning Russia's successful experience of working together with Total to develop the Kharyaginskoye field under a PSA. A successfully completed dialogue can become the starting point for a new stage in Russia's relations with foreign energy companies, regardless of the forms of planned or current cooperation. The Industry and Energy Ministry's work during the past year as regards PSA projects has highlighted not only the burden of controversies that have accumulated over the years, but also the outlook for finding new mutually beneficial options in the sphere.

Developments in Russian energy industry reflect global trends

Developments in the Russian energy industry reflect global trends. If you look at the latest restructuring of global oil and gas majors, you will see that their names have become longer. In this sense, we follow not the tradition, but the challenge related to risks that accompany the largest projects. Everything is becoming more expensive and more difficult, risks are increasing and to manage new risks and new projects a company has to be different. This is an objective process that accompanies globalization. Everything points to the fact that we join the process to the extent we, i.e. companies, are ready to join. Everything should be fairly stable, calm and understandable.

The status and opportunities of Russian companies match those of their foreign counterparts. They can hold any talks and make any transactions with their partners, no matter what they are called. This is what we have already achieved. But our companies have to become transnational in the true sense of the word. To attain this goal, they should at least acquire a developed network of projects all over the world. Cooperation with other firms in carrying out these projects will help Russian companies cover major risks.

As to other tools and aspects, we are not members of OPEC or the International Energy Agency. However, we are in constant contact with experts of these international organizations.

I would like to emphasize that energy dialogue is an established and actively used form of cooperation. Their conclusions lead to discussions at political, economic and any other levels. Each stage of energy dialogue is backed by certain decisions. These are consequences of different discussion sites. Now we have launched a similar dialogue with the largest emerging Asian economies within the Asia-Pacific framework.

Our further cooperation, including during our presidency in the Group of Eight, will first of all seek to carry out the initiative of shaping a single system of measuring key aspects in the energy policy. This goal alone, if achieved, will eliminate many of the risks I have mentioned. Russia is willing to mediate the process between all the interested parties.

Expert opinion

Halter Marek

02.12.06

Halter Marek
Le College de France
Olivier Giscard dEstaing

02.12.06

Olivier Giscard dEstaing
COPAM, France
Mika Ohbayashi

02.12.06

Mika Ohbayashi
Institute for Sustainable Energy Poliy
Bill Pace

02.12.06

Bill Pace
World Federalist Movement - Institute for Global Policy
Peter I. Hajnal

01.12.06

Peter I. Hajnal
Toronto University, G8 Research Group