Gas warms EU-Russia ties

Andris Piebalgs, EU Energy Commissioner. EUROPEAN COMMUNITIES, 2008*

Ever since a natural gas war between Russia and Ukraine disrupted the gas supply chain to Europe in January 2006, the European Union has been seriously talking about energy security and a common energy policy. More than two years later, Russia appears to be winning the energy dominance game, signing individual deals with EU member states and moving forward with the Nord Stream and South Stream pipelines.

New Europe caught up with EU Energy Commissioner Andris Piebalgs at the European Wind Energy Conference in Brussels on March 31. In a candid interview with New Europe Energy Editor and columnist Kostis Geropoulos in the VIP room, Piebalgs said he understands where Russia is coming from. The EU Energy Commissioner said there have been some positive developments in EU-Russia energy dialogue and expressed his frustration that Moscow has not ratified the EU Energy Charter. He expects Dmitry Medvedev, president-elect of the Russia, to continue the current trend where there is much better predictability, and expressed his hope that the new administration will possibly ratify the charter.

But, the same time, he does not expect basic change of Russia's energy policy. In the interview, Piebalgs discussed the EU-backed Nabucco project, the Odessa-Brody, Trans-Arab and Trans- Caspian pipelines, Central Asian oil and gas supplies and Iran. The Energy Commissioner said he would consider Iranian gas for Nabucco only after a solution about Iran's uranium enrichment issue is found.

Finally, Piebalgs urged gas producers not to talk about creating a gas cartel which could spread panic in the markets.

You often talked about security of supply. Russia has secured separate deals with Hungary, Serbia, Greece and Italy about South Stream. Do you feel that now this preempts Nabucco and its chances are diminished?

I think it is an old perception because what Russia's difficulty has been, at least from their side, is to find how to deliver gas to the supplier without any intermediary. And that means that, first of all, Russians would like to have full profit out of their gas, and second, they would not be jeopardised by the transit country. Well, with Ukraine you know that relations are rather complex. But let's take for example Belarus. In 1994, the year (Belarus President Alexander) Lukashenko came to power, there was also the decision about the Yamal-Europe pipeline and we saw what leverage it gave to Lukashenko.

Actually, the transit of gas gave Lukashenko a chance to keep power and oppress the people, so that means that really we should have some understanding about the desire of Russia to diversify supply routes. And if Russia would like to deliver gas to the European market, I believe we should be honest enough to say: “Well, you have also some way to choose the supplier.” And it is a question of Russian gas to the European market. What concerns Nabucco, it is our desire to diversify. It has nothing to do with South Stream or not South Stream. It is our desire and also our action to get gas from Azerbaijan, from Turkmenistan, from Iraq, from Egypt and in this way giving them new suppliers to the European market.

Does Turkmenistan have enough gas, because it has never officially disclosed its gas reserves?

They have promised gas to everybody... There is the perception that there is a lot of gas. Definitely nobody knows exactly how much it is but Chinese are there. The Russians are there. Russians have always been there and there is the possibility of developing offshore.

Now Medvedev is going to be the new president. Do you see that helping energy security given his position at Gazprom?

I don't expect particular change in Gazprom's policies because it's very clear of the Russian state... and to consolidate power over Gazprom, and with good results for state there, so that is done. So, I don't expect that this will be basic restructuring of the company. At the same time, I would say that in the Russian-EU energy dialogue, we have made also some positive developments, like the early-warning mechanism, three working groups which meet regular and discuss with Russians scenarios and investments, so I expect that the current trend, where we have much better predictability, will be continued. At the same, I don't expect basic change of Russia's energy policy.

The EU is also looking to Shtokman to bring more has supplies to the EU.

Piebalgs nods, “yes.”

But there is also the issue of opening bilateral markets. Now we see in the case of TNK-BP there is a lot of pressure from Russia so is the Commission interfering in terms of...

Well, I know. TNK-BP... that is a story we very closely follow. I don't have enough information to date to say that something is going wrong because things could happen, visa issues or people being charged with something. It could happen, so it doesn't mean necessarily that there is some policy. That means that we are only monitoring the situation and I hope very much that it is really a side effect that it is not orchestrated in any way. That's why I very much expect that the visa issue will be resolved. Where people were charged, there will be charges brought forward or people would be released, but at this stage I would say this is not an issue on the table in our energy relations.

Is Odessa-Brody still on the Commission's agenda?

Odessa-Brody is and I discussed this issue with the Ukrainian Prime Minister (Yulia Tymoshenko) when she was in Brussels and during the energy summit (that will take place in Kiev) in Ukraine in May (22-23) so I will continue to discuss this issue. But you know as (it is the case) for gas, it is usually the source of oil you need to really bring the oil in another direction and it also has something to do with refining capacity, so it is a much more complex issue than been seen. But it is very logical that you don't bring oil to a congested strait. You need... (to avoid) congestion so the pipeline should be working in the direction Odessa-Brody, not Brody-Odessa, so it is very clear that an effort is still needed to really to change this.

Going back to Nabucco, is the European Commission open to Iranian gas?

No, the European Commission at this stage has no relations with Iran because I believe for Iran, but also for EU itself, you need to resolve the main issue and the main issue is uranium enrichment, so I believe you can't say, “Well let's talk about uranium enrichment later and let's now talk about gas.” It wouldn't be fair towards Iranians and it wouldn't be fair towards our citizens, so I think we should resolve the issue and we should make effort, as we are making this, so that means I see Nabucco being fed by Iran. But I also see that it could be achieved only after the solutions being found for the enrichment facilities in Iran.

You have mentioned the Trans-Arab gas pipeline for Nabucco. But that would cross Iraq and...

No, it's practically ready and it could bring gas to Nabucco. It is the Arab pipeline. I think during this year the missing link between Syria and Turkey will be established and it will come as gas to the European Union or through Nabucco or through any other pipeline. I also met the (Energy) Minister (Hussein al-) Shahristani from Iraq when he was in Brussels a couple of months ago and we are working for Akkas (natural gas) field that could be 10 bcm (billion cubic metres) and also feed via Turkey the pipeline. But you are right in questioning that the biggest gas supplies, definitely possible from Iran, and I would be very happy to say “yes” but unfortunately it's not the case. And as long there would be uncertainty about enrichment there would be no practical development concerning Iranian gas.

You were in Turkmenistan and Kazakhstan. Is the EU hoping that the Trans-Caspian pipeline is going to move forward because there again also Russia seems to be beating the EU in its own game by building along the coast another pipeline (Pre-Caspian).

Well, what Russia is doing is enlarging capacity of an existing pipeline (Central Asia Center gas transportation System). I don't know how well they have advanced, because that is part of gas that ordinarily is being flared and that could increase capacity, and I would not mind that the gas is better collected by Russia than it's being flared, so that is not the issue. Now what we expect and I think that could be the basic change that there will be new companies starting work offshore.

As soon there will be new companies with new investment there will be more gas and Turkmenistan said that it is open to sell to anybody. The question today is do we have gas to buy, and it's not the case, but it is a country with the potential of producing much more, and a country that is definitely ready to sell gas to the European Union, and then the pipeline will be there (Trans-Caspian).

Are you concerned at all about the gas cartel that they are talking about?

Well, I am concerned in the sense that I think it's not very healthy to talk about it because markets are tight, consumers are panicking and I think it is not responsible behaviour towards the consumer, because a cartel can squeeze consumers, that is the basic message you get, and it is not the situation that producers say: “Well, we are in trouble, the prices are low, we need to somehow to deal with it.” That is not the case and why talk about it? So, I am concerned, but in real terms I know that a gas cartel in the current gas market is very difficult to establish because we have LNG (Liquefied Natural Gas) development, we have pipelines coming not only from Russia where we get 23 percent of our consumption but also from Norway where we get 18 percent of our consumption of natural gas, and Norway clearly said: “No gas cartel for Norway.” So that means the harm will be less than people usually expect, but the political damage will be huge.

So that's why I say: “Please don't talk about establishing a gas cartel.” Gas-producing countries have all the right to cooperate with their technologies, the environment; there are a lot of issues to cooperate but not to talk about a gas cartel because it's just unfair towards the consumers that are paying for gas today.

* New Europe The European Weekly

№4(21), 2008