EU-Russia energy relations:
factors of insecurity
Vladimir Milov, Russia
Brussels, June 3rd, 2010
Russia and the EU energy profiles: poles apart
Russia EU
• Main source of European • Growing energy import
energy imports dependence
• Energy policy agenda focused • Energy policy agenda focused
on centralization of control, on liberalization, market
nationalization, resource opening and promotion of
nationalism, and use of competition
energy as a political tool
Russian international energy behavior:
“reliability” in rhetoric, confrontation in reality
2004 • January gas supply disruption to Belarus due to price conflict
2005 • Gas supplies from Turkmenistan disrupted in Q1 2005 due to price conflict
• 10-year oil transportation contract with Kazmunaigaz (shipments of Kazakh oil to
Mazeikiu Nafta refinery in Lithuania) breached
2006 • January gas conflict with Ukraine
• Oil supply to Lithuania disrupted after sale of Mazeikiu Nafta refinery to Polish PKN
Orlen
2007 • January oil transit conflict with Belarus
2008 • Oil supplies to Czech Republic disrupted on the background of the U.S. missile
defense systems deployment negotiations
• Energy supplies to Georgia disrupted due to military conflict
2009 • January gas war with Ukraine
• Gas blockade of Turkmenistan
• Russia’s withdrawal from the Energy Charter Treaty in late 2009
2010 • January oil export duties conflict with Belarus
Russia’s traditional energy dominance area had became
a zone of permanent energy confrontation.
Eastern European and post-Soviet countries: most
exposed to risks of dependence on Russian gas supplies
Share of Russian natural gas in the primary energy consumption, %
Pola n d 7,3%
Slov en ia 7,4%
Rom a n ia 10,0%
Cr oa t ia 11,1%
Ser bia 11,1%
Bu lg a r ia 12,4%
Eston ia 16,6%
La t v ia 19,5%
Slov a kia 30,8%
Geor g ia 32,3%
Hu n g a r y 32,4%
Lit h u a n ia 34,0%
Ukr a in e 39,2%
A r m en ia 66,1%
Moldov a 71,7%
Bela r u s 75,7%
0% 20% 40% 60% 80% 100%
Source: BP Statistical Review of World Energy (primary energy consumption), Gazprom (gas imports by relevant countries)
…whereas Western Europe has a bit more room for
maneuver
Share of Russian natural gas in the primary energy consumption, %
Denmark 0,0%
Ireland 0,0%
Portugal 0,0%
Spain 0,0%
Sweden 0,0%
Switzerland 0,9%
France 3,8%
Belgium 6,2%
Netherlands 6,6%
Greece 7,3%
UK 8,9%
Germany 11,0%
Italy 11,4%
Austria 15,8%
Finland 16,1%
0% 10% 20% 30% 40% 50%
Source: BP Statistical Review of World Energy (primary energy consumption), Gazprom (gas imports by relevant countries)
Can Russia’s attempts to bypass Ukraine secure the
reliability of gas transit?
Structure of Russian gas export pipeline corridors, %
100%
8%
20%
26% 44%
Alternative
corridors
22%
50% Belarus
16%
66%
58%
40% Ukraine
0%
Today After Nord Stream-1 is After NS-1&2, South
build Stream, Blue-Stream-2
are build
Gazprom in difficulty: “fat years” wasted
Gazprom’s gas export price and capital expenditures in 2005-2010
500 50
European gas export price,
$/tcm (left axis)
400
Capex, $ billion (right axis) 40
300 30
200 20
100 10
0 0
2005 2006 2007 2008 2009 2010*
Source:Gazprom; * - Gazprom’s plan for 2010
Gazprom’s “fat years” wasted part 2
Gazprom’s investments in core business and financial acquisitions
in 2003-2007, billion USD
50
44,6
Capex in gas production
40 upstream
Financial acquisitions
30
22,2
20
10
Source: Boris Nemtsov and Vladimir Milov, “Putin and Gazprom”, Moscow 2008
Gazprom’s outdated oil-linked pricing policy: a great threat
to it’s own competitiveness in Europe
Share of various gas exporters in the European Union gas imports
in 2008-2009, %
50%
40% 2008
36,8%
34,7%
33,2% 33,0%
28,8% 2009
30% 26,1%
20%
10%
5,0%
2,4%
0%
Russia Norway Qatar Other exporters
Source:Eurostat
Medvedev’s 2009 energy initiative: a call for more
central planning
“Conceptual Approach to the New Legal Framework for Energy
Cooperation (Goals and Principles)” released on April 21st, 2009,
calls for:
• Recognition of “security of demand” (transparent and
predictable marketing) – in other words, central planning of
energy demand;
• Central planning of “future energy balance structure”;
• Replacement of free M&A process with regulated “asset swaps”;
• Replacement of universal third-party access principle with
separation of “transit countries” and imposing stricter
regulatory regime on them.
Is there a room for convergence?
• The Russia-Ukraine gas crisis of January 2009,
• The threat of new energy conflicts on the post-
Soviet space in the fall of 2009 – early 2010,
• The new Gosplan-like Medvedev’s energy initiative
backed by Russia’s decisive denial of the Energy
Charter Treaty ratification,
• Different interests of Eastern and Western
European countries,
…is there a room for convergence?...
