Institutional aspects of EU-Institutional aspects of EU-Russia Energy CooperationRussia Energy Cooperation(an overview of challenges and issues to be (an overview of challenges and issues to be

addressed)addressed)

Michael I. Michael I. S A V V AS A V V ADeputy DirectorDeputy Director

Department of Economic CooperationDepartment of Economic CooperationMinistry of Foreign AffairsMinistry of Foreign Affairs

Russian FederationRussian Federation

State of play State of play

The EU-Russia energy cooperation is doing well The EU-Russia energy cooperation is doing well

- Russian Exports of oil and gas have reached quite impressive - Russian Exports of oil and gas have reached quite impressive figuresfigures

Cooperation is facing new challenges, particularly in Cooperation is facing new challenges, particularly in Legal Capacity buildingLegal Capacity building

- Negotiations on a number of important bilateral documents, - Negotiations on a number of important bilateral documents, referring to the energy cooperation, remind a stalemate situationreferring to the energy cooperation, remind a stalemate situation

Success stories and valuable assets Success stories and valuable assets

EU-Russia Partnership and Cooperation Agreement EU-Russia Partnership and Cooperation Agreement - signed on 24.06. 1994 (Corfu Island); expired on 01.12. 2007; it is - signed on 24.06. 1994 (Corfu Island); expired on 01.12. 2007; it is prolonged on a year by year basis according to the relevant prolonged on a year by year basis according to the relevant provision of the Agreementprovision of the Agreement

Draft EU-Russia Basic Agreement (intended to replace the Draft EU-Russia Basic Agreement (intended to replace the expired PSA), negotiations started in 2008expired PSA), negotiations started in 2008

Set of bilateral agreements on energy cooperation between Russia Set of bilateral agreements on energy cooperation between Russia and EU member-countriesand EU member-countries

Projects jammed in the pipeline Projects jammed in the pipeline

Transit Protocol (within the Energy Charter process) Transit Protocol (within the Energy Charter process) - negotiations started in 2000; never completed; as a result Russia - negotiations started in 2000; never completed; as a result Russia officially informed the Depository on 20.08.2009 that it would not officially informed the Depository on 20.08.2009 that it would not become a Party to the Energy Charter Treaty, signed in December become a Party to the Energy Charter Treaty, signed in December 19941994

Draft Convention on Global Energy SecurityDraft Convention on Global Energy Security

Draft EU-Russia Agreement on joint functioning of the Draft EU-Russia Agreement on joint functioning of the United Electric Energy System of Russia and Energy United Electric Energy System of Russia and Energy Systems of Estonia, Latvia and Lithuania in synchronous Systems of Estonia, Latvia and Lithuania in synchronous mode.mode.

Draft EU-Russia Agreement on the implementation of Draft EU-Russia Agreement on the implementation of international infrastructure projects intended for energy international infrastructure projects intended for energy transportationtransportation

ENERGY SECURITYENERGY SECURITY

No generally recognized definition, so farNo generally recognized definition, so far

(What is (What is that?)that?)

Was ist das?Was ist das?

Supply and Demand equationSupply and Demand equation

Consuming countries : Energy security = Security of supplyConsuming countries : Energy security = Security of supply

unimpeded access to natural resources and uninterrupted supply unimpeded access to natural resources and uninterrupted supply of energy at a low price of energy at a low price

Producing countries : Energy security = Security of demandProducing countries : Energy security = Security of demand

sustainable demand and nondiscriminatory access to markets in sustainable demand and nondiscriminatory access to markets in order to sell the energy at a competitive priceorder to sell the energy at a competitive price

Natural Gas Pipelines ofthe Former Soviet UnionCENTRE for GLOBAL ENERGY STUDIES17 Knightsbridge, London SW1X 7LY, UKTel: +44 (0)20 7235 4334Fax: +44 (0)20 7235 4338

Total capacity -164.000 km

Equator length -40.075,7 km

Merits and Benefits Merits and Benefits of energy cooperationof energy cooperation

Russian exporters are making good money on the EU Russian exporters are making good money on the EU marketmarket

Triple benefit effect for the EU:Triple benefit effect for the EU:

- - It gets energy resources, which are much needed to sustain its It gets energy resources, which are much needed to sustain its economic growth on a long term basiseconomic growth on a long term basis

- The supply of Russian natural gas is supportive to the EU goals - The supply of Russian natural gas is supportive to the EU goals on reduction of greenhouse emissionson reduction of greenhouse emissions

- Money spent on energy products from Russia magically returns - Money spent on energy products from Russia magically returns back to EU countries in form of Russian payments for equipment, back to EU countries in form of Russian payments for equipment, goods and servicesgoods and services

Caspian hydrocarbons as a major optionCaspian hydrocarbons as a major optionfor the diversification of energy supplyfor the diversification of energy supply

… … or why Russia is so important for the or why Russia is so important for the energy supply of the EUenergy supply of the EU

Oil ProductionOil Production ofAzerbaijan and Kazakhstan ofAzerbaijan and Kazakhstan

(mln tons per year)(mln tons per year)

Sources: International Energy Agency (IEA) Oil Information, 2011

0

10

20

30

40

50

60

70

80

2002 2003 2004 2005 2006 2007 2008 2009 2010

Azerbaijan

Kazakhstan

Sources: International Energy Agency (IEA) Oil Information, 2012

Oil ProductionOil Production Azerbaijan, Kazakhstan and Russia Azerbaijan, Kazakhstan and Russia

(mln tons per year)(mln tons per year)

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Azerbaijan

Kazakhstan

Russia

Sources: International Energy Agency (IEA) Oil Information, 2012

Oil ProductionOil Production Azerbaijan, Kazakhstan, Russia and Saudi Arabia Azerbaijan, Kazakhstan, Russia and Saudi Arabia

(mln tons per year)(mln tons per year)

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Azerbaijan

Kazakhstan

Russia

Saudi Arabia

Sources: International Energy Agency (IEA) Gas Information, 2012 State Statistics Agencies of Azerbaijan, Kazakhstan and Russia

Gas Production Gas Production (bln cub m)(bln cub m) of Azerbaijan, Kazakhstan, Turkmenistan and Russiaof Azerbaijan, Kazakhstan, Turkmenistan and Russia

25,7 39,5 60

670,5

0

100

200

300

400

500

600

700

Azerbaijan Kazakhstan Turkmenistan Russia

2011

Try to bypass it …Try to bypass it …

ALL WE NEED IS … AN ALL WE NEED IS … AN INTERFACEINTERFACE

The first US-Soviet joint space flight APOLLO-SOYZ took place on 15 July 1975

The basic importance of sovereign equality The basic importance of sovereign equality

In particular, sovereign equality includes the following elements:In particular, sovereign equality includes the following elements: (a) States are judicially equal;(a) States are judicially equal; (b) Each State has the right freely to choose and develop its (b) Each State has the right freely to choose and develop its

political, social, economic and cultural systems;political, social, economic and cultural systems;

Declaration on Principles of International Law Concerning Declaration on Principles of International Law Concerning Friendly Friendly Relations and Co-operation among StatesRelations and Co-operation among States in accordance with in accordance with the Charter of the United Nations, G.A. res. 2625, Annex, 25 UN the Charter of the United Nations, G.A. res. 2625, Annex, 25 UN GAOR, Supp. (No. 28), U.N. Doc. A/5217 at 121 (1970).GAOR, Supp. (No. 28), U.N. Doc. A/5217 at 121 (1970).

CONCLUSIONS CONCLUSIONS Cooperation with Russia will be crucial for the energy security, Cooperation with Russia will be crucial for the energy security,

economic growth and prosperity of the EUeconomic growth and prosperity of the EU The EU market will remain of strategic importance for Russia in the The EU market will remain of strategic importance for Russia in the

foreseeable futureforeseeable future

Therefore, the EU and Russia are strongly motivated to further Therefore, the EU and Russia are strongly motivated to further promote the energy cooperationpromote the energy cooperation

A new Institutional Interface in the form of an Agreement (or a set A new Institutional Interface in the form of an Agreement (or a set of agreements) is in great demand to grant non discriminatory of agreements) is in great demand to grant non discriminatory access to markets, facilitate flow of capitals and protection of access to markets, facilitate flow of capitals and protection of investments in energy assetsinvestments in energy assets

The principles of equal rights and mutual advantage shall be The principles of equal rights and mutual advantage shall be regarded as the basis for the Institutional Capacity Building in this regarded as the basis for the Institutional Capacity Building in this areaarea

Long term contracts and their essential provisions, particularly the Long term contracts and their essential provisions, particularly the ““take or paytake or pay”” rule, remain crucial for the reliable energy supply, as rule, remain crucial for the reliable energy supply, as well as for a fair share of risks and benefits between producers well as for a fair share of risks and benefits between producers and consumers of energy resources.and consumers of energy resources.

Спасибо!Спасибо!Thank you!Thank you!