NEWS-VIEWS-DOCUMENTS safe energy for the future

REPORTNo 8(24), October 2014 www.ceep.be

1

Published by: Central Europe Energy PartnersEditor-in-Chief: Tadeusz Jacewicz

Produced by: SIGMA Int.Contact to the publisher: +32 28 80 72 97

>8

>10

>16

>3

>4

>5

>15

TOTAL ENERGY SUPPORT FOR THE 28 MEMBER STATES FOR THE PERIOD: 2008-2012

THE SOUTHERN GAS CORRI-DOR: A STRUGGLE BETWEEN EU CO-OPERATION AND CHINESE DOMINANCE

POLAND’S LARGEST PHOTO-VOLTAIC FARM LAUNCHED IN GDANSK

THE BALL IS STILL ROLLING

WELCOME NEW MEMBERS

PLENTY OF CLEAN ENERGY

ENERGY DIALOGUE AT THE REICHSTAG

Central Europe Energy Partners (CEEP)

A POSITION PAPER CONCERNING THE AGENDA FOR THE EUROPEAN COUNCIL MEETING ON THE 23RD - 24TH OF OCTOBER, 2014

The meeting is to be convened at a very inten-sive political time when a new European P a r l i a m e n t has just been formed and a new European

Commission, presided over by Jean-Claude Juncker, is expected to start its activities, hopefully from the 1st of November, 2014.

We should have new recipes on how to solve a lot of problems which the EU is facing, such as: no visible positive results concerning re-

industrialisation policies, which are closely related with very high unemployment, espe-cially for the young generation; a decrease in the EU’s industrial competiveness when set against external, non-EU economies; an increase of dependency on fossil fuel im-ports whilst, at the same time, not exploit-ing enough our own indigenous sources of energy; very high energy prices (around two times more) than external economies; still very high carbon leakage; huge economic dis-proportions between old and new EU mem-ber states, etc. Also, still a lot of questions re-main with regard to energy security and the Internal Energy Market?

The key question is: what are the EU’s priori-ties?

From CEEP’s perspective, the above points

should be on the agenda of the European Council Meeting in October, and then relayed to the newly established European Commis-sion, as well as the Parliament to set the pri-orities for the future of the EU.

We know that the agenda will not be changed and that climate issues will be discussed with-out the possibility for Mr. Juncker to prepare the new Commission’s position on climate and emissions issues. The interrelationship of the problems listed above should be con-sidered, so that we know, to what extent, cli-mate issues have a detrimental impact on the development of the EU. Mr. Juncker should be given half a year to prepare the Commis-sion’s necessary position, especially when the EU does not need to be in a hurry as concerns the climate.

Janusz Luks

By Janusz Luks

>>>

2REPORT

The EU is leading in the industrial world in terms of emissions per capita, and is emit-ting at least two times less per capita than the other industrialised countries. Our to-tal emissions constitute around 11% of the world’s total emissions. Knowing the pro-grammes concerning emissions of the non-EU industrialised countries up to 2030, we can confidently say that not doing anything in the EU in that time period, would still keep us in first place.

Why is this so? It is because those countries, which are progressing in a CO2 decrease of emissions, have some limits, as they do not want to kill their industries and they want to both create new workplaces and keep the price of energy relatively low. What is very interesting is that they have perceived the idea of an EU ETS as detrimental to the de-velopment of their economies.

What does the ETS mean for the EU? We can cite the EUROFER position of the 4th of September, 2014, connected with the

European Council’s agenda (23rd - 24th of October, 2014), which states that if the price of one ton of CO2 amounts to 30-40 Euros, then: ”In the period from 2020 to 2030, the EU steel sector as a whole is expected to have shortages of over 2 billion al-lowances and costs of up to 70-100 bil-lion Euros. None of our competitors outside the EU have to bear such costs”.

A very similar situ-ation can be seen in the chemical in-dustry and other energy- intens ive sectors. Take, for example, the very serious situation in the refinery industry which exists thanks to the carbon leakage concept, despite it being modern and pro-

gressive in the world. Already competition from outside the EU has led to many clo-sures of the EU’s refineries.

As a matter of fact, the ETS concept was strictly con-nected with high prices for allow-ances. Luckily, it has not happened and prices are relatively low, but thanks to the deployment of new technolo-gies, emissions de-creased, and it is expected that tar-gets for 2020 of 20% will be achieved. Our industries do not need the ETS

at all, instead they need new technologies. The ETS is needed by the players in the stock markets, so the European Council should

decide if it supports them or industry. Indus-tralised countries outside the EU support their industries.

CONCLUSIONS:

CEEP strongly supports development of the EU’s industries, a decrease in unemploy-ment, increased EU competiveness, an in-crease in the usage of indigenous sources of energy, and an affordable decrease in CO2 emissions, bearing in mind the position of our external competitors.

CEEP strongly believes that investing in new technologies will decrease CO2 emissions, ‘eo ipso’. One recent example is this year’s Nobel Prize for blue diode, which gives us 1250% more light in comparison to a normal bulb when using 1 watt.

>>> CONTINUATION from p.2

A POSITION PAPER CONCERNING THE AGENDA FOR THE EUROPEAN COUNCIL MEETING ON THE 23RD - 24TH OF OCTOBER, 2014

Janusz Luks Chief Executive Officer Central Europe Energy Partners, AISBL

Central Europe Energy Partners (CEEP)

3REPORT

The ball is still rolling

The EU Council Conclusions on 2030 Climate and Energy Policy Framework were delivered shortly after mid-night, adopted and they seem to be encouraging for Eu-ropean industrial competitiveness and Energy Security. All depends how these decisions will be understood and implemented in the future.

CLIMATE AND ENERGYThe targets for Climate and Energy 2030 are very ambi-tious: a reduction of CO2 emissions of 40% (compared to 1990), at least, and a reduction of 43%, and 30%. re-spectively, in ETS and non-ETS, by 2030 (compared to 2005). An annual decrease of CO2 emissions of 2.2.% after 2020 is accepted as well. One can say that nothing has been changed in comparison to the original proposal. This is not so. Officially, the ambitious figures are still the same, but as a matter of fact, there are a lot of exceptions. At this stage, some of them should be mentioned;

1. Free allocations of CO2 for coal- fired power plants . We do not know which coal power plants they concern.

2. Extension of the carbon leakage concept after 2020. This is very encouraging . but we do not know what principles will be applied, who has a chance to be on the list (e.g. steel, chemical,refinery or other industries) and for how long.

3. Acknowledging that each sector of the industry has to have its own benchmark for an emissions decrease, means that the concept of the same figure for different industrial sectors is no longer valid. We wait for detailed guidance.

4. At least, it was noticed that some countries which are not as rich as others should have different treatment and relatively more funds should be directed to them to help them in their investments, especially Member States with GDP per capita at 60% below the EU aver-age.

5. Industrial innovation will be encouraged.

6. Underlining the role of the internal energy market and energy security.This is not a full list, but it shows that compromises have been achieved.

As is always the case ’the devil is in the detail’ and we should observe how the EU will adopt the Conclusions and to what extent the compromises meant what the Prime Ministers had in mind. We can say with a certain degree of satisfaction that many of the concerns ex-pressed by CEEP (see CEEP’s Position Paper) on behalf of our members, as well as proposals and possible solu-tions to improve the competitiveness of the EU energy and energy-intensive sectors have been reflected to some extent in the Council’s decisions.

Federica Gagliardi

EUROPEAN COUNCIL CONCLUSIONS ON 2030 CLIMATE AND ENERGY POLICY FRAMEWORK

By Federica Gagliardi

Federica Gagliardispecialist, Central Europe Energy Partners

4REPORT

The PERN Group is a national and regional leader in petroleum logistics. Established in 1959, it was designed to transport crude oil from the former Soviet Union to Poland and Eastern Germany. It was in 1999, that the enterprise was transformed into a ful-ly state-owned joint-stock company. PERN 'Przyjaźń' is also active on the logistic market through its subsidiary OLPP Sp. z o.o., on loading capacities of crude oil and refinery products through its subsidiaries - NAFTOPORT Sp. z o.o. (a company which is an exclusive owner of four handling jet-ties with a capacity of 40 million tonnes annually), CDRiA Sp. z o.o., PETROMOR Sp. z o.o. and Siarkopol Gdańsk S.A.

We would like to inform you that from the 2nd of October, 2014, the Board of Directors of CEEP has accepted 3 new Members into our association. PERN ‘Przyjaźń S.A., Sumy Frunze, and Clifford Chance, with the last two now being Affiliated Members. We wish to briefly describe below, their activities.

Sumy Frunze NPO is a Ukrainian lead-er specialising in the production of equipment for companies from the energy sector, as well as for intensive-energy industries (such as the chemi-cal industry), for power plants includ-ing nuclear ones, as well as for logistic companies that transport gas and oil by pipelines. Sumy Frunze NPO is in-tegrated into the Industrial-Finance Group 'Energy Standard Group S.A'. Frunze’s experience in industrial en-gineering and production dates back to 1896.

Clifford Chance, Poland, represents one of the world's pre-eminent law firm networks. Clifford Chance’s high-ly-experienced lawyers provide in-novative legal advice, among others, within the following sectors: power and renewables, oil and gas, not to mention mining and metals. Clifford Chance's Warsaw office, together with other Clifford Chance offices located in Bucharest, Prague, Kiev, and Istanbul, has built up a top-level "dominant firm in the CE energy and infrastructure market".

Welcome new members

5REPORT

If there was any doubt the plunging world crude oil price confirms it. There is a global abundance of primary energy and energy sources. There is plenty of energy. Unfor-tunately there are plenty of politicians as well, and plenty of political turmoil, instability and violent regional disrup-tion across the planet.

Hence an area that should be almost free of problems - the

energy supply sector - is full of problems.

THE TRILEMMA TURNS INTO ‘TRIFAILURE’

In Europe I can report to you that these emerge in the form of an immense trilemma – not a dilemma, but a TRIlemma – a triple challenge to energy policy-makers which they are failing to meet on all three counts. What is this ‘trilemma’? It is that

energy and climate policy makershave set themselves the tri-ple goal of delivering affordable – if possible cheap – energy to consumers, that they have promised reliable supplies – no power cuts and black-outs – and that they want to see rapid decarbonisation and the replacement of fossil fuels with low carbon energy sources wherever possible. On all three fronts they are failing spectacularly. In fact things are going the op-posite way - backwards.

AFFORDABILITY ABANDONED

Affordability goals have been brushed aside. Indeed, energy costs are scarcely mentioned in latest EU policy documents. Yet the energy price issue is at the heart of the EU’ economic future and recovery. For Poland, and not just for Poland, the huge extra costs being imposed on industry by the subsidies to expensive renewable energy are no longer bearable. The threat is to veto EU proposals for the target of 40 percent re-duction in emissions by 2030. It would, say the Polish leaders ‘destroy half of Europe’s industry’.

For the domestic consumer there has been real pain. In Britain gas and electricity prices have risen, after inflation, by more than 50 percent in the last ten years. Meeting the European

Union targets for reducing carbon emission – 80 percent by 2050 – would involve equally large future increases to raise the funds to pay for the gigantic subsidies to renewable en-ergy – notably wind – required.

The EU target would mean covering an impossibly large area of Europe with turbines at a cost of 3.2 trillion Euros – most of it to be squeezed from consumers. And all this while the actual cost of primary energy supplies – gas, oil and coal – are actually falling!

BUT EMISSIONS ARE RISING

All this would be tolerable if these policies were the essen-tial way to guarantee reliable electricity supplies, to cut the growth of carbon emissions and perform a worthwhile role in combatting climate change globally.

BUT THEY ARE DOING NO SUCH THING

As old coal-fired stations in Europe are closed they are being replaced not by reliable generating sources – such as gas tur-bines, or new nuclear stations, but by intermittent sources such as wind, which themselves require new gas fired plant

PLENTY OF CLEAN ENERGYWrong and bad energy policies

>>>

TEXT OF SPEECH BY LORD HOWELL OF GUILDFORD, CHAIRMAN OF THE WINDSOR ENERGY GROUP, TO THE WEG TOKYO ROUNDTABLE, BLOOMBERG OFFICE, TOKYO, THURSDAY 23RD OCTOBER 2014

By Lord Howell of Guildford

Lord Howell of Guildford

6REPORT

to back them up when the wind does not blow, or blows too hard. But the investment in new gas capacity is not going ahead, because the Government–imposed penalties on gas burning make it unprofitable. In Britain some quite new gas turbines are being shut down.

And meanwhile new nuclear stations are far too expensive. In Germany they are being closed down altogether. In Britain a new station, Hinckley Point C, has been cajoled into being by hideously high guaranteed price promises for years to come, penalising future generations – although it will anyway take a decade to build.

Meanwhile the spare generating capacity to meet crises or times of extra heavy power demand has dwindled to a wafer-thin margin, and may well lead to black-outs.

The final irony is that in an effort to counteract this chaos new coal stations are being built in Europe and much more cheap coal being imported – from Russia, America and elsewhere.

The net effect of all these policy blunders is that carbon emis-sions are rising, not falling - in Germany dramatically so. Even if carbon emissions from production and electric power have fallen with recession in Europe, carbon consumption per head has soared as carbon-intensive imports pour into European markets.

There is not the slightest chance that carbon reduction targets in Europe will be achieved. . So while the threat to our global environment is not being met, the costs of these ineffective policies are rising exponentially.

EFFECTIVE CLEAN ENERGY POLICIES REJECTED

Common sense tells us how to reverse these trends and help rather than damage our environment. In theory it should be easy. Burning gas emits at least 40 percent less carbon than oil or coal, as the American example of switching from coal to gas demonstrates. It has been estimated by BP that a switch of one percent of global power generation from coal to gas, would produce carbon emission savings the equivalent of in-creasing renewables by 11%.

And if only nuclear power construction costs could be reduced that would really set us on the path to curbing CO2 growth.

But in practice energy policy in Europe is taking us directly the other way.

GAS is being taxed and its global trade impeded. New gas developments – e.g. fracking – are big resisted or forbidden. Nuclear power progress is being stymied by politics. Renewa-bles, instead of benefitting from new technology, are sucking up subsidies and enriching the powerful at the expense of the weak. Oil is full of dangers from the Middle East, and from re-

PLENTY OF CLEAN ENERGYWrong and bad energy policies

>>>

>>> CONTINUATION from p.5

7REPORT

finery and transport challenges. Coal is getting a free rein and is expanding its grip on world energy production.

Those of us who are deeply concerned about potential re-sumption of global warming – after the present pause of the past eighteen years – have a right to be furious at these appall-ing policy failures. The entire process has rightly been called by some ‘insane’.

REVERSAL. SOME PRACTICAL SOLUTIONS NOW

But what are the practical solutions? How do we counter mas-sive incompetence and misunderstanding, starting from here?

1. The whole attitude to gas production, transmission and use has to be transformed, and gas seen not as an enemy of a greener world, but as its most powerful friend- the best path-way to the future.

2. Huge efforts MUST be made to design and build cheaper and safer nuclear power plants, maybe building on a much smaller scale. No more Hinckley Cs!

3. Coal-burning can be met half-way not by banning it but by super-efficient new methods, super-critical boiler technology, more efficient transmission and a host of other improvements.

4. Resources now going to subsidise inefficient and costly re-newables, such as offshore wind, should now be diverted to

all out efforts to make greener energy CHEAPER, not far more expensive. It is the sheer forces of ingenuity and competition that must be allowed to do the job. Solar power is already ben-efitting – slowly. Wind power must respond in the same way.

5. Technology must be allowed to deliver to the producer, the transmitter and the end consumer of fuel and power the enor-mous efficiency gains that are just around the corner. Final de-mand can be held flat even with a growing world population, and even with the full development needs of the awakening giants like China and India being recognised and respected.

THE LESSONS THAT MUST NOW BE LEARNT

The LESSONs of the present disasters and backward steps are;

1. That bracketing ALL fossil fuels together as anti-environ-mental undermines far the best environmental and green-way forward. It causes great pain and suffering to the world’s poorest and slows growth.

2. It has inevitably produced a major and angry reaction from consumers the world over, and especially throughout Europe. Sensible and constructive green policies have been destroyed by blind zealotry

3. If policy-makers and politicians will disengage and stop dis-torting markets and investment, new technology and compe-

tition, and the world-wide urge to have cheaper, cleaner and green power, now almost universal, will deliver strong results and our planet will survive and prosper.

AT LAST

There are, to repeat, plentiful supplies of all kinds of cleaner, greener energy available to all the world’s peoples, rich and poor. It is the present blind and perverse policies of too many politicians, and too many misguided lobbies, which are stop-ping them having it. Our world is indeed being endangered, and much harm being done to our environment and to future generations, through the energy and failed climate policies be-ing that have been pursued – both in Britain, in most of Europe and in some other nations as well, although thankfully not all.

At last some people are beginning to speak up. At last what some have been warning about for a decade past is beginning to prompt changed thoughts and a better new direction – both for the planet and all its peoples.

PLENTY OF CLEAN ENERGYWrong and bad energy policies >>> CONTINUATION from p.6

David Howell titled the Right Honourable Lord Howell of Guildford, was the Minister of State at the Foreign and Commonwealth Office for International Energy Policy in the UK between 2010 and 2012. He also served in Margaret Thatcher’s government as Minister of State at the Department of Energy in 1974.

8REPORT

>>>

The EC published on the 13th of October an independent study, commissioned by them, which provides the first full data set on energy costs and subsi-dies for the 28 Member States across the differ-ent power generation technologies.

It also reveals that the largest share of public intervention in the en-ergy sector has been in

favour of solar and on-shore wind energy. The EC’s spokesper-son, Marlene Holzner, declared that the report “put an end to the ‘ideological dispute’ on which energy sectors attracted the most subsidies.”

In terms of support for countries, and allocated funds, the traditional EU Western Member States easily, and appallingly, draw ‘the lion’s share’. Countries from Central Europe com-pare very poorly, as the table below indicates:

Main elements of EU level interventions are the EU’s structural and cohe-sion funds, along with the European Energy programme for the Recovery and RD&D funding.

In 2012, interventions to support renewable energy sources have the high-est value: 41 billion EUR (c.f. p. 51 of the report), with solar receiving (14.7 bn.); on-shore wind (10.1 bn.); biomass (8.3 bn.); and hydropower (5.2 bn.).

Total Energy Support for the 28 Member States for the period: 2008-2012

By Peter Whiley

Peter Whiley

COUNTRY 2012  (Millions  –  Euro)Germany                                                                                              25,470UK                                                                                                                        13,280Spain                                                                                                                  10,430Italy                                                                                                                          10,360France                                                                                                                      7,250Belgium                                                                                                                3,280Netherlands                                                                                                  2,740Sweden                                                                                                                  2,690******************************Czech  Republic                                                                                1,600Poland                                                                                                                          970Romania                                                                                                                    680Hungary                                                                                                                            620Slovenia                                                                                                                    590Bulgaria                                                                                                                      410Lithuania                                                                                                                    330Latvia                                                                                                                          220Estonia                                                                                                                                  150Slovakia                                                                                                                      100Croatia                                                                                                     30

9REPORT

For the full report, go to: http://ec.europa.eu/energy/studies/doc/20141013_subsi-dies_costs_eu_energy.pdf

Of the conventional power generation tech-nologies, coal received (10.1 bn.); nuclear (7 bn.); and natural gas (5.2 bn.). The figures do not reflect the free allocation of emission certificates, nor the tax support for energy consumption.

Total Energy Support for the 28 Member States for the period: 2008-2012>>> CONTINUATION from p.8

Peter Whileyspecialist, Grupa LOTOS

>>>

ENERGY-ECHO

“The level of investment in the EU dropped by just under EUR 500 billion, or 20%, after its lat-est peak in 2007. We are facing an investment gap. We have to bridge that gap.”

“Europe can make this happen. As you know, I intend to present an ambitious EUR 300 bil-lion investment package for Jobs, Growth and Competitiveness.”

“If you give us your support today, we will pre-sent the Package before Christmas. This is not a promise, it is an affirmation.”

Extracts from the speech of Jean-Claude Juncker, Presi-dent-elect of the European Commission – (Strasbourg, the 22nd of October, 2014).

>>>

10REPORT

The recent stand-off in Ukraine and freezing of negotiations on the South Stream with Russia has increased the importance of the Southern Gas Corridor, especially for the EU.

The negotiations between the EU, Azerbai-jan, and Turkmenistan had already intensi-fied in September, 2011. In July 2013, after high-level talks in Ashgabat, a framework agreement was signed between the govern-ments of Turkmenistan and Turkey, on co-operation regarding deliveries of Turkmen gas to Turkey and Europe. In April, 2014, the President of Turkmenistan, Gurbanguly Berdimuhamedov, met with the head of the State Oil Company of Azerbaijan (SOCAR), Rovnag Abdullayev, and agreed to build transit pipelines which will enable a diver-sification of gas supplies in both countries, and pave the way for transit to international markets.

The Trans-Caspian gas pipeline (TCP) project, providing for the construction of a 300-kilometre gas pipeline across the Cas-pian Sea to the shore of Azerbaijan, is con-sidered optimal for the delivery of Turkmen energy resources to the European market.

With this in mind, the construction of the second branch of the Baku–Tbilisi–Erzurum gas pipeline began on the 20th of Septem-ber, 2014, in Baku. Azerbaijan announced that this was the official inauguration of the construction of the Southern Gas Corridor.

However, Russia and Iran strictly oppose the construction of the TCP, stressing that the project cannot be implemented without first resolving the issue of the international legal status of the Caspian Sea. Moscow, in particular, perceives such a union of former Soviet Republics as undermining the hegemony of the Russian gas market. Russia, choosing to ignore the economic importance of the project to Turkmenistan and Azerbaijan, continues to complain about Western interference in the affairs of the region. In response, Baku and Ashgabat reject the objections from Russia and Iran, pointing out that the project affects the interests of only two littoral states, and

‘China overtakes the EU in CO2 emissions’

In 2013, China’s per capita CO2 emissions sur-passed Europe’s for the first time ever. In addi-tion, China represented nearly 60% of last year’s total global emissions increase.

China independently set itself a target of 40-45% reduction of GHG emissions per unit of GDP by 2020, which is unlikely to be achieved, and its arguments that it should not be bound to any global mandatory climate targets are weak-ening. However, in its defence, one can argue that its industry has grown, and therefore, its’ emissions rate, too, largely due to increasing demand for Chinese products. (PW)

‘Solar Power set to be the biggest single source of energy by 2050’

The latest ‘Solar Roadmap’ published at the end of September by the IEA, predicts that the cost of solar energy will fall to around 4c/kWh in the coming decades, as the sun becomes the largest source of power generation across the world.

The IEA’s Executive Director, Maria van der Hoeven, stated that capital costs were a key element in bringing down the cost of solar technologies. The IEA noted that, due to the dramatic falls in cost for solar PV, the solar sec-tor is currently about 5 years ahead of where it thought it would be. (PW)

The Southern Gas Corridor: a struggle between EU co-ope-ration and Chinese dominance

By Eldar Latypov

Eldar Latypov

>>> >>>

11REPORT

‘Americans will pay more’

The (Environmental Protection Agency) EPA’s plans to reduce greenhouse gas emissions and improve the level of climate control in the US. The Chamber of Commerce claims that the EPA’s new environmental rules will result in an increase of nationwide electricity prices by 6-7%, and up to 12% in some locations. This is in addition to the 13% increase that has already been forecast.

The Chamber of Commerce asserts that this will not only place heavy burdens on businesses and subsequently threaten jobs, but will also deeply hit middle–class and lower-class families. The proposed EPA regulations will fundamentally alter how electricity is generated, transmitted, distributed, and used”, an important fact the EPA has been strongly criticised for failing to mention. (PW)

hence, can be implemented on a bilateral basis. The EU, for its part, does not consider the absence of a decision on the status of the Caspian Sea as an obstacle to the imple-mentation of the project.

EUROPE ASSIGNS A KEY ROLE IN THE IMPLEMENTATION OF THE TCP TO TURK-MENISTAN:

In an interview, Azerbaijan’s Minister of Industry and Energy, Natig Aliyev, said that the Turkmen side was ready to provide, for the project, about 30 billion cubic metres (bcm) of gas annually, and Azerbaijan was ready to create all the necessary conditions and infrastructure for its further transporta-tion to European countries.

However, Ashgabat is in no hurry to start laying the pipe, preferring to receive pay-ment for the delivered gas on the state’s borders, and leaving all other questions to the buyers. However, for those doubting

the environmental risks of the project, the government of Turkmenistan has repeat-edly expressed its readiness to conduct an environmental impact assessment, with the participation of international experts, thereby confirming its openness for further dialogue.

AZERBAIJAN:

In his interview for the London-based news agency, ‘The Report Company’, in late 2013, Aliyev stated that one of the main areas of co-operation between Azerbaijan and the EU was the dialogue on energy. The Memo-randum of Understanding on Co-operation in the Field of Energy between the Euro-pean Union and Azerbaijan, signed on the 7th of November, 2006, had earlier estab-lished such a dialogue. The major objectives of the MoU included the diversification and security of the EU’s energy supply, as well as the development and modernisation of Azerbaijan’s energy infrastructure.

According to the Minister, new opportu-nities were created for a more intensive co-operation in the energy sector after the adoption of the EU Eastern Partnership Programme by Azerbaijan in May, 2009. A reflection of the positive development of such relations was the high-level visit of the President of the European Commission, at that time, José Manuel Barroso, to Azerbai-jan in January, 2011. The Joint Declaration on the Southern Gas Corridor was signed during that visit, re-confirming that energy was a priority area for both parties.

Regarding Azerbaijan’s energy diplomacy towards the EU, another noteworthy state-ment was made by the Minister of Foreign Affairs of Azerbaijan, Elmar Mammadyarov, at the 5th Foreign Ministers’ meeting of EU Member States and Eastern Partnership countries on the 22nd of July, 2014 in Brus-sels. Mammadyarov emphasised that Azer-baijan was a reliable partner for the EU in the energy sector, delivering its natural gas

The Southern Gas Corridor: a struggle between EU co-operation and Chinese dominance>>> CONTINUATION from p.10

>>>

12REPORT

on a large scale and at a competitive price. The Minister also stressed his country's efforts in creating a potential gas transporta-tion infrastructure as part of the process of connecting the Caspian region with Europe.

Azerbaijan’s plan is to increase the volume of gas production up to 28.8 bcm by the end of 2014. According to the Trend News Agen-cy, the first vice-president of SOCAR (State Oil Company of Azerbaijan) Khoshbakht Yusifzade said on October 27, 2014 in Baku during the XIII Conference on investments and energy regulations of the Energy Regu-lators Regional Association (ERRA), that Azerbaijan's proven gas reserves amount to 2.55 trillion cubic meters, and the proven oil reserves of the country stand at the level of 2 billion metric tons. In total, oil and gas reserves of the country are estimated at 10 billion metric tons in oil equivalent. In par-ticular, SOCAR launched a new well within the Guneshli field in the Azerbaijani sector of the Caspian Sea, with a daily production rate of 85 tonnes of oil and 16,000 m3of gas. The company plans to drill another 20 new wells in this field. It is clear that Azerbaijan has

much to offer to its European partners and potential customers in terms of gas supply.

TURKMENISTAN:

The Turkmen gas field, Galkynysh, recog-nised as the world's second largest, could easily become a resource base for this ambitious project. President Berdimuhame-

dov promised to begin its development this year. South Korean and Chinese companies have already started building three natural gas-processing plants there. The capacity of each will be around 10 bcm of gas per year. Furthermore, in accordance with the Pro-gramme of the Oil and Gas Industry, Turk-menistan plans to increase its annual natural

gas production to 250 bcm up to 2030, most of which is intended for export.

"Turkmenistan will continue to actively participate in the development of mutually-balanced solutions to all issues related to the Caspian Sea," declared the President, at the weekly cabinet meeting in Ashgabat on the 14th of April, 2014.

Moreover, at a special meeting regarding the country’s oil and gas sector earlier this year, President Berdimuhamedov called the TCP project, “one of the most important tasks for the country’s energy diversifica-tion.”

A week earlier, on the 2nd of April, 2014, the topic was also discussed in Baku, during the visit of the Minister of Foreign Affairs of Turkmenistan, Rashid Meredov, with his Azerbaijani counterpart, Elmar Mammad-yarov. The two Ministers expressed their interest in the use of alternative routes for supplying the energy resources of the Cas-pian region to Europe.

The 1st Trilateral Meeting of the Ministers

The Southern Gas Corridor: a struggle between EU co-operation and Chinese dominance>>> CONTINUATION from p.11

>>>

13REPORT

>>>

of Foreign Affairs of Turkey, Azerbaijan, and Turkmenistan was held in Baku, on the 26th of May, 2014, where Azerbaijan’s ‘big broth-er’ Turkey, seemed to assume the role of the key negotiator, motivator, and catalyst for the development of the Southern Gas Cor-ridor. At the end of the meeting, the Foreign Ministers announced their decision to hold the 2nd Trilateral Meeting in the second half of 2014, in Ashgabat.

“These important steps are a positive sign, and can provide an impetus for the rapid implementation of all the projects in the Southern Gas Corridor chain. In all endeav-ours, the first step is always the most dif-ficult and the most important one, and the natural gas market is no exception to this,” the Ministers declared.

CHINESE DOMINANCE IN TURKMENI-STAN:

Russia is no longer the biggest competitor to the EU in Turkmenistan, as it has been replaced by China. Turkmenistan is rich in energy resources, whilst China has a huge

market, and the two countries have great economic complementarity and are deter-mined to co-operate. The rich gas resources of Turkmenistan contribute to China's goal of diversifying energy imports and ensuring energy security.

Turkmenistan has become an important partner for China in gas co-operation. This was stated in an interview with the news agency, ‘Xinhua’ by the Deputy Director-Gen-

eral of China’s petroleum joint-stock company, PetroChina, Lu Gunsyun. According to the com-pany official, in accord-ance with the agreement signed by Chinese Presi-dent Xi Jinping, during his visit to Turkmenistan in 2013, the annual volume of natural gas supplied by Turkmenistan to China, will increase from 40 bcm in 2014 to 65 bcm in 2020 (after gas from the Galkynysh field

starts to flow), the fourth branch (D) of the pipeline through Uzbekistan, Tajikistan and Kyrgyzstan being built for that purpose. According to the Deputy Director-General, with the deepening of the strategic partner-ship between the two countries, their gas co-operation will be further strengthened and will become an inexhaustible impetus for improving inter-state relations.

Turkmenistan is now, by far, China’s largest foreign supplier of natural gas: 24.25 bcm (about 17.7 million metric tonnes) in 2013, or 50.2 percent of its total gas imports, according to the article published by The Wall Street Journal. This represents about 2.5 times more than Qatari supplies to China (see the chart below). By the end of 2014, gas deliveries from Ashgabat to Beijing will have totalled around 30 bcm, or about one-sixth of China's annual usage.

SIGNS OF HOPE FOR THE EU:

Nevertheless, there is reason to believe that Ashgabat, in the light of the agreements in mid-May, 2014, between Moscow and Beijing on Russian gas supplies to China to the amount of about 40 bcm per year, via the Power of Siberia pipeline, may well re-consider its position and take a political decision in favour of the Trans-Caspian gas pipeline. Russia's strong position, in rela-tion to the Chinese energy market, is likely to create competition for Turkmen gas that could result in significant financial losses for

The Southern Gas Corridor: a struggle between EU co-operation and Chinese dominance

>>> CONTINUATION from p.12

14REPORT

Turkmenistan. Beijing’s policy of diversifying energy sources, could also lead it to seek a revision of gas prices with its current gas suppliers - Turkmenistan, Uzbekistan and Kazakhstan.

In addition, China plans to increase its own production of gas, thus climbing up to third place in the world, behind Russia and the United States by 2025. So, although the supply of Turkmen gas is expected to increase (in the short-term), Ashgabat will be limited to the role of a supplier, who only patches up the holes in the Chinese energy grid. Therefore, Turkmenistan’s long-term interest in supplying its gas to Europe will probably be perceived as necessary, and the TCP will finally gain in true relevance for Ashgabat.

CONCLUSIONS:

At a time when control over the energy transit corridors from the Caspian basin to Europe becomes extremely important, the probability that Turkmenistan, and espe-cially Azerbaijan, which is already in the

game, will focus on strengthening energy co-operation with the EU, is relatively high. This will play a crucial role in strengthening their energy independence and diversifica-tion.

It is not only these two countries who should be involved in the pro-cess. The significant support and soli-

darity of the EU is crucial in order to resolve the outstanding obstacles to the project. Though there is a substantive discussion on the opportunities for co-operation in the en-ergy sector between Turkmenistan and the EU, the relationship remains relatively weak, and an organised campaign to build stronger relations should be launched.

As a result of the high-level, trilateral Turkish-Azerbaijani-Turkmen consultations, in the near future, one can expect an inten-sification of the dialogue between the EU and Turkmenistan on the implementation of the Trans-Caspian gas pipeline. Experts sug-gest that once all the political and economic differences between Turkmenistan and Azerbaijan are solved, the project of building a gas pipeline under the Caspian Sea could be carried out.

On the other hand, taking into account its growing demand for energy, as well as the country’s readiness to invest in the neces-sary infrastructure and to pay for the gas, China is now a major competitor to the EU in Turkmenistan.

The Southern Gas Corridor: a struggle between EU co-operation and Chinese dominance

>>> CONTINUATION from p.13

Eldar Latypov Energy Analytics intern at Central Europe Energy Partners, Brussels. He is originally from Turkmenistan. He is also the M.S candidate in European Political Economics at University of Trier, Germany.

15REPORT

The 52nd Energy Dia-logue at the Reichstag discussed storage and its role for the Ener-giewende. The panel discussion was held on September the 26th at the invitation of Prof. Dr. Friedbert Pflüger, Janusz Reiter and Cen-tral Europe Energy Part-ners (CEEP).

Dr. Michael Fipper, Vice-President for Technology and In-novation Strategy of E.ON SE, presented three theses. Firstly, storage, together with solar, will fundamentally change the energy world. Secondly, storage for batter-ies, power-to-gas, power to heat, etc., should be brought into the system through distribution networks in order to balance supply and demand. Finally, from a political perspective – in order to secure reserve capacity and en-sure the stability of the network – storage technology cannot be taxed like an end-user, for both power input and output.

Clemens Triebel, CTO of Younicos AG, welcomed the changing industrial market environment that he regards

as much more open to storage solutions, than it had been just a few years before, but decried the reluctance that is still present in the general population towards this technology. Mr. Triebel described the subtle balance be-tween renewables, storage and gas power plants, and saw the opportunity for batteries to secure capacity instead of coal power plants, concluding that Germany needs to select which of these systems it wants to con-tinue subsidizing.

Thomas Bareiß, MP and Spokesperson on Energy Policy for the CDU/CSU Parliamentary group of the German Par-liament, acknowledged that storage needs to be part of a greater strategy for innovation – with flexibility stand-ing at its heart. Mr. Bareiß envisaged a significant role for the Government in giving financial impulses to a solar-plus-+storage programme, but also noted that any fu-ture transformational framework needs to be mindful of companies, giving them a chance to survive this process.

The vivid discussion that ensued touched on the need to expand the proportion of renewables through increas-ing storage, on embedding German policies in a wider European context and on designing policies to attract research and innovation back to Germany.

By Alexandru Zegrea

Alexandru Zegrea

ENERGY DIALOGUE AT THE REICHSTAG

Alexandru ZegreaConsultant, Pflüger International Consulting GmbH

UPCOMING EVENTS

Dear Readers,

We would like to inform you that CEEP will be a Media Partner for the 20th Jubilee Europower Energy Conference, which is taking place in Warsaw, from the 19th to the 20th November, 2014, in Warsaw, Poland.

This is the largest and most prestigious event covering the future of the energy market in Poland. Over the last 19 annual editions, the Conference has been a very effective platform for dialogue for all key-decision makers from the energy industry.

The agenda of the conference is created by both the Advisory Board - which consists of Presidents and board members from key energy companies, and representatives from government, academia, and chambers of commerce - and its Chairman, Dr. Leszek Juchniewicz. The scope of the conference includes such topics as:

•POLISH ENERGY POLICY TO 2050,

•EUROPEAN ENERGY MARKET,

• THE POWER INDUSTRY AS A SOURCE OF INNOVATIONS,

• PROSPECTS FOR GAS AND FUEL MARKETS.

More information can be found on the website: http://www.emerging-europe.com/events/xx-conference-on-energy-europower,p1681156737

16REPORT

CEEP REPORT published by:

CENTRAL EUROPE ENERGY

PARTNERS, AISBL

RUE FROISSART 123-133,

1040 BRUSSELS, BELGIUM

BRUSSELS@CEEP.BE

TEL: +32 28 80 7297

FAX: +32 28 80 7077

Poland’s largest photo- voltaic farm launched in Gdansk

,

NEWS FROM OUR MEMBERS

Energa S.A. has just completed the construction of a photovoltaic farm just outside of Gdańsk and Przejaz-dowo, using 6,292 panels with a total capacity of 1.636 MWp, taking up an area the equivalent of three football fields (25,000 square metres). It is es-timated that their production will be able to meet the electricity demand of more than 700 households.

Investment for the farm – Poland’s largest – cost PLN 9.5 mil-lion, and the construction and assembly lasted two months, with the photovoltaic farm expanding the installed RES capac-ity in the Group’s power plants by approx. 0.5%. The firm also plans to build a photovoltaic farm in the Kujawsko-Pomorski region with a capacity of about 4MW. Solar power is an addi-tion to Energa’s mix of renewable sources, which include; hy-dro, wind, and biomass; however, it still represents only a small percentage of the RES capacity installed in Poland, which totals nearly 6,000 MW.

Mirosław Bieliński, CEO of Energa S.A. declared the photovol-taic farm in Gdańsk to be “an experimental investment”, but noted that: “photovoltaic technologies are growing less ex-

pensive at the fastest pace possible across the globe, and that is why Energa do not exclude larger-scale photovoltaic invest-ments in the future.”

By Cristina Dascalu

Cristina Dascalu

Cristina Dascaluspecialist, Central Europe Energy Partners

Source: Energa SA - Photovoltaic farm in Gdańsk (Poland)