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EU-RUSSIA ENERGY RELATIONS: THE NEW MEMBERS’ PERSPECTIVE Péter Kaderják Director, REKK EVOLVING TERMS FOR EU-RUSSIA RELATIONS The Clingendale Institute, The Hague January 31, 2008

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EU-RUSSIA ENERGY RELATIONS: THE NEW MEMBERS’ PERSPECTIVE

Péter KaderjákDirector, REKK

EVOLVING TERMS FOR EU-RUSSIA RELATIONSThe Clingendale Institute, The Hague

January 31, 2008

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• Variety and diversity in gas: the crucial issue for new member states in the field of energy supply security

• For Old EU: Russia is part of the solution (increasing gas demand and dependency)

• For New EU: Russia is part of the problem (serious unilateral gas import dependence on Russia)

Associated risks: price, security and political

• nsufficient solidarity in helping diversification effortsNABUCCO versus South stream

INTRODUCTION

DIFFERENT TECHNICAL AND HISTORICAL BACKGROUND

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EU5: CENTREL + Slovenia

EU3: Baltic states

EU2: Cyprus and Malta

GAS: ECONOMIC DEPENDENCE AND MISSING VARIETY

• major issue for is the

FUEL MIX

NET IMPORTS / TOTAL CONSUMPTION OF PRIMARY FUELS IN NMS

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NATURAL GAS DEPENDENCY OF EU8ECONOMIES

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THE SHARE OF GAS IN ELECTRICITY GENERATION, EU8

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NET GAS IMPORTS TO TOTAL GAS CONSUMPTION, EU8

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EU-25 Natural Gas Supplies 2006BCM/yr

+1.2 FR -44.5

ALMR TN

+10.9 IT -84.4

LY MT CY

BU

TU

IR

RM

UR

BL+6.0 PL -16.3

FI -4.8

ET -1.0

LV -1.7

LI -3.3 RU

+3.1 HU -14.3

SV -1.2

+1.8 AU -8.9

SI

+0.1 SK -6.0

+0.2 CZ -9.2

+0.4 IR -4.6

+83.4 UK -94.3

SE -1.0

+10.4 DK -5.1

NO

BE -15.1

+77.7 NE -48.1

LX -1.4

+19.6GE -99.9

LNG

LNG

LNG

30.0

22.58.7

6.717.8

0.6

34.9

16.4

1.0

41.7

0.4

1.0

2.2

17.8

5.8

0.8

2.9

4.2

15.0

0.3

43.3

0.8

0.4

0.70.7

32.4

4.3

3.4

5.5

11.4

2.5

LNG

LNG

LNG

0.4LNG

EU Country + Production-Consumption

Non-EU Country

LNG Terminal

1 Gas from Algeria

1 Gas from France

1 Gas from Germany

1 Gas from Netherlands

1 Gas from Norway

1 Gas from Russia

1 Gas from UK

1 Gas from OTHERS

+ -4.8

3.2

2.4

2.7

2.4

8.8

78.1

2.1

8.7

25.4

7.6

0.5

2.0

24.4

+0.1 ES -33.0PR -4.2

+0.02 GR -3.3

1.0

11.02.4LNG

3.6

10.1

4.5

1.92.2

1.8

0.4

1.8

5.910.3

1.2

9.4

1.0 2.8

2.5

3.1

GAS IMPORT DIVERSITY: COMPARISON OF EU 25 AND EU8

EU 25 Gas Imports, 2006

Denmark1%

Lybia2%

Norway22%

Algeria15%

Germany3%

Russia31%

Netherlands13%

Oman0%

Quatar1%

Trinidad1% Others

5%

Nigeria2%

UK2%

Egypt2%

New EU-8 Gas Imports, 2006

Russia77%

Germany3%

Algeria1%

Norway8%

Others11%

IMPORT FUEL DEPENDENCY: CONCLUSIONS

GAS INFRASTRUCTURE: ISOLATION AND MISSING COOPERATION

Source: GTE

• East-West transit lines, no regional cooperation

• Sharp contrast to electricity network integration with UCTE

• Russian-German tandem in infrastructure take-overRisk of foreclosure

Interest in conserving CEE gas market segmentation

• Russian efforts (sometimes with western allies) to block major new investments to diversify :

Germany, Italy

GAS INFRASTRUCTURE

FUTURE INVESTMENT INITIATIVES

Non Russian:

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•NETS•

SOME CONSEQUENCES

Natural Gas Prices for Industry EU 25

-

100

200

300

400

500

60019

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

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and

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etre

s

AustriaBelgiumFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainUKCzech RepHungaryPolandSlovakiaEU Wholesale

UNILATERAL DEPENDENCE: SERIOUS PRICE RISK

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UNILATERAL DEPENDENCE: SUPPLY SECURITY RISK

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UNILATERAL DEPENDENCE: POLITICAL RISKS

Third party access to Gazprom pipes should be in the focus of EU-Russia energy talks

•’

WHAT TO DO?

WHAT TO DO? - continued