EU-Russia Energy Dialogue

The EU-25 is dependent on Russia for 25% of its gas and 25% of its oil. Conversely, sales of raw materials to the EU provide most of Russia’s foreign currency and contribute to over 40% of the Russian federal budget. In October 2000, the EU and Russia agreed to start an Energy Dialogue dealing with issues such as security of supply, energy efficiency, infrastructure (e.g. pipelines), investments and trade.

Background

Launched at the EU-Russia Summit in Paris in October 2000, this bilateral Energy Dialogue aims at securing Europe's access to Russia's huge oil and gas reserves (the country holds one third of the world´s known gas reserves). The dialogue is based on the assumption that interdependence between the two regions will grow - from the EU for reasons of security of supply; on the part of Russia, to secure foreign investment and facilitate its own access to EU and world markets (the EU is responsible for over half of Russia's trade turnover).

The current structure of the Energy Dialogue aims to ensure the close involvement of the EU Member States, the European energy industry and the International Financial Institutions. Four thematic working groups are bringing together more than 100 European and Russian experts from the private sector and from the administrations to discuss investments, infrastructures, trade and energy efficiency issues and to prepare further proposals for the Energy Dialogue.  

Issues

Dependence or interdependence?

For the EU, Russia is today the single most important external supplier of natural gas and oil. Some commentators say there is a risk of the EU becoming so dependent on supplies of energy from Russia that it constrains EU head of states from criticising any failings in the development of Russian democracy, human rights and freedom of the press.    

On the other hand the EU is Russia´s main economic partner. Bilateral trade amounted to 96,55 billion euro in 2004. Over 60% of Russia´s export revenue comes from energy, and most of it is in the form of exports to the EU. So Russia is as dependent on the EU as the EU is on Russia. European energy dependence will increase over the foreseeable future as North Sea production declines. According to official forecasts, the EU will import over 70% of its energy by 2030. 

Fossil fuels 

Russia is home to 27% of the world's known gas reserves as well as to vast oil fields. For the EU-25, Russia is the main supplier of hydrocarbons. 25% of its gas   (50% of all imports) and 25% of its oil (over 30% of all imports) come from Russia. Sales of its raw materials to the EU provide foreign currency and over 40% of the Russian federal budget. 

Russia´s biggest energy monopoly Gazprom holds 25% of the world´s gas reserves and produces 94% of Russia´s gas and 16% of global output, supplying a quarter of the EU market via transit trough Ukraine and Belarus. The company´s BOE (barrels of oil equivalent) reserves are slightly behind Saudi Arabia and Iran, and ahead of Iraq and Kuwait. Gazprom´s daily production is equivalent to 10.3 million barrels of oil. Russia´s total daily exports of all oil (crude and derivative products) amounts to just over 7.0 million barrels: about 85% of it goes to the EU. Challenges for the fossil fuels sector include:  

  • establishment of uniform "rules of the game";
  • increase of oil extraction, rise in quality of oil products produced in Russian oil refineries;
  • further liberalisation of the gas market;
  • provision of transport system access rules;
  • creation of a favourable investment climate and interest of companies in their activities in the Russian market.
  • main projects of common interest: Northern European Trans-Baltic natural gas pipeline; development of the Shtokhman natural gas field; Yamal-Druzhba oil pipeline interconnection, Burgas-Alexandroupolis oil pipeline project. 

Kyoto Protocol

In October 2004 the Russian State Duma approved the ratification of the Kyoto Protocol, which entered into force in February 2005. The Commission has provided technical assistance through the TACIS programme since January 2005.  Challenges for the implementation of the Kyoto protocol:  

  • joint pilot projects on energy efficiency in Russia: Arkhangelsk, Astrakhan and Kaliningrad. Recently a joint project on "Renewable Energy policy and Rehabilitation of Small Scale Hydro Power Plants" has been launched.
  • promotion of renewable energy sources: joint investment projects in the use of energy from rivers for local power supply; use of heat from mine waters for local heat supply in mining towns of Russia; power use of biomass, including recycling of waste from the woodworking industry for the production of heat and electricity of wood granules as well as projects, focused on the complete production cycle and use of liquid biofuel for transport; manufacturing of wind energy equipment and creation of wind energy stations in Russia.
  • extraction and utilisation of associated gas. 

Interconnected electricity network between Russia and the EU

Discussions on the reform of electricity systems are being pushed by the Commission and the Russian government, together with RAO-UESEurelectric and the Union for Co-ordination of Transmission of Electricity (UCTE). An agreement in principle between the CIS Electric Power Council and Eurelectric on the market and environmental roadmaps was reached in Vienna on 14 June 2005. Recently a comprehensive feasibility study on the interconnection of the transmission systems of the Union for the Co-ordination of Transmission of Electricity (UCTE) and the Integrated Power System/United Power System (IPS/UPS) was launched. Challenges to be faced in the move towards a grid interconnection include:  

  • absence of a sufficient regulatory framework in Russia;
  • need to adopt similar environmental and safety standards for electricity production, such as clean coal combustion rules and the guarantee of nuclear safety;
  • need to put in place the necessary infrastructure for the joint use and synchronisation of the electricity systems of Russia and the EU;
  • implementation of modern methods of power control management technologies;
  • financial guarantee scheme for EU investors.

Physical security 

  • Transportation of oil: the safe and reliable transportation of crude oil and oil products, including transport by rail and sea, is an important sector of co-operation. Marine pollution is a particularly serious concern for EU countries. The EU is encouraging Russia to implement International Maritime Organisation (IMO) standards. Activities undertaken in this direction under the Energy Dialogue are to be continued in the framework of the EU-Russia Transport Dialogue. 
  • Surveillance system: the use of satellite navigation in the energy sector includes exploration, construction, transport and site monitoring. Russia is carrying out an ambitious programme of modernisation of its GLONASS system, which it plans to open up for civilian purposes. The European programme GALILEO aims to set up by 2008 the first global satellite navigation system specifically designed for civilian and commercial applications. The joint use of GLONASS and GALILEO for the safety of energy transport infrastructures (for example to prevent accidents and detect leaks in oil and gas infrastructure) and energy production is an objective that has been pursued since 1999. An agreement is likely to be adopted in 2006-2007.  
  • Nuclear materials: nuclear safety and decommissioning (avoiding another Chernobyl). Trade relations in the area of nuclear materials between Russia and the new member states are estimated to be worth more than 180 million euro per year to Russia, and correspond to 80% of the market in the new member states (or 25% of the market in the EU-25). An agreement on trade in nuclear materials is currently being negotiated to establish transparent, stable and predictable rules in the interests of and for the viability of the nuclear industries of both parties. 

3rd energy package: a new paradigm?

Despite five years of successful co-operation in the framework of the dialogue, a real breakthrough is still lacking. EU-Russia energy relations remain highly dependent on broader EU-Russia negotiations on the "four spaces" - economic, legal, security, research - on which progress is slow (EURACTIV, 11 May 2005). Meanwhile, bilateral deals between Russian and separate EU states continue to prevail over a specific EU approach. 

However, the Commission appears to have set Russia an ultimatum as part of its 19 September package of proposals to further liberalise the EU's energy market. A reciprocity clause - dubbed the 'Gazprom clause' by Brussels insiders because of its implications for the Russian energy giant - features as part of the proposals. If adopted by member states, the clause would require companies from third countries and their governments to adhere to tough conditions before being permitted to invest in EU energy grids (EURACTIV 20/09/07).  

Positions

The European Federation of Public Service Unions (
EPSU
) recognises the growing dependence of the EU on oil and gas from countries outside the EU, especially Russia. But EPSU regrets the absence of a social dimension to the EU-Russia dialogue. “The energy dialogue should be accompanied by a dialogue or series of dialogues including all stakeholders, such as trade unions, environmental groups and others. A European energy community is more than a playground for large multinational companies. It requires the equal involvement of companies and trade unions,” stated Jan Willem Goudriaan, EPSU Deputy General Secretary. 

The International Network for Sustainable Energy (
Inforse-Europe
) thinks that the dialogue gives too much focus to traditional forms of energy and should increase its focus on energy efficiency and renewable energy. The electricity interconnections must not lead to environmental dumping of electricity, thus the requirement for equal environmental and safety standards is important. The dialogue should not lead to the sale of radioactive waste and spent nuclear fuel from EU countries to Russia. 

Jennifer Morgan, Director of the 
WWF
Global Climate Change Programme criticises the "old-style approach in energy relations between EU and Russia for focusing on oil, gas and pipelines, which continues to dominate at the expense of renewable energy. By joining forces towards non-carbon energy, the EU and Russia could significantly contribute to the reduction of global greenhouse gas emissions, thus combating climate change. However the overall priorities of the EU-Russian energy relations seems to have gone back to the seventies when the entire debate was geared towards oil, gas and nuclear and supply pipelines".

Donald Jensen, director of communications at 
Radio Free Europe/Radio Liberty
, thinks that Vladimir Putin is trying to put state management of natural resources at the centre of the country’s foreign policy. "With Russia’s greatly diminished military and generally unappealing international image, Putin has little alternative available to him if he is to achieve his goal of making his country a great power. The prospects that this strategy will work, however, are far from certain," adds Jensen.

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