Organization of petrolium exporting countries (OPEC)

Andrey Reus, Deputy Minister of Industry and Energy, Russian Federation

Speaking notes

Mr. Chairman, Excellencies,

I would like to thank the OPEC authorities for kindly inviting me to take part as an observer in the Ordinary Meeting of the Conference of OPEC Ministers. I appreciate a possibility to address once again this highly representative audience.

Mr.Kristenko, Russian Minister of Industry and Energy, instructed me to submit to your attention some ideas as a follow-up of the Energy Dialogue launched last year under the Russian G8 presidency. On one hand my intention is to take stock of the progress in implementation of some initiatives, on the other hand, I’d like to invite the OPEC member-states to continue this work together.

You are well aware that Russia initiated inclusion of the Energy Security issue into the agenda of the 2006 G8 Summit. The international cooperation in this area aims at secure supply of the world economy and population in energy at acceptable prices with a minimal environmental impact. We take the Energy Security problem not as a national domestic issue but rather as a problem which can only be addressed in a systemic way through joint efforts of the international community. This understanding stems from the Russia’s position on the world energy map.

We have scrutinized materials prepared by the leading international energy-related organizations such as IEA, CERA, IEF, newly created Moscow-based Center for Sustainable Energy development carried out our own research to conclude that in the forthcoming decades the situation in the energy security area will be determined by the two key factors.

First, the world economy would need more and more energy for sustainable development. It is to be noted that 70 per cent of the increase in energy demand till 2030 will account for developing countries (China alone will account for 30 per cent).

Second, the hydrocarbons will maintain their dominant position in the world energy mix till 2030and even further.

This is the way the energy sector will follow during the next decades despite all the efforts undertaken by many countries (including Russia) to develop alternative and renewable energies. It means that answers to global energy security challenges should be sought for within the existing energy infrastructure while keeping search for new break-through economically viable alternative solutions.

We repeatedly stress to our international partners that assimilating the global energy security with "security of supply" that is with the well known blatant "energy independence", is counterproductive. Concentration of all the risks at the supply side does not contribute at the end of the day to enhancing the security of supply. For this reason we are trying to bring this understanding to the notice of the international community and make usage of risk sharing instruments (including mutual participation in assets of energy companies from supplier countries and consumer countries). This is one of the tools to enhance the stability global energy supply. Among the most successful initiatives in this area are the agreements of the GazProm company with their Algerian, German, Italian and French counterparts. A pro-active stand of the Russian oil companies in the downstream sector at the American and European markets is to be noted as well.

In the same time Russia is making efforts to enhance the global energy security: we can quote the 2 per cent annual oil production growth (which is above the world average) and the diversification of the oil infrastructure, although Russia is not striving for the higher one position as oil producer and exporter. For such a country as Russia this objective seems to be too simplistic. Taking the lead as the natural resource supplier is just one of the possible scenarios of realization of my country’s potential as a global energy player. We have considerable assets in power machine building and nuclear energy; we have substantial hydraulic energy potential and a number of advanced alterative energy technologies. In such situation a public decision maker should first and above all set a justified list of priorities in order to maximize the economic effect. Our goal is to diversify and speed up the economic development.

In this context we can note a substantial progress that Russia made in promoting a number of oil infrastructure projects:

• Capacity of the Baltic pipeline system was augmented from 12 million tons a year in December 2001 to 74 million tons a year, which made it possible to increase considerably the deliveries of oil to North-western and Western Europe;
• Substantiation of investments into the construction of Khariaga-Indiga oil pipeline with the capacity of 12 million tons a year was presented for a state expertise. The project will help to realize the export potential of Timano-Pechora region;
• Eastern Siberia-Pacific Ocean main pipeline is under construction (the first stage capacity is 30 mln ton per year, the overall capacity of the project after completing its two stages is 80 mln. ton);
• Burgas-Alexandrupolis pipeline project with the capacity of 35 million tons and potential of 50 million tons is being carried out. When finished, it will help to solve the traffic problem of the Black Sea Straits. Today we are planning it to be signed in Greece.

By the end of 2005 the export oil supply capacity of Transneft Company was 221 million tons a year and this capacity has a tendency of further growth (by the end of 2006 it reached 230 mln. ton). In view of the expected growth rates of the world oil market, provisions of the Russia’s Energy Strategy to 2020 concerning diversification of export supply routes and an insignificant increase in the volume of transit we are planning to maintain the level of the oil supply to the European market and increase in oil deliveries to Asia-Pacific region and the USA. In Europe the share of the Russian oil export in the final consumption will be about 20 per cent.

Besides, Russia continues to work on creating a transparent investment climate. The work implies improvement and development of the legal framework, clear and consistent simplification of the fiscal regime, removal of unreasonable administrative barriers, unconditional fulfilment of contractual obligations and access to effective procedures of dispute settlement. We are carrying out a number of measures in order to create a transparent and effective domestic energy market, taking into account specific features of different branches of the energy sector.

Some details of the actual global energy dialogue and the fact that it is getting increasingly intensive (and sometimes tense) allow us to conclude that the efforts made by my country to promote the concept of energy security were not vain. The world does not speak only in terms of "security and diversification of supply", "complete energy independence" and unconditional danger of nuclear energy development etc. All the above mentioned concepts provided a one-sided vision of the energy security, specifically from the consumer side.

But the debate which took place the last year gave us a chance to modify the principles and even the language used to discuss energy problems at the global level. Thus now we discuss with our international negotiation partners the issues related to diversification of export routes from producing countries, tools for risks sharing along the energy chain; we are in search of mechanisms for harmonization and coordination of policies and strategies of the key energy market players.

In order to give a follow-up to the principles stated in the G8 Summit documents we started discussion and coordination of our Energy Strategy with long-term policy documents of other key players of the world energy market with a view to minimize the risks on the energy market. In this regard we welcome completion by Japan of its national energy strategy. We actively cooperate with the EU in course of development of the Green Paper on Energy.

The last October we organized a conference to compare the Russia’s and EU energy strategies. We are looking forward at a close coordination and active interaction in this area with the OPEC and other key players of the energy market. In addition we are about to start a series of activities aimed at readjustment of the Russia’s Energy Strategy and its extension till 2030. This process is absolutely transparent and we intend to take on board the results of consultations with our partners and I urge you to join this process.

Proponent of a perfect global energy market, Russia invites the international community to coordinate the respective steps in this area of the energy sector. The purpose of such coordination is to put in place a predictable and well functioning market, including through information exchange. International energy-related organisations should be actively involved into this process. This is a direct effect of implementation of the multi-polar world model both politically and in terms of global energy security.

In 2006 we succeeded to get away from a utilitarian perception of the energy security problem as a raw material problem; the energy security problem was addressed from technological, social and, importantly, from humanitarian point of view. At the end, abandon of the above isolationist model, a kind of "energy autarky", development of ability to come to an agreement, transformation of the energy consumption culture are to a great extent humanitarian issues which require an adequate informational support. Any kind of monopoly, including the monopoly on the information concerning the energy does not contribute to creation of a well-balanced market. That why we are urging to open information when addressing the problems of the global energy security. Within this framework Minister Khristenko in an April meeting in Qatar will inform the world community on our current approaches to the items of cooperation in gas area. The more various form of co-operation we have, the more stable world we get.

Thank you for your kind attention.