Putin v Barroso

EU-Russia Energy Dialog (or is it Energy Quarrel?)

Russia is and has been one of world’s energy superpowers for a long time.  Its natural gas reserves are the largest on earth, coal reserves being second largest and oil eight largest.  Russia is second biggest oil producer in the world after Saudi Arabia, overtaking it from time to time as world’s number one.  It exports 70% of oil produced, which makes it leading net energy exporter as well as a major supplier to the European Union.

In 1997, Moscow has signed the Energy Charter Treaty, but it has refused to implement it later on.  However, the leaders of the EU and the than Russian Federation accepted that energy relations are one of the key areas of collaboration between the EU and Russia and that they had to be upgraded.  The EU–Russia Energy Dialog about energy was launched in October 2000 in Paris, during the EU-Russia Summit.  It involved the EU Member States, energy industry and international financial institutions and projected gas pipelines originating in Russia and supplying Europe.  The relations have been steadily improving since, however, recent changes in EU energy law, stopping oil and gas suppliers from managing pipelines will hurt Russian enterprises, according to Russian prime minister, Vladimir Putin.  He used words like ‘confiscation of Russian property’, referring to EU-Russia agreement from 1994, when he clashed with Barroso during a press event in Brussels on the 24^th of February 2011.

At EU summit on 4^th of February, a bid worth a trillion Euros was launched by the Union leaders, to slash dependency on Middle East oil and Russian gas, by linking national and regional electricity grids and gas pipelines by 2014 to allow power to circulate freely and cheaply.  This was an important step because as it stands at the moment EU imports 82% of its oil and 57% of its gas, including 32.6% of oil and 38.7% of natural gas being bought from Russia.

The main aim of the new policy is to boost competition in the EU gas market, to prevent one company from controlling the supply in any one country and in consequence bring down the prices.  Countries have three different options to choose from under the ‘Third Energy Package’.   Under the toughest model of unbundling, suppliers would have to sell their gas transport businesses. A second possibility is that companies are not split up, but an independent operator is appointed for the transport infrastructure, the activities of which are limited to one country. The third possibility is that the company is not split, but a special board takes responsibility for its ‘independent’ decision-making.

It seems that Gazprom and Transneft, both state-owned companies in Russia will be the worst hit by the new laws.  Both companies were previously criticized for its tactics and strategies in consolidating its grip on oil and gas in Europe, including: locking in demand (attempting to use long-term contracts and discriminate countries on prices by dealing with them separately, rather than as a group), locking in supply (attempts to consolidate Russia’s control of the energy infrastructure in Europe, including supply, sale and distribution) and derailing competition.  It has been said that both companies should be forbidden to buy assets in EU member states until the companies become more transparent in their accounting and operating practices.

Prime minister Putin argues that the ‘Third Energy Package’ would not improve but rather worsen conditions for Russian firms operating in the European market and that the implementation of these new laws will lead to increase not decrease of energy prices in the EU market.

This has been rejected by Barroso, branding the legislation ‘non-discriminatory’, with laws applying to all EU and non-EU companies alike in accordance with the ‘reciprocity’ clause, and being compatible with WTO rules.  He had ruled out any possibility of changes as the legislation has now been passed and will be binding on the Member States from 1^st of March.

There can be no certain data as to whether costs of energy will go down or up given the number of variables such as high demand from China and India and the price of a barrel of oil hitting $120 earlier in February this year. However, supporters of the 3^rd Energy Package are confident that an open market will encourage more efficient energy production and keep prices at a reasonable rate. What’s more there will be measures to protect poorer countries/consumers.

Europe’s energy market is changing rapidly, and so do people’s Energy’s needs. Some people/countries are more interested in price, some in green energy and others in generating their own power. It is hoped that by opening up the market with new laws, consumer rights will be better protected and regional solidarity in the event of severe gas supply disruptions will be promoted.  Investment and security of supply are unquestionably at the heart of the Third Energy Package.

Despite the clashes between Putin and Barroso, on the 25^th of February EU Commissioner for Energy Günther Oettinger and Russia’s Minister of Energy Sergei Shmatko, have signed several important documents which demonstrate that the Energy Dialogue between Russia and EU moves forward.