Russ Oil-Gas

MOSCOW, June 15. (Viktor Ivanter for RIA Novosti) - Recently, we have seen that Russia and the West - principally the European Union - have chosen a conflict method of negotiating energy problems. We often hear statements such as "We can redirect resources from Europe to the East," or "We need to end our dependence on Russia," etc. Should Western distribution facilities be open to Russian companies? Should Russian resources be open to foreign companies? Is Russia trying to monopolize the European market? Will Russia dictate prices to Europe or will Europe dictate prices to Russia? All these approaches bring to mind conflict resolution studies. We consider them non-productive and favor the establishment of an energy union based on long-term strategic relations between energy suppliers and consumers. It is therefore very important to establish the parameters of a Russia-EU energy union that would guarantee the economic and political stability of their energy relations, thus ensuring energy security. Today, the EU imports up to half of the energy it needs, including 73% of its oil and 44% of its gas. By 2030, the share of imported energy is expected to reach 70%: 92% for oil and 81% for gas. Russian oil accounts for over 20% and Russian gas for over 25% of current EU energy consumption. Russia intends to remain a crucial energy partner for the EU in the first third of the 21st century. Its significant energy resources mean it has all the prerequisites to do so. Unlike world trade, conducted under WTO trade rules, rules on energy trade keep changing. They are set by regions, countries, unions of energy producers, and consumers and are changed at will (Bolivia is the latest example). The current status of relations with energy producers, including Russia, does not ensure the reliability or stability of supply. For example, the tensions around gas supply to Europe in January 2006 were caused by a number of factors, such as the lack of regulation in relations between suppliers, transit countries and consumers. The Energy Charter, which the largest exporting countries have not ratified or even signed, obviously, in our opinion, encroaches on the interests of oil and gas producers. The problem is not that Russia has not ratified the Charter; it is unclear why it has signed this lopsided document in the first place. The Charter in its present form is unacceptable, but we cannot do without common rules for energy trade. This is why producing and consuming countries must engage in an energy dialogue to work out a document acceptable to all parties. Common rules respected by countries and followed by businesses may provide the real legal framework for a Russia-EU energy union. Political tensions in international energy relations seem to have many economic components, but some of them can be alleviated with the help of purely economic mechanisms. For instance, the existence of gas pipeline networks - lengthy routes with numerous consumers and steadily growing demand along a pipe with a fixed capacity - cannot but lead to conflicts, especially during the onset of extremely cold weather. Timely investment in oil and gas infrastructure will help solve many problems without bringing them to the geopolitical level. This means constructing large gas storage facilities in European consumer countries. Russia's participation in such projects is an essential aspect of the energy union. At the same time, oil and gas companies need political certainty in their areas of investment. So Russia needs to work out common rules for investors willing to put their money in assets that are not seen as strategically important to the state, both in Russia and in Europe. If Moscow manages to define the criteria for strategically important assets in the oil and gas sector, it will be able to move from mutual mistrust to long-term energy partnership. From the economic point of view, strategically important assets are ones that ensure uninterrupted energy supply to Russian consumers while simultaneously honoring all contract commitments, including those with foreign partners. Answers to the question of giving foreign companies access to the Russian energy sector in general and allowing European investment in Russian energy production in particular depend on the foundation for Russian-European relations. If these relations look more like an energy conflict where none of the parties accepts any commitments, then energy exports to Europe will depend not on European consumers' needs but on the amount of energy that is left over after domestic and non-European demand is met. In this case, the situation in the European energy sector is likely to become rather unstable. One could counter that foreign consumers account for the lion's share of Russian energy producers' profits. But given the growing domestic and foreign demand for energy, Russian companies are unlikely to boost exports to Europe despite high energy prices, so the strategy of an energy union is preferable for both Europe and Russia. What might this cooperation be like? To meet Europe's growing demand, Russia will have to move into areas with more difficult production conditions - the continental shelf, heavy crude, etc. Then it will encounter the problems of lack of money and, more importantly, lack of technology. Russia needs capital combined with technology and experience. This is the essence of a union whose priority will be a strategic system of relations, not a one-time commercial profit. Another principle of cooperation in the energy sphere is the implementation of energy-saving technologies by foreign firms. Given the possible shortage of oil and gas for export, it is quite acceptable to turn over facilities that consume a lot of energy (such as heating networks and electricity grids) on concessions to foreign companies that possess energy-saving technologies. Resources saved in this way can later be exported. Moreover, an energy union with the EU does not only imply a stable energy supply, technology sharing and financial investment; we believe that it can also imply the shift of energy-consuming manufacturing closer to where energy is produced. Russia is interested in attracting energy-consuming manufacturing as long as it is based on modern technologies, complies with tough environmental requirements and is managed under highly transparent corporate principles. The EU countries should be interested in this as well. For example, if energy-consuming enterprises are moved to Asia, the growing demand in the region will force Russian companies to re-direct energy exports eastwards. There are now all the conditions necessary to make Russian-European energy relations a factor that ensures the stability of Europe's economy and the development of Russia's. Viktor Ivanter is member of the Russian Academy of Sciences, director of the Institute of National Economic Forecasts at the Russian Academy of Sciences.