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Black Sea Energy and Economic Forum 2009
Speakers:
- Ambassador Richard Burt, Managing Director, McLarty Associates
- Sergiu Celac, Former Minister of Foreign Affairs, Romania
- Timothy Gould, Directorate for Global Energy Dialogue, International Energy Agency
- Antoaneta Courleanu, Deputy Corporate Vice President, UniCredit Group
- Slavcho Neykov, Director, Energy Community Secretariat
- Giorgi Vashakmadze, Director, White Stream Consortium
October 2, 2009
AMB. RICHARD BURT: We want to stay on schedule, and in fact, one of our panelists needs to leave precisely at 5:30 to be able to catch a plane. The title of this session is the “Role of the Black Sea Region in International Energy Markets,” and in a way, that’s almost the subject of this conference as a whole. And so what I’m hoping both the panel can do, as well as our audience and participants is reflect a little bit on the issues we’ve been talking about the last two days, and try to come up with maybe a degree of consensus, lessons learned, insights that are worth sharing with the whole group as well as important disagreements, issues that need to be discussed.
And I think we put together a panel this afternoon that will help us in this endeavor. I’m not going to introduce everybody together. I will introduce each panelists as I call them, and we will go from left to right. So that means that I’d like to call on Dr. Giorgi Vashakmadze, who is the director of the White Stream Consortium, to kick off our discussion. Doctor?
GIORGI VASHAKMADZE: Thank you. As Mr. Chairman outlined, we will kind of make this panel as an outline of the conference major issues. And I think it’s worth mentioning one of the most important things we heard at this conference was very straightforward comments from European Commission in relation to the southern corridor. And the whole way how it was presented in details describing the essential elements of the southern corridor, which are Nabucco, White Stream, Turkey, Greece, Italy and discussing the role of the CDC in southern corridor is very remarkable.
It was the first time, actually, when the European Commission went into the details like describing the White Stream 1 and White Stream 2. And maybe not everybody is aware that White Stream is a connection from Georgia across Black Sea Strait to Romania. And maybe in the future, when the situation is ripe, it also could be White Stream 2, which is another link from Georgian shore to Crimea.
Now, if we try to link this with a major happenings during the last year of the Georgian-Russian war or Russian invasion, whatever you want to call it, there was a period of time when many analysts in the world, leading analysts would consider that the West Caspian strategy is dead, there is no more hope about any future prospects, and this becomes so fragile that probably we cannot expect any interesting investments in this area or any further developments.
Fortunately, this has changed on September 1, as the emergency summit in Brussels where a number of countries led by the U.K. introduced a paragraph in the resolution of the emergency summit naming the Caspian as a strategic area for development of the energy relations. This gave a very serious impulse for the development of the – for the energy strategy guarantee review where Europe said we expect a new corridor to be created, a new corridor in relation of the gas supply to Europe. We mean there was the North Sea supplying Europe, North Africa and Russia, and Caspian was kind of considered as a part of the Russian corridor. Now it was said clearly there will be a fourth corridor, which will be a supply for Europe.
And particular figures have been named – 60, 200, 20 billion cubic meters per year without specifying a particular timeframe, but the figure has been put forward. And it could be debatable how much gas Europe needs. It’s something like how much meat one family needs. It’s something which, on the one hand, what the family can afford and other hand, what is the minimum from the point of view protein has to be consumed. So gas is such a thing that if it’s a right price, it can substitute a lot of coal, it can substitute a lot of things. If it’s coming, it’s a right price. If it’s reliable, then Europe definitely can consume a lot of gas and will benefit out of it.
So important Barroso, his opening remarks said this is not a Nabucco summit; this is a southern corridor summit. And important thing about this is that what actually was suggested is that the strategy for Caspian to be successful needs something more than Nabucco only. On the one hand, we have this impressive figures of European needs but on the other hand, it’s also what the Caspian countries want. The Caspian countries need to have greater teamwork for supply to Europe. They want to see that this supply is of the strategic kind for them. It’s a quite difficult undertaking. It requires too overcoming little hurdles. And today there was a lot of great presentations discussing, for example, trans-Caspian. And so these things are not easy, but they could be overcome if the final goal is of the strategic kind and if it’s not it will never be overcome.
So we have actually dilemmas that, either we have a successful Caspian development or we have nothing. So it’s either very serious, very solid, which implies the activation of CDC, aggregated demand translated in aggregated investment power, or we might have a prolonged period where there was really very little progress, and maybe finally Russia’s interest to control the whole Caspian development on gas will be successful.
Now another element other is the reliability of transportation. And several presenters have mentioned that it’s really important, the reliability of transportation. How this can be done. It’s an element which is now a part of the southern corridor strategies, removal of the monopoly power. And I was really positively surprised about very precise thinking about Dinu Patriciu about it – this monopoly of pipelines creates tensions and makes things difficult to do. And he went further, actually suggesting LNG, but the basic idea is correct.
How we cure this? We cure this through diversification, and that’s what everybody wants to see. If we take seriously Russia’s points that while they need security of demand, they don’t want to delay only on Ukraine, the same as the Caspian countries, they will want to see more security of demand, which means that the situation, when the transit leverages are not used for other means, political means, it’s something which will be achievable. That’s why from Georgia to the EU portion, EU is proceeding to development of Nabucco White Stream, and even as this concept goes further on suggesting Nabucco end ITGI because of the complexity of how Nabucco is created. If it will be slowed down so Turkey doesn’t feel itself isolated, and they will have a possibility to benefit, accelerating the ITGA.
But eventually all of these projects will be needed because we are talking about volumes. It’s a Prague summit actually. The timeframe have been set forward saying that we need 60 BCM or more until 2020. So it’s very ambitious and that’s achievable. Thank you, and maybe I’ll have a chance to continue.
AMB. BURT: Well, I’m happy that you picked up Dinu Patriciu’s remarks of yesterday, which in the broader theme of the – maybe the dangers associated with politicizing energy policy in this region via the various energy corridor and pipeline issues. I don’t know if in fact that can ever be escaped, but it’s certainly been a theme that’s woven itself through this conference.
I’d secondly like now to call on Mr. Slavcho Neykov, who is the director of the Energy Community Secretariat.
SLAVCHO NEYKOV: Thank you very much, Chairman.
Let me first of all to congratulate the organizers of this conference, not only for the excellent topics and speakers, but also of – about the approach to the event. I think that this form of interactive discussion is extremely helpful.
I would like to make several points. First, let me just recall that the energy community which I current represent in fact units 38 countries plus UNMIK, that is – these are the EU member states plus the countries which emerged underground from Yugoslavia, UNMIK Albania, and also we have five observers, which are Georgia, Ukraine, Turkey, Norway, and Moldova. I would like to start with the fact that I like very much the approach towards the Black Sea region. We are talking about the Black Sea but at the same time we are discussing mostly countries which have no borders with the Black Sea. And this is a very, very good indication of the fact that energy is more and more regional than national issues.
I think that one of the key conclusions which I drew for myself today is that regardless of what we discuss, at the end of the day, everything comes to the issue about investments, whether there are investments or whether there are no investments. And why there are investments in some areas and why in some others we are talking about projects but it takes a long time to develop these.
I recall several statements from the international financial institutions which say that the world is full of money which needs to be invested, but there are no bankable projects for this. So evidently there’s a problem in this aspect and I think that one of the biggest problems is the availability of common rules. This issue was touched, in my view, quite well today in a discussion when the Russian representative – the representative of the energy charter secretariat were here because I’m talking mostly to rules which have regional dimension, that is international dimension.
And from this perspective, almost speaking – I’m surprised by two things. First, I’m surprised that we talk about these rules many times. We all talk about Russia, but there are no officials from Russia, from the government to say their official positions. So we know about the principal issue concerning the withdrawal from the Energy Charter Treaty which is currently the only international treaty covering energy in several broad areas, but we don’t know details. We don’t know why. We hear about their proposal to establish new legal order in this area, which, as it was correctly mentioned, may take 10, 20 years because Russia blocked successfully for more than 10 years the negotiation on the transit protocol and finally withdrew. Blocked, blocked, blocked and finally withdrew, and those countries which relied on those rules now have to consider what they’re going to do because the major idea of this transit protocol was related to Russian sources, as well as of course to sources from Central Asia.
Another point which I want to make relates to the discussion today. And yesterday we tended to talk mostly about gas and oil from the perspective of energy security. But I wanted to underline, to come back to one issue which was flagged just for a short time. This is security of supply and demand in the area of electricity as well. Further to the statements which we heard about new nuclear power plants related to the one, for example, in Bulgaria, which has a long history and quite a lot of money invested, Romania is considering expansion. Maybe most of you know that Albania officially launched its idea in an energy strategy format current to build a nuclear power plant.
Macedonia, the former Yugoslav Republic of Macedonia also put this issue on the table for discussion, that a certain moment this balance of production and consumption should be really very carefully estimated because the ambitions seem to be jumping well beyond the necessity, so let’s not forget that this is only the area of nuclear I’m talking about. In parallel, there are a lot of other projects which are developed or are being considered.
So from this perspective, I think that this discussion which we had today was very interesting, and yesterday was very interesting and raised a lot of questions, but I think that still the answers we need are a little bit more than normal. Thank you.
AMB. BURT: Thank you. And I found that contribution very useful in a couple of respects. Fir of all, you’ve highlighted I think a point that one or two other people have raised in our discussions, and that is I think somebody earlier said that maybe energy is the least-regulated sector in the global economy. And you touched on the need for common rules. And then you introduced a Russian aspect to that. I would – I would hope that based on our experience over the last two days that we’ve made a convincing case for making sure that we have a Russian contribution in this ongoing dialogue. And I know – we’ve got Fred Kempe here, but I know that that is something that the conference organizers, and the Atlantic Council in particular will want to focus on as a plan for this dialogue next year. It was by – I do know though that it was through no lack of trying on our part to make sure that the Russia point of view as represented.
MR. NEYKOV: Sorry.
AMB. BURT: Please.
MR. NEYKOV: Please do not understand this as a criticism to the organizers. I know that – I think that Russian officials – well, maybe hiding is not the correct word, but it’s not far away. I’ve been at conferences when Gazprom comes, makes a presentation, but they say no questions; they leave immediately. They don’t even allow to circulate their presentation. So they say the truth and leave.
AMB. BURT: Well, we don’t want to sort of debate this without a proper response but I know you –
MR. NEYKOV: (Sneezes.)
AMB. BURT: I do know that you were not attempting to –
MR. NEYKOV: (Chuckles.) There should be some filters on the microphone. (Laughter.)
AMB. BURT: That’s the reaction of the Georgian representative. (Laughter.) But I know you weren’t criticizing conference organizers; I just was underscoring the fact that I think very much a desire to find a way in, a mechanism to get a stronger Russian perspective on these issues. And even without the Russian issue, because I don’t want that to dominate our discussion, just that the key point that you underscored which is the growing need for common rules, and common rules in a market where you still want to maintain market mechanisms and have the necessary financial incentives that are going to lead to the point you first made in your comment, which is that – to create the necessary investment to develop these resources.
I’d like now to turn to speaker directly on my right, that is Mr. Timothy Gould. He represents the directorate for Global Energy Dialogue at the IEA.
TIMOTHY GOULD: Thank you, Mr. Chairman. And I’d like to echo the thanks to the organizers.
I think taking my cue from the previous discussion, I’d like to leave Russia to one side for a second because I think that in fact we’ve discussed Russia a lot. And to some degree, the Russia discussion can be used to deflect attention from other issues that are very pressing in the Black Sea region and which affect all of the other countries around the table. And some of the things – I think there’s four challenges that you could identify in that respect for the Black Sea region.
The first is to come away from here with the impression that the Black Sea is not using its own resources very effectively or efficiently, and I refer here both to points made about the renewable side, but also the amount of exploration that is ongoing on the Black Sea itself. I mean, there are exceptions to that, but if you look for examples at the persistent delays with developing the Ukrainian continental shelf, then I think you have an example of where the Black Sea’s own potential is not being fulfilled.
A second point to make is countries around the Black Sea ,in the sense in contrast to the countries further West, these have the potential to be relatively fast-growing economies, and I think Turkey in particular is a very large and fast-growing economy, but they have in common that they use far more energy than they need to per units of GDP. And so you have to return to this focus on the efficiency of – I mean, it’s nuts-and-bolts issues, but it’s district heating, it’s all of the elements that make up to some extent an inefficient legacy but also insufficient attention paid to this issue by policymakers across the Black Sea region.
A third point that I would make is that you do have very different national profiles for energy. You have some countries which have strengths, for example, in hydro: Albania, Georgia, and you have others with lignite. I mean, there you also have to pay strong attention to the environmental aspect, so – and others which nuclear and there are – each country has its own distinctive energy profile, which in theory should provide good grounds for regional energy trade, but I think that we would all acknowledge that the volumes of regional energy trade are not what they should be, are not what they could be, and that’s why the efforts of the energy community in the Western Balkans are particularly valuable. But there are other interconnection projects that should go ahead and need to go ahead in order for the Black Sa to realize its potential as a region for energy trade.
And finally, there is this question of the access to new sources. And it is true for the moment that the Black Sea is relatively poorly – it’s geographically very well placed for access to new supplies for energy, but in other respects, it’s quite poorly positioned to take advantage of that situation. And I think you can look at a number of indicators of that. You can look at the speech, for example, for Mr. Vitaliy Baylarbayov from SOCAR – I mean, a producer who is very proximate to this region, but who said, you know, his company is also looking at the potential to sell to a very distant but fast-growing market in China. If you look at the number of projects that cross the Black Sea – I mean, pipeline projects and other projects that looked across the Black Sea, that is also a vote of no confidence in the openness of the transportation corridors using cheaper routes on land around the Black Sea. And I think that’s an area where the countries need to pay significant attention to. Thank you very much.
AMB. BURT: Well, I think that again, there are really some great points made. And the two I would underscore is focusing on the efficiency and the effectiveness of Black Sea energy exploitation, and took at both the issue of how they are developed and how they are used. I was fascinated by the point which I hadn’t heard yet about this – what you called the distinctiveness, if you will, of the different national energy profiles and how that opens up opportunities for cooperation. And I think that next year I think we need to understand better than I think we’ve maybe fleshed out, your concluding point is despite the opportunities in this region, why they haven’t been fully exploited. Is it – are they structural or are they mainly political, the problems of getting a real dialogue going amongst the different countries in and around the Black Sea. But I think you’ve really underscored the potential that exists.
I’d like now to Sergiu Celac, the former foreign minister of Romania. Excellency?
SERGIU CELAC: Thank you, Mr. Chairman. My qualifications to speak about energy markets in the Black Sea area are rather slim. So I would rather stick to those points in which I can claim some degree of competence.
I think at the conceptual level, we can see the emergence of several new paradigms or approaches which regard energy security in relation to security, pure and simple. And with the risk of oversimplifying the issue, I would focus on four such emerging paradigms. One is the Russian paradigm. I attended a conference, incidentally on the Black Sea, in Moscow three days ago. And I think that there is a very lively debate in the Russian not only academic community but also at the political level on which way Russia is going to go in the next few years.
In fact, listening to the Russian colleagues in that conference in Russia the other day, it was like attending a joint seminar of, say, the Committee on Foreign Relations, Heritage Foundation, CSIS, and the American Enterprise Institute all together in one room. You have the whole spectrum.
AMB. BURT: That would give me a very bad headache.
MR. CELAC: I had it. So there is a process of clarification on major – on the major strategic directions of development, which is active, lively and interesting going on in Russia. So the future participation of Russian representatives in this debate, if there was such a participation and it claimed to be represented, it would have been just like that. They are still sorting out their options.
That is why it is immensely interesting to see how the Western world, the U.S. and the European Union together and NATO will be able to respond to President Medvedev’s two initiatives, one concerning the new European security architecture and the other one concerning the legally binding rules of the game on energy.
My point is that if we take these two proposals together and link in our counterproposals from the Western side security to energy to rules, rules that apply to security and behavior, international behaviors and rules that apply to energy. That would be an avenue worth pursuing politically and diplomatically.
I would also draw attention to the fact that the report of the Valdai Club in anticipation of the Russia-U.S. summit in Moscow is not just about resetting the buttons on the Russian-U.S. relationship. There are several points there which related directly to the situation in the Black Sea area and also to the energy scene. So a new reading of that important document because Karaganov was quoted several times during these debates, is a useful exercise.
Second – the second paradigm I would just mention just briefly is China, which is becoming like a vacuum pump of resources in the world. And in the past few months, as the financial crisis and the economic crisis was developing, China gives every appearance of having lost trust in the idea of money, not just U.S. dollars, which they hold in abundance, but many. So they are diversifying their portfolio, not just buying alternative currencies, but they are holding resources, assets and commodities. And at the same time, China is developing a less-publicized policy which is becoming more and more responsible from an ecological, environmental point of view.
Thirdly we have the American paradigm, which is epitomized in Gen. James Joyce’s memo to the President-elect then in December last year, Obama. It is an entirely new approach to an energy security strategy of the United States. I think it is a major watershed, and it spells out totally new policy of the new American administration concerning the link between energy, strategy and responsible environment policies.
Fourthly, we have the European Union paradigm, which probably is the most comprehensive one, and the earliest to be so, which brings together the elements of energy security with environment. In fact, the communications of the European Commission on that subject are all titled together, energy and climate change. And increasingly, with the entering into force of the Lisbon Treaty, those two policies, which are now one of the level of the European Union, will be increasingly linked to the common foreign and security policy of the European Union. I made that point in Moscow because our Russian friends tend to underestimate the importance of the divisions within the European Union rather than potential for a single voice in the European Union.
All of these paradigms are evolving. And I really see a potential for an eventual convergence. Currently, it is still fluid. That is why sometimes it is difficult to discern in this maze the really important paradigm shifts, and that is happening now. It has not happened yet, but we are in that process. So I think that with reference to the Black Sea Region, the European Union has a very real chance to develop both the Black Sea synergy and the Eastern partnership into one coherent strategy for the region, which will necessarily encompass these three main elements: hard and soft security, energy and environment.
A final world about something that Mr. Dinu Patriciu mentioned in his opening speech, and that is the potential factor of constructive disturbance that can be introduced pretty son by various expected technological breakthroughs. He mentioned only gas hydrates and hydrogen sulfate in the Black Sea as potential regional elements. But the number of projects and blueprints that have been developed already is enormous and they are just waiting to become commercially viable.
And I shall conclude with a true story that happened to me a few years ago at the inaugural meeting of the club of Neisse in France on geopolitics and energy. I happened to sit at the concluding dinner next to a Russian academic that shared the president of one of the scientific research institutes of the Russian Academy of Science on energy. And in order to make intelligent conversation, I was imprudent enough to tell him that I have no explanation for the suicidal policy of Russia to sell like a fire sale such precious commodities as hydrocarbons, as if there were no tomorrow.
And my only logical explanation would have been that somewhere, probably in his own institute, they already have the solution of energy for the future which is beyond carbon. And he laughed into his beard and told me, young man, I don’t think I either heard or understood your question correctly, and that is why I don’t feel that it is my responsibility to report back in Moscow that such a question was asked of me, and by whom. (Laughter.) Thank you.
AMB. BURT: Well, if they’ve got the solution, I hope they share it with us. Thank you for that real I would say Kissingerian – and that is a compliment – comment. I don’t know myself if they are new paradigms, but you’ve certainly I think raised the right issues, and those issues I think raise in turn some interesting questions about your Russian paradigm, whether or not Russian thinking on what Medvedev has called a new security architecture – and we haven’t seen any details of that, but whether it is linked at all to their own thoughts about new rules of the game for the energy market, the question of whether the Chinese are coherently pursuing a new mercantilism – in some ways it looks like they are.
I raised the question earlier this morning to the extent to which the United States really is dedicated or can implement a strategy that integrated environmental concerns with its economic and security policy. And, you know, one issue that you raise that really hasn’t been addressed too frequently here – and we probably should think about it – is this issue of what happens to the role of the European Union, assuming that the Lisbon Treaty is adopted, and we find not only new leadership within the EU, but perhaps a more integrated political and economic strategy on the part of the EU. Those are all very good questions.
Our last panelist is Mrs. Antoaneta Courleanu. She is the deputy corporate vice president of UniCredit Tiriac Bank.
ANTOANETA COURLEANU: Thank you, Mr. Chairman. I’m privileged to be here with you, not only because I’m the only banker, as far as I know, around, but also because I’m the only –
AMB. BURT: We have nothing against bankers. (Laughter.)
MS. COURLEANU: Sometimes you do, but we hope the majority of cases –
AMB. BURT: You just can’t be from Goldman-Sachs. (Laughter.)
MS. COURLEANU: But bankers should be your partners. And this is my first point that we also hear a lot of projects, huge projects, large amounts, great plans, also strategy, but all of this in order to become real, they need funds, they need money. So the bank – the financier should be involved at the beginning in any of your projects and in any of the big plans. (Sneezes.) Sorry. Another point is that having all of the – having the money with us, and the former speaker pointed out correctly that yes we are sitting on a huge amount of money, and we really would like to place them but in good projects and in comfortable ones.
Actually, another part of that, in order for us to place this money, we need to know very clear the cash projections. We need to have the business plans very accurate. And for the developers, for the business people to make the business plan – or even for the states, they need a very clear framework from legal point of view, from economic point of view, and also a long-term strategy. And I think this forum also touch a lot on this strategy. Without a clear strategy, without clear guidelines for medium and long term, this project cannot be fulfilled in the bankers opinion, let’s say.
And I’m talking for UniCredit group, which is present in 22 countries now. And actually we are present in all of the countries around Black Sea except Georgia – look on the map. So in our credit strategy, it’s really a stronger guideline to support the economic sector. And we are very happy that we have a good team of sector experts. And in the last 20 years, the group overall financed 7.5 billion euro in energy projects. So please take us with you from the beginning in any project.
Talking again about the Black Sea, all of the nations around the Black Sea, the energy sectors around the Black Sea, all of them need massive investments in the sector. So we are supporting the investments also for the traditional energy producer and renewable. And we have also in Romania, Bulgaria, also in Greece and Spain recently, a very nice project in renewable energy, mainly in wind and solar. We have in Bulgaria one project in San Nicholas near Varna which gained the best, the project finance of the year. And we are trying to replicate this knowhow to other projects. It’s important that those projects to be backed up with a regulatory framework, as I said before. And in each country it’s again different. For example, Bulgaria has been more clear, more open on medium- and long-term for the wind energy. And talking about wind and Black Sea, we know that the Black Seashore and coast, it’s very good from wind point of view for these types of businesses, so we really support this investment.
So the points – as I’m the last speaker, I think, I should be shorter to shortcut my speech – UniCredit is the one who is very careful in carbon footprint also, and we are going for financing the friendly projects, the ones that give a high degree of safety and environmental friendly. We have huge projects also in the traditional energy producer, meaning coal producer for meeting the standards of environmental – all of those filters which should be put with a certain deadline otherwise the pipelines will stop production. So here we have a good expertise and we are involved.
So more or less this is my message to you and this forum that it’s a very beneficial event. You always need money for all of those projects. Thank you very much.
AMB. BURT: Well, thank you in part for reminding us of the financial community’s interest in environmentally friendly projects. But equally, if not more important, the key point for me that you touched on was the importance of any of these projects to reflect the long-term strategy because that connects with I think a point that several other of our panelists have made, which is the need for common rules of the game. And if you don’t have some form of common rules of the game, it’s very hard to develop a long-term strategy.
MS. COURLEANU: Let me point out –
AMB. BURT: And that seems to be one of the significant obstacles currently in this region.
MS. COURLEANU: Just to add something.
AMB. BURT: Please.
MS. COURLEANU: Talking about the term and the duration of a project to become – to pay back. Actually we are talking about the cash flow. It’s usually 15 years at least. So we need to have the comfort for the whole life of these 15 years that we – the project is running. That nothing is changing dramatically in the politics, framework, economic framework or others in order to endanger this project. So that’s why when we have the comfort we go on and are with you at all times. Thank you.
AMB. BURT: Well, those are high criteria, sometimes difficult obstacles in a potentially very volatile part of the world.
MS. COURLEANU: Yes. Fifteen years, it’s a long time.
AMB. BURT: All right then. You’ve heard from our panel. I’d like to open the floor for brief comments and hopefully good questions. Can I call on somebody here?
MR. CELAC : Well, I would like to pick up a very interesting part about evolving paradigms. And this is something which is happening just in front of us. Just not long ago, the prevailing understanding was we have two great gas powers: It’s Russia and it’s Iran. And everything else is just small things around – and (Qatar ?) is kind of a part of the Iranian fields.
Now, that situation has changed dramatically actually without any many drilling, just through analysis of available data. And suddenly Turkmenistan alone emerged in a forced place, but with different analysis done by experts, the potential, accumulated together with Uzbekistan and Azerbaijan is actually of absolutely same caliber of Russia or Iran. So now we are talking about Russia, Caspian gas, and Iranian gas. From a point of view of the cost of drilling or production, we also have a very – a good preferential aspects of the Caspian and – from a point of view of delivery of course. It’s also something very attractive for Europe.
Now, a very important thing is that for Caspian countries, Europe is a preferred market. And that’s something also an emerging paradigm, which was not so well understood for long. People had been thinking that it’s okay Turkmenistan can diversify to China. It’s no problem; it’s fine. That’s not the case. Well, Azerbaijan mentioned numerous times, and today Vitali Balibayev said is our defined preferred market. And we need to just use our brain to understand why for Caspian countries China is not the same as Europe.
They are not going to tell us like this. So if this is the case, then why this all things are not developing in a speedy way. If demand is there and supply is there, and that’s how now we are need of very serious understanding of what is irreducible complexity? If the system needs to be functional, it needs all of its elements. You remove one, the system is not functional. And the southern corridor, how it is designed and how it was conceived – and there are a lot of thoughts behind this – is actually an irreducible complexity. And that’s why we’re optimistic that it will overcome the hurdles because today we heard a lot of great stories about Baku-Supsa, Baku-Tbilisi, Ceyhan, Shah-Deniz but there was also great failure. Shah Deniz is something which emerged on a remnant of the trans-Caspian. Trans-Caspian project was more advanced than Buku today. There was all agreements actually negotiated. And it failed, although everybody was confident that it will go ahead, no problem.
On the other hand, everybody saying Baku-Ceyhan was impossible. Everybody was saying Blue Stream is a Blue Dream. And we now can say that what is the prevailing opinion not always actually materializes. And that’s the important thing which we need to know: learn from the past mistakes.
AMB. BURT: Thank you. Did we have a question over there?
Q: Well, I would like to continue this – well, my name is Aleksander Kovacevic. So I would like to continue and to make a link between discussion from a previous panel and this one actually. I believe that what you call southern corridor is far from designed actually. There are a number of missing points. I’ll give just a couple of examples. If you are considering what was called diversification of the Russian economy, I’ll just translate this into numbers. That means producing energy-intensive goods in Russia where this production is the most effective. It means tens of millions of tons of goods transported along Volga-Don river system, across the Black Sea, through the probably Danube and eventually Brussels. It means completely different utilization of available port capacities. It means a new and different arrangement for navigation between Danube, Black Sea, Volga-Don system and Caspian Sea – what we don’t have.
I just want to emphasize that transporting, for example, fertilizers with a simple cargo ships is cheaper than any imaginable transport of gas. And finally, that means entirely different gas-consumption profile in Europe. It means a different industrial policy in Europe. It means also a different geographical distribution of agricultural production and a different agricultural policy of the EU.
So we are going deeply into fundaments of the world we know today. So this is just a couple of answers. If you consider, for example, Ukrainian energy efficiency, Ukrainian energy efficiency means that they can get almost self-sustainable on gas. They can use their coal resources much more better, which means, again, co-firing of biomass, which guides us to one of the most advanced and most efficient potentially agricultural industries you can imagine. So we are speaking about a major change in approach to climate change as well. So this could – this development could completely turn around the climate change problem as we see it today in Europe.
So the question is, if Europe is ready to make such big policy adjustments? I don’t know. I would like also to quote –
AMB. BURT: Well, –
Q: – sorry – to quote Lester Thurow, a Nobel Laureate in economy, who wrote in one of his books that, “Yes, Europe has to learn –
AMB. BURT: Do you want to respond at all?
MR. CELAC: Oh, I fully agree, and the numerous aspects of it. But, if there will be no southern gas corridor, you will receive either gas or fertilizer produced of gas via Russia. It’s the same gas but via Russia. So will it help competition? Will it help energy security? That’s a question everybody is trying to answer. So that’s a key point to understand that, yes, there is a room for all different things, but minimum what we need is to keep Caspian linked to Europe. And the very important thing here is that the consequence – we have a lot of talks about southern south stream and Nabucco complementary – it’s complementary, but if south stream is built first, then – I’m quoting Zeyno Baran now – then we have no Nabucco or at least we have no Nabucco linking Caspian with Europe. We have Nabucco linked to the Blue Stream. That’s the point.
AMB. BURT: Thank you. My masters here have told me that we’re moving up schedule by 15 minutes to accommodate some speakers in our wrap-up session. But I want to give Mr. Gould the last word here in respond to the interesting remarks that were made from the floor.
MR. GOULD: I mean, you’ve highlighted some of the big uncertainties on the gas-demand side for Europe. There has been a tendency I think over the last two days when people are talking about the energy efficiency and climate change agenda, they are very cautious when projecting gas demand. When people are wont to talk about pipelines and relations with suppliers, they are much more – they show a slightly a – a much more – a trajectory which is significantly higher. And I think we need to be very careful there because these are messages that we send to companies and to countries that will be investing in Europe’s future gas supply.
AMB. BURT: I’m going to unfortunately have to wrap up this conversation now. But it’s always been my definition that a good panel is a panel that raises more questions than it answers. It was my hope that we’d sort of come to a consensus and answer all of the big questions, but since this is a continuing dialogue, what we’ve done I think is put together a pretty good list of issues to address in coming weeks and months, and our conference next year in Istanbul. So we’re going to break now so we can stay on schedule.
MR. (?): No break.
AMB. BURT: No break.
MR. (?): No breaks.
AMB. BURT: If anybody leaves the room, they will be in very serious trouble. (Laughter.) I’m going to thank the panel please with me. (Applause.)
Transcript by Federal News Service, Washington, D.C.