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Black Sea Energy and Economic Forum 2009
Speakers:
- William Chandler, Director, Energy Program, Carnegie Endowment for International Peace
- Steven Everts, Personal Representative, Secretary-General, High Representative for Energy and Foreign Policy, Council of the European Union
- Noe van Hulst, Secretary-General, International Energy Forum, Riyadh
- Julia Nanay, Senior Director, Russian and Caspian, PFC Energy
- Alain Przybysz, Vice President, Caspian Sea – Central Asia, Continental Europe and Central Asia Division, Total SA
- Tudor Serban, State Secretary, Minister of Economy, Romania
October 1, 2009
WILLIAM CHANDLER: I’m very pleased to be here with you. Some of the comments in the first – or the second panel about nuclear power reminded me of my first boss, my first employer, Alvin Weinberg, who you may know as one of the inventors of the nuclear reactor and lightwater power reactor. Although Alvin denied it, he was one of the early enthusiasts who predicted that some day nuclear power would be too cheap to meter. So first after Three Mile Island, and then again after Chernobyl, Alvin said to me, never make a prediction until you’re very old. (Laughter.)
That struck me, as I looked at our title for this panel, our goal is to sketch scenarios for future energy security, so we’re not making predictions; we’re drawing scenarios. In this session we’ll touch on the geopolitics of energy because, for better or worse, competition for access to energy generates conflict among nations. We’ll examine the economics and development issues related to energy because price drives these cycles – energy prices in particular drive these cycles of boom and bust that we’ve just been through.
In this session we won’t touch much on terrorism or military security, but security of nuclear materials and nuclear fuels is always in the background in a discussion such as this and in this region. We’ll have to deal explicitly with climate change because it is a security issue, certainly an issue of environmental well-being that we’re all going to be dealing with.
I want to ask each of our panelists to begin with a five-minute presentation in response to a question that I will ask them, and then give them a follow-up question. Then we’ll have general discussion among the panel members, and we hope that Minister Serban will join us during the course of the session. I’d like to get as quickly as possible into questions from the audience. Our job is to listen carefully and to ask questions of our panelists.
We do have a distinguished set of panelists: Mr. Steven Everts, personal representative of the secretary-general, high representative for energy and foreign policy, Council of the European Union; Dr. Noé van Hulst, secretary-general of the International Energy Forum in Riyadh; Julia Nanay, senior director for Russian and Caspian issues at PFC Energy in Washington; Alain Przybysz, vice president for the Caspian Sea-Central Asia region at Total; and Tudor Serban, state secretary, Ministry of the Economy in Romania.
I want to start with Steven, Steven Everts. His background will lend to beginning this discussion by helping us to define what we mean when we talk about scenarios of security. So I’d like to start, Steven, if I can ask you, if you would, to come here to speak – you’re welcome – to ask you to please put in the broader context of global, or at least European, politics of this region, the issue of energy security.
STEVEN EVERTS: Thanks very much for that introduction, and thanks to the organizers for inviting me. In my allotted five minutes – and I’ll really try to stick to it, and Bill, you’ve got to correct me when I overrun – I’d like to make three points, and the first relates exactly to this point of what kind of connection there is or there ought to be between energy security and broader political, geopolitical questions. For this I like to draw inspiration from a great European, as I’m wont to – I after all work for the European Union – Jean Monnet. Jean Monnet once said that if you cannot solve the problem, you have to change the context; you have to enlarge the context. I think this is perhaps a concept that can guide us as we try to navigate these complex questions of energy security and geopolitical stability and cooperation.
I firmly believe that we need to put energy issues into a broader and wider context of foreign policy and regional cooperation. This applies to the Black Sea, which in a way unites all the different players that we need to bring together – producing countries, transit countries, consumers, regional organizations and the like.
The more we narrow the focus specifically on energy issues, the harder positions become. The broader we make the discussion and the wider the canvas we use, the more easy it is to find common ground among these different people that we need to bring together. Energy, it’s true, as you alluded to in your introduction, has been at the source of political instability, and in some places this is still true today, even in this region. But energy also connects people, and if properly framed into this broader context of how we see cooperative solutions, the more likely we’re going to make progress.
The wider canvas also applies in another way, which is that, yes, we have important energy security interests in the European Union and seek cooperation with this region and further on, Caspian, Middle East, to reach this. But we have other objectives, too – climate change objectives, regional cooperation, conflict resolution, human rights, political reforms and modernization objectives too. So we should not focus exclusively on the energy security dimension of this much wider set of objectives that we have. And this kind of comprehensive and regional philosophy, if you like, guides very much the thinking of the European Union.
Now, my second point is that with respect to energy – as indeed in international life in general – trust is fundamental, and sometimes there is a trust deficit – let’s face it – among different players in this region, among producer, transit, and consumer countries. And how do you build trust? I believe the European way – the European answer to that question is through agreed rules. Agreed rules ought to be the basis upon which we structure our cooperation. Agreed rules make states secure, people free, and companies willing to invest, and we need to do all three.
Now, there are today already a number of important instruments or organizations that have codified the kinds of rules that could structure this kind of broader cooperation. There’s the energy community, the energy charter, there are the St. Petersburg T.A. principles that the different players in this region have each signed up to, and they codify the kinds of principles of reciprocity, of interdependence, of investment protection, et cetera, that I think are tremendously important. So agreed rules.
The third point I’d like to make is what’s the EU specifically been doing on this energy policy? I think it’s accelerating and developing at a rapid pace. As everybody knows in this room, we had two major crises with respect to supply of Russian gas through Ukraine in recent years, and this has really transformed the discussion at the European level, lifted it to the highest level of heads of state and government. There’s no European Council, the meeting of heads of state and government, that doesn’t discuss energy security issues. This has really transformed, if you like, the European debate on energy.
We’ve also built, I think, the political consensus on what an EU energy policy means. I’m not going to tell you everything but just the headlines here: Market liberalization and integration amongst the 27. Still today there are energy islands and we need to – in a market sense but also in a physical sense – build and make a reality of the internal market, and this means interconnections and it means liberalization, with the gas market in particular. It also means investing in LNG, it means investing in gas storage. All these things will make Europe more robust and more integrated, more efficient and more able to withstand possible supply shocks if and when they do occur.
And, yes, on the external side it means diversification of sources and routes. It’s both sources and routes. In this context people will have heard about the Southern Corridor, where we would like very much to connect. Well, there’s an obvious connection to be made between the reserves that exist in the Caspian basin and the Middle East to the European markets. But the Southern Corridor philosophy is very much this broader one that I have. It’s about connecting people and connecting countries, not only using those countries as sort of an energy appendix but a broader relationship that shores up the political independence and reform of these countries.
There you have it in a nutshell: more market at home, more unity, and broader engagement with the rest of the world. And if we do that, I think we can make sure that energy is a force for cooperation and not political tension and conflict. I think I’ve used my five minutes. That’s it.
MR. CHANDLER: Can I ask you a question to follow up?
MR. EVERTS: Sure.
MR. CHANDLER: In the first session Mr. Patriciu commented that every pipeline has a political history, that it’s basically one of the chosen winners by the political process. Do you see the European Union as playing a role in helping to choose which of the routes are selected? Or is that something that is best left to local governments and the marketplace?
MR. EVERTS: Well, there is an agreed European position on that, which is that we seek diversification of supply routes and sources. And why do we do so? Because there’s a growing import requirement with respect to gas that everybody expects, and there is a need to have a fully flexible set of options, in particular with those countries in this part of Europe that today rely heavily on one or a very few set of suppliers and transit routes.
So projects that meet these twin criteria, diversification of routes and sources, have European Union political support, but the European Union doesn’t build pipelines. It’s private sector people that build pipelines. It’s not for us to say A or B, but to set out a broad philosophy and then let market forces decide.
MR. CHANDLER: Thanks very much. Let’s turn next to Noé van Hulst, of the International Energy Forum. You have written passionately about the effect of prices on developing countries, and I wonder if you can describe for us scenarios of cooperation between the major energy consumers and energy producers.
NOÉ VAN HULST: Thank you very much, Mr. Chairman. Good morning to all of you. As secretary-general of International Energy Forum, I want to put it in a global context, if you allow me, and of course we’ll come back to the specific region as well. I think we all, as we approach these issues, we need to take into account three – what we consider three key global trends, and they’re pretty obvious but yet often neglected.
The first one is that we will see world energy demand grow significantly over the next decades. Especially now in a time of recession people sometimes neglect that, as they will. Energy demand is low. Yes, but it’s going to pick up. Next decades we’ll see significant – whether it’s 40 percent, 50 percent – significant growth. Why? Simply because of population growth and because of economic growth in the developing nations.
And if I say economic growth in the developing nations, of course that is mainly – the big engine is Asia. I was surprised. I thought it was an excellent forum this morning, the first one, but I was surprised to hear very little about Asia. And I tend to encounter that when I’m in Europe. But of course we have to – especially the Europeans – have to bear that in mind. Asia is now the engine of world economic growth, whether you look at oil, whether you look at gas, whether you look at coal.
Second major trend, global trend is of course the dominance of fossil fuels. That has been covered in the first session so I won’t spend much on that. Fossil fuels will remain dominant in the next decades to come, even if you take the most optimistic scenario of growth in renewables, and that also has to do with the first trend because the demand is going up significantly.
Third key global trend is increasing interdependence between producing countries and consuming countries of oil and gas. Again, this has been – I was happy that that has been mentioned so much, because traditionally, nowadays, unfortunately there is too much focus on this concept of independence, energy independence. I won’t mention any names, but I think it is not productive and it is not useful. Why? Again, because the trend is exactly the opposite. The trend is major economic regions will become more dependent on oil and gas imports.
If you look at Europe, if you look at Japan, if you look at China, India, they all will need more oil and gas in the next decades. They have to import it. Where from? From the producing countries, mainly Middle East, former Soviet Union, whether you talk oil or gas. So this is what we need to bear in mind and we need to build on that. We need to get away from this concept of energy – being energy independent.
And there’s nothing wrong with being interdependent. Yes, it’s true that the consuming countries will need more imports, but the producing countries, they want more revenues. They need those more oil and gas exports to develop their societies, to diversify their economies for the post-oil and the post-gas era. So you have mutual interests, and we tend to focus too much and scare people about, oh, what happens if we are so dependent? Everybody is dependent on others.
Okay, if you see those global trends, what do we do with it? How do we build on it? This is where my organization spends a lot on their efforts. How do you build an interdependent world? We try to, of course, facilitate dialogue between producing and consuming countries at all levels – at the level of ministers, but the level of companies as well. We need to find concrete measures, the concrete ways forward to build on that interdependence.
I was happy that investment was put, I think – I’m looking at Ambassador Mann. He put it forward. I think he’s completely right. If we have this demand going up, if we need to feed so many more people with energy, lift them out of poverty, then, yes, we need much more investment. We need a lot of investment in oil, in gas, in coal, in renewables.
And that’s a big issue – how to facilitate that investment, how to facilitate better cooperation between international oil companies like Exxon, like Shell, like Total, and the national oil companies, because they are sitting – or their governments at least – on top of most of the reserves. And we need to facilitate more of that investment, more of that cooperation between partnerships, IOCs, NOCs.
How can we learn from the good examples and how can we facilitate that more? What we can do as well, and we try to push that a lot in our area of the IEF, is more transparency of oil and gas markets. We have a joint oil data initiative where worldwide we try to have better data on supply, demand, stocks, and the better the market is informed about what is happening in the world, the better also – or the less room there is for speculation and the less room there is for volatility because we need to get that extreme oil price volatility more; we have to limit that because otherwise it’s going to be adverse for investment.
So investment transparency, and of course, obviously, sustainability. If there is a fossil fuel future for decades to come – and there will be – we need to make it more environmentally sustainable so we need to talk about carbon capture and storage, how to accelerate that and to make our fossil fuel future, whether we like it not, for decades to come, cleaner.
I don’t know whether I already spent my five minutes, Mr. Chairman. Just maybe to end on a specific note. If we have increasing interdependence, if security of supply that is so much pressed by consuming countries, has also the other side of the coin, what the producing countries call security of demand, they want more predictability of demand.
My message to this audience would be, we need to take that seriously. You cannot just wave that away. Of course it is difficult, of course it is a difficult issue, but we need to be aware that if, for instance, the EU and others have very over-ambitious targets on renewables, on biofuels, you need to think about what happens if we don’t meet that, and what kind of signal are we sending to producing countries.
And if we don’t achieve those targets, basically implicitly we do still count on them to fill the gap. That is what Naimi, oil minister of Saudi Arabia, calls the nightmare scenario – all these countries turning away in very over-ambitious targets from fossil fuels, and then when it’s not achievable and you have a lot of bad luck, you turn to the producing countries and say, well, I hope you still have a lot of spare capacity to fill the gap. And if they don’t, or they have it insufficiently, we’ll see prices go through the roof, and that will kill their economic recovery. So we don’t want that.
So we have to be much more cautious, I think, and precise and open a respectful dialogue between producing and consuming countries on where we are taking the energy future of the world. Thank you.
MR. CHANDLER: Before you sit down, I’m really glad you mentioned China and Asia. I noticed in your resume that you once worked at the International Energy Agency. It occurs to me that our ability to engage Asia and this part of the world with other parts of the world, and these four that we depend on, like the IEA, like the G-8, are a little bit dated, and because you yourself have – you are leading an initiative to engage in those kinds of dialogues, I wonder what you would suggest as a way of bringing China into the IEA, or creating some new kind of organization that serves the same purpose, to have a G-8 plus 5.
Have you thought about how you would organize that kind of dialogue for cooperation?
MR. VAN HULST: Well, the easy answer to that would be, I don’t have to think about it very much because in my organization, the IEF, China is participating. And we have not only IEA and OPEC countries but we have China, we have India, we have Russia, we have Brazil, we have Mexico, South Africa. They all participate in our forum. So I would say that – I’m not so sure, let me put it that way. I’m not so sure that, you know, spending so much time about the institutional issues is really so productive. I think what we need to do is really what I call an open and respectful dialogue. We need to listen to those countries.
If China says, listen, we are still a developing country; we still have to lift so many people out of poverty, and India the same thing, we have to take that very seriously. We can bang on – if I may be a bit rude from the EU and America – on we need absolute caps on emissions, et cetera, it is not going to happen, because why not? They are in a different phase.
It is easy, relatively easy for us to talk about – I mean, as Europeans, because, I mean, for us it’s relatively easy to talk about absolute caps, but for them it is not because they have still such a long way to go in terms of economic growth before we come to that. And we have to take seriously that they do want to start talking about reducing their carbon intensity, their energy intensity, and they are doing a lot.
I have a lot of admiration for what the Chinese are putting in place. They don’t talk so much about it but they do a lot, and they do sometimes a lot more than those who talk, have a lot of talk about it. So we need to build on that. We need to build on that and we need to build a global partnership in that way which takes all the genuine interest of those countries also on board.
MR. CHANDLER: So next on our panel is Julia Nanay, from PFC Energy. Julia, I’d like to ask you a couple of questions. First, how would you define energy security in the European and the Eurasian context? Do you see differences of opinion in the extent to which Europe should rely on gas sources from the region? How would you characterize energy security? That’s my first question.
JULIA NANAY: Well, let me start. I’d like to go back to what the previous panel said, and I think it’s interesting to think about the last two years because the last two years in a way have created so much uncertainty for both consumers and producers. And if you just look back at July 2008, when the oil price was up to $147 a barrel, and then as we heard already in the last panel, by the end of the year it collapsed to $40 a barrel, then you think about what happened in January of this year.
There was a gas cut-off, and countries, particularly in Central Europe that are almost entirely dependent on imports from Russia because the gas cut-off was across Ukraine for Russian gas, those countries became suddenly paralyzed and increasingly worried about their energy security, and particularly a country like Bulgaria, which is 94 percent dependent on Russian gas, and Romania doesn’t have to worry because it’s only 20-percent dependent.
But essentially you have this situation with energy insecurity because there was no gas, and then by September or today, demand has collapsed in Europe. So what you have is a situation where in fact the Europeans are taking so much less gas that now Russia doesn’t know what to plan for. And so where it leaves the conditions for Europe – and clearly, you know, as you plan longer-term you can’t just look at it in sort of a picture of today. You have to look out to 2020 and what happens to this region in terms of supplies.
I think in the shorter term or the medium term, until 2015, because you’ve had a demand collapse this year – and clearly there are a broader range of suppliers supplying the European market than even 10 years ago, where you had essentially Russia, Norway and Algeria as the major suppliers, now you have additional supplies coming in from elsewhere, and also as LNG, the European market is going to be well supplied.
I know that we have this concern about what will happen to Russia and Russian gas production, and I would guess that probably close to 2015 those could be very relevant concerns, and even the Russians are trying to address that now with this issue of potentially trying to move more towards developing gas in the Yamal Peninsula, which is where the next big supplies in Russia are going to come from.
For Europe, looking out into the future, I think it’s really beyond 2015 and what happens. That’s really where also these new pipelines that are targeting Europe come in as well. The question on Eurasian energy, I think, is important because there is a lot of discussion now on how you connect up to Europe the energy resources of Central Asia. And where the Central Asians must get confused about it if they look at the snapshot of just today is this issue of demand collapse in Europe, and where exactly is demand going to come from when you look out into the future.
Now, one of the problems that the Europeans will have is that post-2015 the production decline in Europe from the sources that are producing here is also going to decline more dramatically. By 2020 you’re going to probably have about half of the gas production you get from Europe today. By then it’s going to be down to something like 95 bcm a year. So I think the European concern, looking out into the future post-2015, really is this issue of how do you make up that gap, and also the fact that the U.K. is going to be a much larger gas importer by then. Where does that gas come from?
You know, the fear of Russia becoming too dominant a supplier, I don’t necessarily believe that that is the correct way to look at it. I think for Europe beyond 2015, really the issue is, are they going to be able to get enough gas from anywhere? Today LNG supplies about 10 percent of the European market. After 2015 that is expected to rise, but you know, essentially the question at that point will be, who’s going to produce this gas? Is Qatar going to be able to produce more gas? Will more gas be able to flow from there to Europe? What are the sources of gas? How unstable will they be? There’s a lot of instability in terms of the producing countries, like Nigeria, for example.
And today, October 1, we have a meeting in Geneva that’s actually a very important meeting about Iran, and what happens to the Iranian nuclear program and to the relationships with Iran. Because if you look out, again, beyond 2015 and maybe even beyond 2020, if you think about global energy supplies, Iran is a very big gas reserve holder and clearly it would be a very important supplier of energy to not only Europe but the world markets.
And for the Eurasians, I suppose the issue that is most important today is the Chinese demand. We’ve heard a great deal about that, how non-OECD demand is rising, demand from China and India, and clearly these are the two areas that I think will begin to dominate the direction that Eurasian energy supplies flow, and China being a clear winner in all of this. Thank you.
MR. CHANDLER: A question for you. Concern about security and dependability of the pipeline supply is not new, but throughout even the Cold War there was never really any serious interruption of gas supply. Do you feel that because of demand, perhaps, or some other development, that the game has changed and that in the future positions could harden and we would move into a time of world conflict? Or do you see positions evolving more towards one of cooperation and becoming more normal?
MS. NANAY: Well, I think the issue of pipelines could always be a political one, and I’ve heard people in this industry that have looked at this question of more pipelines being built from, let’s say the Eurasian region, and one of the ways you could see the gas business evolve is more toward a business of swaps, so that you don’t really need all these massive infrastructure projects, but countries find a way to swap supplies in and out, like Iran does right now in terms of taking gas from Turkmenistan, swapping it over to Turkey, but there’s other examples of that.
And so the question really on these big infrastructure projects – and I agree, it’s hard to say – but they are so political, and over time we’ve always had problems, you know, with pipelines and whether it’s oil or gas, and I’m not sure that’s going to disappear. In fact, maybe it will become more complicated and worse with time.
MR. CHANDLER: I’d like to turn to Alain Przybysz of Total, who will talk about the most effective and efficient routes for extracting oil and gas from the Caspian region.
ALAIN PRZYBYSZ: Ladies and gentlemen, good morning. I won’t exactly treat what you said. In fact, I won’t speak that much about routes, but I focused my speech anyway on Central Asia and Caspian Sea region. As a matter of fact that in the next 10 to 15 years Caspian Sea and Central Asian countries will play a bigger role in the global energy security, and more specifically for the energy security of Europe.
I will focus my small speech on two countries, first of all, Kazakhstan and then Turkmenistan. I liked in fact what our preliminary thing I’d like to – what Ambassador Steve Mann said during the last session: before looking for transportation infrastructure, we need to assess the quality of the driving force. And the driving force of course is upstream resources.
Considering Kazakhstan, I will focus on oil. This country will be producing more than 3 million barrels of oil per day in the 15 coming years, let’s say, which is comparable to production of Venezuela today. And what you have in Kazakhstan, you have a strong political willingness to develop the fields. You have most of the reserve already discovered, with Kashagan, Karachaganak and Tengiz, which is in the third phase of the development. You have reputable IOCs working in those fields, bringing their technology and their money.
So what I can say is the driving force is there. And one way or another, new export routes will emerge: CPC expansion, Baltic Pipeline System-II, KCGS, then trans-Caspian to Baku. It would still take a bit of time. Discussions are ongoing, and as long as people are not really under full pressure, they take too much time. They like to hurry when you are close to production, I think.
But at the end of the day a big part of the Kazakh production with its transit to Russia, while diversification will take place towards Baku, Nakshee, Mediterranean Sea, Nekka maybe one day, Persian Gulf. And also to China with already existing pipeline with capacity can be extended to 400,000 barrels per day.
Then I shift to Turkmenistan. I try to apply the same grid to our lecture. What about the driving force that can generate new export route in Turkmenistan? Reserves in southeast part of the country, Amu-Darya basin. Yes, probably. We have a report of Gaffney & Cline. The range is still very wide, but we think, yes, probably resources. Then Turkmen political willingness to develop. Probably they would like to develop those fields, but not in a hurry, not probably at the speed we would like them to do that. Turkmen people are prudent; they are quite a small number of people. They think that they can develop this field by 10 billion cubic meters per year. And it’s not obvious that they are in the same mind as we are.
Then financing and technology might be a problem with the current policy of Turkmenistan. The onshore is not open to foreign companies, only the offshore is. And the development of Yoloten-Osman, Laslo, will represent a very big investment, but maybe Turkmenistan could not stand by their own. And also it will be a big challenge in terms of technical challenge: and (under ?) reservoir, deep reservoir, H2S high pressure. Probably they will need reputable IOC to help them to do the job.
So in fact today the driving force is not really there to promote new export route. And I don’t know if it is the reason why. The protocols that were signed in 2007 between Kazakhstan, Uzbekistan, Turkmenistan, Russia for the increase of capacity of the CAC gas pipeline from 40 today to 80, 90, to restore the reduced capacity that it had during the Soviet time; and the protocol between Kazakhstan, Turkmenistan, Russia for the Caspian gas pipeline, we have a lot of announcement about that but since then not much has been done. And in fact, can you invest in new infrastructure without being sure that you can fill it? Without being sure that you can have a grasp on the resource it is difficult.
A part of that, Chinese are going their own way, in their own direction, putting these things in the right sense; they have onshore with small field to develop; gas pipeline that they are laying now, possible access to already developed field. They are working in an upstream logic, and I think the right one. I will stop here.
MR. CHANDLER: Just a question for clarification. You said the driving force is missing.
MR. PRZYBYSZ: I don’t say it’s missing.
MR. CHANDLER: I didn’t quite get the point.
MR. PRZYBYSZ: The driving force can be there, but they are still missing some –
MR. CHANDLER: Missing from within the region or without the region?
MR. PRZYBYSZ: You have the reserves, the Turkmen wants to develop. You have to find with them what is the right way to develop; you have to find with them which field, can develop this field because it can be enormous effort, but we think that today Turkmen think that they can develop this South Yoloten field as they did with some other fields. And in fact, the biggest fields that were developed in Turkmenistan were developed during the Soviet time.
I think we have to discuss with them, try to find the right logic in order to one way or another introduce with innovative contracts, maybe IOCs in the game upstream in Turkmenistan. That would be the right way to promote new routes for export of gas.
MR. CHANDLER: I’m delighted to have Tudor Serban join us, state secretary, Ministry of Economy. Also because he is an energy expert in his own right, electrical engineer. We welcome you to the podium.
TUDOR SERBAN: (In Romanian.)
MR. CHANDLER: I want to open the floor to the audience for questions, but first ask my colleagues on the panel if they have a question for Mr. Serban. Steve?
MR. EVERTS: Minister, you gave an impressive array of projects that Romania is undertaking, and I think the sheer breadth and number and scope underlying the data, there’s no silver bullet on energy. One has to do many things at the same time, and you spoke about interconnectors with your neighbors on gas; you spoke about LNG projects, deepening relations with Azerbaijan and other countries further afield; gas storage. I don’t think there’s a single thing that you haven’t mentioned that Romania is pursuing. I think this is tremendously good.
My question is, how Europeanized is Romania’s energy strategy? How do you think does it fit with things that are going on in Brussels where people are also seeking collective and comprehensive solutions like you identify? How do you see this? Or is this Romania setting out on all these different projects, or does it feel like it’s part of a European answer to our broader energy security needs?
MR. SERBAN: (In Romanian.)
MR. CHANDLER: Let’s turn to the audience. Who will ask the first question? Yes, sir. Microphone, please. Coming to your right. Is two enough for you? (Chuckles.)
Q: Can you hear me?
MR. CHANDLER: Yes.
Q: Question to the minister.
MR. CHANDLER: Can I ask you to identify yourself?
Q: Sorry. Ron Freeman, Volga Gas, Saratov, Russia. Question to the minister on the comparability of Romania to European countries, how does Romania compare in terms of its energy efficiency? Some of the European countries like Switzerland, Denmark consume less than 5,000 btu’s per dollar of GDP. Where does Romania situation itself in this measure?
MR. CHANDLER: I think you can sit at your seat if you like. You have a microphone.
MR. SERBAN: (In Romanian.)
MR. CHANDLER: Answers your question?
Q: Yes.
MR. CHANDLER: Halfway on the left, my left.
Q: Good morning. My name is Anna Nyaga. I’m coming from Ernst & Young, Geneva, Switzerland. One of the speakers presented one of the challenges as being more transparency on the oil and gas industry, so there will be less room for speculation and price volatility. My question is, do you think that there will be more regulation on this industry? Will the governments make more regulation concerning the presentation of the banks – the balance sheet or income statement for these companies? And would that be possible?
When I’m talking about regulation I’m thinking of the banking system, which has important requests in terms of presentations and there are accords like Basel II, which states some quotas that banks have to fulfill. Can we think about that in this industry, in this energy industry?
MR. VAN HULST: Let’s see if this works. Does this work? You can hear me? Yes, thank you for that question. Just to clarify, when I talk about transparency in the oil market, it has indeed two components. It has the component of what is called the oil paper market, which is indeed the trading in oil futures, which, at least according to most analysts, was part of the issue of why we had such huge volatility in the oil market in 2008.
I can say indeed that this will mean more regulation. You can already see that emerging in the U.S. CFDC, the regulator of commodities, is moving very fast now in increasing, firstly, the transparency of what is going on in the oil paper trading, and the second one also in perhaps even moving to restrictions – position limits as they call it, technical term – which basically means more oversight of the regulator.
Big question for Europe is, how fast is the U.K. going to follow this, and the financial regulator in the U.K., because if not then we will have, again, a lack of international coordination, which is not good. I’ll leave it at that. I can go further but I don’t want to take too much of your time.
Q: Ian Hague, Firebird Management. I have a question about this concept of security of demand. If the energy markets around the world, but particularly in Europe, were free of some of the structural obstacles that exist, would that concept exist? Because the security of the demand would be, you know – the market would reveal prices for energy, which would then result in the demand being properly priced.
So I mean, I’ve heard the Russians use this term, and to me it sort of smacks of a desire by largely government-dominated energy businesses trying to hedge out the uncertainty of changing demand patterns in their markets. If we’re going to have markets, that uncertainty is not going to be – that’s always going to be around. So what exactly in practice does this concept of security of demand mean?
MR. CHANDLER: Who will go first? Julia?
MS. NANAY: Well, I guess I have raised that to the degree that the way Gazprom looks at it is that they say, we’re not going to produce the gas until we know that the demand is there for the gas. But you’re exactly right. I mean, the conditions that Russia and the European market need to move towards is more, this is what we’re talking, transparent liberalization and open market, like we have in the U.S. I mean, that’s the ideal situation, but how you get to that point is what is not clear. Until you get to that point, you’re always going to have these uncertainties in terms of – you know, in terms of how the market may be supplied more efficiently.
MR. VAN HULST: I think you’re right, if it were to be the case that indeed all these choices are made by firms, but they are not. There is a huge political impact by energy policies, and energy policies on renewables, on biofuels, on alternatives have a huge impact on the market. I wonder, how many of people here in the room would want to bet that the 20-2020 targets of the EU, or for that matter those who were in the U.S., will be achieved and will bet on that?
So the point is, if you have very – overambitious targets on these issues and you’re sort of counting on that you don’t need the fossil fuels, you know, which you are replacing, but if you don’t achieve it, you’re basically – and this is my whole point – implicitly counting on the producing countries to fill that gap. I think that is the issue where we need to talk much more, producing and consuming countries. What can we realistically expect? How can we get to more predictability? And that’s not an exact number but it is a range of what we are talking about under uncertainty. That range can be narrowed down a lot because my point is, again, that some of these targets are so over-ambitious that we are taking a big risk.
MR. CHANDLER: Why don’t you remind us what the 20-2020 targets are and then we’ll ask the panel to place their bets. (Laughter.)
MR. VAN HULST: Well, I mean, it’s the 20 percent – I mean, basically for this discussion most relevant, the 20 percent renewables in 2020 of the energy mix.
MR. CHANDLER: Steve.
MR. EVERTS: Well, if I were a betting man, I think that the European Union will reach the target. This is a little bit how the European Union works. You set ambitious targets, initially people say, that’s crazy; you’re never going to make that. But then you define pathways and instruments to reach your objectives. There are emission trading systems, there are incentives for – that will price carbon differently, that will therefore trigger new investments in order for you to reach that target.
It’s a little bit, in my view, also the discussion that we had years ago around the euro, where there was a lot of skepticism initially, in the Anglo-Saxon world in particular, and people said, you know you’re never going to reach that. This is crazy. But the euro is alive today and most people would say has served us well in the financial crisis. So I would say there’s a very good chance that the European Union, which has committed itself at the highest political level to those targets, that we will meet that.
But I fully agree with your point, Noé, that we need to talk to our partners about what this means, and as much dialogue and as much transparency as possible with producing countries on how our commitments – they’re not targets; they’re commitments – will impact, you know, longer-term investment decisions and how this relates to discussions with China and with other big consumers, and the kind of commitments that hopefully people will take in Copenhagen. We need, as I tried to indicate earlier – we need to have a mental map with respect to this issue that is large, that integrates our energy and our climate and our foreign policy objectives, and don’t do this in isolation as Europeans only, but talk to the partner countries about it. But don’t doubt that we’ll reach the 20-percent target.
MR. CHANDLER: Let me ask the question in a slightly different way. How much do each of you think that Copenhagen or climate change policy will affect the markets for oil and gas in the greater Caspian-Black Sea region? Alain?
MR. PRZYBYSZ: Well, I don’t think I’m really capable to answer this question, but there is one thing when you are speaking of security of demand, is that for the producing states and also for the companies working with them for gas with the massive investments that we have to make, we need long-term contracts. We don’t have that much flexibility. We need to be sure that in 20 years we will sell as much gas because otherwise we can’t make the project. We don’t want to take this type of risk.
MR. CHANDLER: But gas is in a special place because it may be a transition fuel. Oil may be a different –
MR. PRZYBYSZ: Oil is different. Oil is more fluid. I mean, it’s an equilibrium between demand – you just have to bring the oil to open seas and then you sell. But it’s a matter of fact if the price gets too low, you may also impede some oil project be made, but we don’t think it will be that way. Oil price are still now at a good level, again at a good level, and we can do big project with that.
MR. CHANDLER: Let’s go back to audience.
Q: Is this working? No.
MR. CHANDLER: Now it is.
Q: Okay. Jennifer Coolidge, Caspian and Gulf Consultants. This is a question maybe for Julia, but more broadly for the panel, and echoing what you have spoken a bit about, Alain. Globally I’d like to know what you think about the interrelationships and the ability of NOCs and IOCs to work together, and then put that in context of the current economic crisis, and how the situation may be changing or could change in the future. Perhaps Mr. Hulst, you’ll have some opinions on this as well.
So I’m thinking – I mean, I concentrate on Central Asia so I refer to your comments on Turkmenistan, but how can we see the situation changing between IOCs and NOCs going forward with the current economic climate as it is changing, and the decreasing demand growth in certain markets? Thank you.
MR. CHANDLER: Julia, and then Noé.
MS. NANAY: Well, I think the question really is that, as we heard also from the ministry here, is that sometimes governments prefer to work with other governments, so you have government-to-government deals that actually dominate in some respects in terms of what’s done versus NOCs and IOCs. You know, in terms of the financial crisis, I agree with you that there should be opportunities now for the international oil industry to work more closely in countries particularly like Kazakhstan with the Kazak state oil company, and maybe even in Turkmenistan, which in a way because gas exports to Russia have been cut off, potentially would need to collaborate with others.
But often what you get is that the Chinese government and Chinese companies move in and fill the space that in the past you would have said international oil companies could fill, whether it’s on the money side. Technology, I think still the international oil industry leads in that. But just yesterday we saw China taking an 11 percent stake in Kazwuni Gas E&P. They bought GDRs. So the money element is now often filled by this government factor.
But should there be better cooperation? And I can comment on this for a project like Kashagan, which is one of the world’s major oil fields, I do not believe that that’s going to move forward successfully without complete cooperative arrangement between the Kazak state company and the international companies. These very complex projects, I think, do need the IOC participation.
I don’t know how that will translate to Turkmenistan because, as we heard right now, the Turkmen state company still feels that maybe they can handle their big onshore gas project. But I believe that there should be a bigger and better role and a more cooperative role for international oil companies.
MR. VAN HULST: I think Julia is absolutely right, as always. She’s also right in pointing out that it’s even more complex. Traditionally we talk about IOCs, international oil companies, and national oil companies from producing countries, but indeed, the new era now is that there are national oil companies from consuming countries, particularly China and India, that are taking increasing role. So it’s even more complex than that.
And my – no, I shouldn’t say prediction because somebody said that’s very dangerous.
You said that, and I’m too young to make predictions, I hope. At least I hope I am. But I think what you will see, what you are going to see is completely new business models emerging because that is inevitable. I mean, international oil companies, they sit on top of so much money, capital – I mean, technology, human skills, but at the same time they have this big issue of how to replace oil and gas reserves.
So they will need to, whether they like it or not, to cooperate more and more with national oil companies from producing countries and from consuming countries. Look at Iraq, where BP and the Chinese NOC took the first bid that was up for grabs there. So I think we’re going to see much more there in the coming decades, completely new models that we haven’t thought about before. I can’t predict what they exactly will be, but I’m sure that all the IOCs are now putting all their brains together on making that work.
MR. CHANDLER: Last question. Any two-handed burning –
MR. VAN HULST: You wanted to say something on this one? (Laughter.)
MR. PRZYBYSZ: I have to answer the question that she asked me on Kashagan. So regarding Kashagan, that I confirmed that we have to work with KMJ, to cooperate with KMJ. It’s a duty for us to do that. We do it through the new organization that has been put in place with the North Caspian operating company, where KMJ has a – not a dominant but a real role in fact in the decision, and also by the increase in participation that they have now in the project. They are the same level as Exxon, Shell, Eni and Total. So I fully confirm.
Then regarding the relation between NOCs and IOCs, we have to – whatever we think, it’s a fact. For oil and hydrocarbon-producing countries, this activity is strategy. If they want to control it, then one way to control it is the NOCs. So we have to live with that. It’s now something that will not change, I think.
And the second point is, when you have cooperation between IOCs, and NOCs, you facilitate the technology transfers. And all those countries are really greedy in technology transfer. Coming to Turkmenistan, they are not convinced now that they need the IOCs. We have to show them that it’s a win-win situation, that they will get more of their potential if they utilize our know-how. We have to show them that they will keep control – with certain type of contract – of their destiny. And we have to show them that technology transfer will occur and that will have a knock-on effect in fact on the oil economy – industry network of the country.
I will finish with one project that Total likes very much, is Stockman. It is not easy, has not been easy for Gazprom to accept, to work with companies like Total and Statoil, but in fact we found the good contract the right way to work with them, and you have now a perfect association. I think it’s a very good example.
MR. CHANDLER: You have a ten-second question?
Q: Yes. So quickly, Julia, are you aware of realistic prediction or estimation of European gas demand, which takes into account transfer of energy intensive industries away from Europe, and transit in residential gas demand because of heat pumps and new technologies, et cetera? I’m just wondering that many producing countries, including Russia, Saudi Arabia, et cetera, they have an ambitious industry in energy intensive industries, which are certainly able to compete in the field.
MR. CHANDLER: You have a five-second answer?
MS. NANAY: Well, I think that’s a very good question. I don’t have an answer for where European energy demand will be in 2020. The numbers are 600-plus bcm right now. Obviously it’s hard to know, and I think you’re exactly right that, you know, energy intensive industries may move elsewhere and may grow elsewhere. But European production is declining, so there is no question that there will be a gap to fill. The question, how big is that gap.
MR. CHANDLER: This has been a fun session for me. Thank you all very much. Two words that struck me as most important in summary – that diversity is good, but that interdependence is also good. So thank you, panelists, and thank you, audience. (Applause.)
Transcript by Federal News Service, Washington, D.C.