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Speech by Minister of State Erler on European energy security and the role of Russia at the Carnegie Council in New York

05.02.2007 - Speech

You have asked me to speak to you today about Europe's energy security and the role of Russia. If you had invited me to talk on this subject five years ago, I would certainly have been very surprised. In those days the lights on the Christmas tree in front of the Russian Embassy in Berlin had to be sponsored by a local radio station!

Five years are clearly a very long time! Today's Russia is an energy giant and in Europe reports about Gasprom's or Rosneft's expanding business empire are more or less daily news. For Germany and Europe as a whole Russia is now one of our leading oil and gas suppliers. I would point out, however, that Europe has been importing pipeline gas from Russia for over 30 years, well before the collapse of the Berlin Wall. Like most Central and Eastern European countries Germany also imports oil by pipeline and by tanker as well from Russia. And Europe has made good experience with the Soviet and Russian energy supply for almost four decades: Relations are reliable and independent of political change (Brechnev, Perestrojka, Gorbachev, Jelzin, Putin) as well as change of system.

But the situation today is very different from what it was in the past. In January 2006 the dispute between Russia and Ukraine over higher gas prices culminated in the temporary suspension of Russian gas supplies to the country. The pipeline shut‑off was actually broadcast live on Russian TV. By the way, this seems to me an excellent idea for damaging the Russian prestige as a reliable supplier.

The suspension also affected a number of Central and Eastern European countries as well as Germany, Austria and Poland, which all relied on the same pipeline. For Germany this was a sort of a wake‑up call. At the Munich Conference on Security Policy in February 2006 Foreign Minister Steinmeier coined the term "foreign energy policy" – a pretty novel concept in Germany at the time – and urged the importance of enhancing energy security through greater cooperation between producer, consumer and transit countries as well as with the private sector. In the light of the events in Ukraine, some people even began to talk of a new "cold war". The European Commission responded with a so-called Green Paper in March entitled "A European Strategy for Sustainable, Competitive and Secure Energy", which made the case for a cooperative approach based on energy partnerships.

Almost at the same time a fresh debate arose over Russia's motives for not ratifying the European Energy Charter Treaty. For although Russia signed the Treaty some time ago, it has refused to ratify it to date. The Treaty not only lays down rules for the protection of international investments in the energy sector, but also contains excellent mechanisms for the settlement of disputes and arbitration in particular. At the G8 Summit in St. Petersburg last summer Russia did in fact endorse many of the principles set out in the Treaty.

We Europeans want to see the planned successor agreement to the EU's existing Partnership and Cooperation Agreement with Russia include an ambitious section on energy. At the moment, however, the negotiations on a new agreement are being held up by Poland's refusal to give the go-ahead until Russia lifts its ban on imports of Polish meat. But we are optimistic to overcome the problems in the near future, so that we can start talks with Moscow.

As for the so‑called Baltic Sea pipeline, here opinions differ. We view this new pipeline through the Baltic, a direct link between us and Russia, as a sensible diversification of our supply routes. The pipeline is, by the way, one of the EU's trans-European transport network projects.

Poland, however, has considerable reservations about the pipeline, which it fears may jeopardize its national interests. The Baltic states, too, are somewhat suspicious of the idea and the Scandinavian countries are worried about the environmental impact.

The most recent dispute over oil and gas supplies – this time between Russia and Belarus – happened just a few weeks ago. Put very simply, Russia's aim in this dispute was to at least substantially reduce the subsidy it has been providing for the Belarusian economy in the form of cheap oil and gas. Obviously the Lukashenko regime saw this as a highly threatening move. At the end of last year the two sides finally reached agreement over gas supplies, although Belarus was forced to accept steep price rises. But on the matter of oil supplies the new year began with nothing resolved. During the ensuing negotiations Russia at one point stopped pumping oil through the so-called Friendship Pipeline, a shut-off which affected also Germany, Poland, Hungary and the Czech and Slovak Republics. Finally a new deal was reached that gave Russia most of what it wanted.

In this situation I think it is important to emphasize that this Russian‑Belarusian dispute did not have any adverse consequences for end‑consumers in Europe. Although in the case of oil some 20% of Germany's oil imports were affected by the temporary shut‑off, this caused no shock waves in the markets – the price of oil continued to fall, in fact. This level-headed response was a clear demonstration that the instruments created during the oil crises of the 1970s have become a real factor for stability in this area. In the same vein IEA Executive Director Mandil noted that if Russian oil stopped flowing, global strategic reserves were sufficient to last 4,000 days. To my mind that was a statement of great significance.

In the media, however, the response to the Russian shut-off was very different. In Europe there are currently three schools of thought concerning Russia's energy policy, especially vis-à-vis those CIS countries whose economies Russia once subsidized by charging artificially low prices for its oil and gas.

  • Firstly, the market‑economy school, which holds that Russia is merely cutting its subsidies to these countries. This is necessary so that in the medium term it can stop subsidizing gas and oil for the Russian population, too, and drastically reduce the country's energy consumption. Gasprom's and Rosneft's profits will of course soar if they are no longer forced to subsidize prices in other CIS countries as well as Russia itself.
  • The second school I would call the geopolitics school. The basic assumption here is that Russia is intent on gaining maximum leverage from its oil and gas reserves and will miss no opportunity to make transit countries cede control of the pipeline network. As evidence proponents of this view cite Russia's attempts to force Central Asian countries to export their oil and gas to the West via Russia.
  • The third school is the dialectical school, a combination of both market economy and geostrategic perspectives. Vis‑à‑vis CIS countries whose energy imports it subsidizes the Kremlin threatens subsidy cuts both to ensure "good behaviour" and to punish what it deems errant behaviour. Russia's dealings with Georgia and its insistence on a higher gas price are a typical example of such tactics, it is argued. According to this view, Russia is motivated both by commercial interest and considerations of power politics. That explains its attempts to gain control over gas pipelines in transit countries such as Ukraine and Belarus. Such factors might also play a role in the current dispute between Poland and Russia over the Polish section of the so-called Jamal pipeline, which pumps Russian gas through Poland to the West.

During the recent Russian-Belarusian oil dispute Federal Chancellor Merkel, the European Commission and also our Foreign Minister Steinmeier sent Russia a clear message that we expect Russia to honour its contracts and show that it is a reliable supplier. That is also an important issue in the current EU-Troika´s visit to Moscow. Given Russia's enormous oil and gas reserves and its geographical proximity to Europe it is also clear, however, that Russia will remain Europe's number one energy partner. To those US experts who have warned us that we "have a Russian problem" I would point out that in fact it is also right that "Europe has a Russian opportunity". Of course in our dealings with Russia the legacy of European history will always make itself felt. Central and Eastern European countries and Poland in particular have considerable reservations vis-à-vis Russia. Nevertheless it is important that we set our sights on the future.

Russia and Europe are both dependent on each other.

Russia needs its income from the EU and the EU needs its energy supplies from Russia. In figures: 70% of Russia´s energy exports go to Europe whereas the EU imports 30 % of its energy from Russia. So the question is: Who is more dependent?

It doesn't really matter whether we describe this state of affairs as interdependence, inter­linkage, complementarity or even symbiosis.

As a consumer, the European Union carries considerable weight. When it talks to Russia it needs to have a clear idea of what it wants. One of its objectives must be to put its long-term cooperation onto a sound contractual basis that provides also for mutual notification mech­anisms and arbitration procedures.

That means Germany as holder of the European Union Presidency has a tough task on its hands over the next few months. We need to make Russia understand, of course, that uni­lateral shut-offs are unacceptable and that contractual fidelity and security of supply are essential for any reliable long-term partnership. The Kremlin received a clear message to this effect during the recent dispute with Belarus. Yet at the same time we need to canvass support throughout the EU for the European-Russian energy partnership. That, too, is no easy task. If we get the EU mandate which is at the moment barred by Poland, to negotiate the PCA with Russia for the next decade, we will have a good chance to make energy cooperation an important point in that binding document. And of course we will strive for regulations very similar to the rules of the EEC. When Madame Chancellor Merkel recently met President Putin in Sotschi, Putin did not reject the German announcement to do so. I hope we can test the Russian position in this regard in the next few months. Anyway: there are serious challenges in energy politics and exciting months ahead for our Presidency!

Thank you very much.

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