by Marina Pustilnik

15-05-06 Russian entrepreneur and co-owner of the Russian-British oil major TNK-BP Viktor Vekselberg came up with a refreshing idea of what energy security really is. Speaking at an investment forum in Johannesburg, South Africa, Vekselberg said that in the year of Russia's presidency over G8 club of industrialized nations the concept of energy security should be reconsidered.
"Traditionally, energy security has been understood to mean security of supply, but with Russia's leadership of the G8 a new concept has emerged -- security of demand. Security of demand for suppliers of energy resources means adequate demand for their products at a reasonable price. This will make it possible to recover investment made earlier in the energy sector and to advance it further," Vekselberg said.

Vekselberg's remarks closely echo what has been left unsaid by Gazprom chairman Alexei Miller who recently "threatened" the European nations that the Russian gas monopoly may turn to other markets (namely Asian and American), if Europe fails to treat Gazprom and its desire to enter the downstream market "fairly". What was left unsaid is that in recent months the European nations (especially new members of the EU) have been talking about the need to "diversify away" from Gazprom's supplies.
Although all of the proposed projects go a long way before they are (if ever) realized, the outspoken discussion still puts Gazprom in a precarious position, when its customers are not ready to subscribe to its services on a permanent basis. Fuel-hungry Asian countries have much less freedom of choice in this respect (or they are less outspoken about their choices), and thus Gazprom is starting to increasingly look to those parts of the world where demand is secure.

Vekselberg also defined TNK-BP's position regarding high oil prices.
"We are working on the world market and as a large supplier of oil we are not interested in working on such a volatile market. We need a predictable market to be able to plan ahead," he said.
“It is understandable of course -- after years of record-breaking profits, no one wants to return to a situation in which oil costs slightly more than $ 10 per barrel. I think that the majority of oil companies would agree that they would settle for lower prices and smaller profits as long as the slump did not take the global oil prices all the way from $ 60-70 per barrel to a mere $ 10-20.”

What is worrying here, however, is the reasoning behind this. If security of demand only means that the oil and gas companies can fall back and rest on their laurels, then it is a one-way street bound to bring the Russian exporters to failure, if not now, then in 20-30 years time.
Global economy is still powered by fuels, such as oil and gas, and until it is, the security of demand will be high -- and it will be up to each company to secure its share of demand. But this situation is not going to last forever as consumers will look for cheaper alternative means to fuel the growth.

If Russian companies are set to simply "recover investment [that they] made earlier", they will be in for a nasty surprise when the security blanket is lifted and their goods are no longer in demand.
Putting the recovered investments into exploration (such as in the case with Gazprom) and research of new technologies (such as with oil companies) is the only way to ensure that energy security works both ways -- for the consumers and producers.