EU and Russia need to work together to resolve transit issues

by Kostis Geropoulos

An interview with Tatiana Mitrova, head of Centre for International Energy Markets Studies.

The European Union and Russia need to work together to resolve transit issues and develop some new institutional and regulator frameworks to prevent future crises "because the energy charter treaty simply did not work. It has shown its complete unhelpfulness," a leading Russian energy expert told on February 20.
"There could be many different forms of cooperation," Tatiana Mitrova, head of Moscow's Centre for International Energy Markets Studies, said, noting that during the Russian-Ukraine gas crisis European companies proposed "to participate in this so-called consortium for technical gas because they understood that it's in their own interests to help to solve this transit problem because it's not a just a problem of Russia."

"Usually Europe said: 'If you have a problem you have to solve it on your own.' Now Europe understood and especially European gas companies understood that they simply cannot wash their hands and say it's not their problem. They're involved already in all this stuff and the best decision would be to try to find solution that is win-win for everybody," she said laughing.
EU energy ministers on February 19 confirmed the European Commission's draft energy security roadmap, endorsing six key infrastructure projects aimed at diversifying gas sources and supply routes. One of these measures to improve energy security calls for the creation of a southern gas corridor to bring in gas from the Caspian Sea or the Middle East, bypassing Russia, including the planned Nabucco pipeline.

Other initiatives include diversifying the supply of liquefied natural gas (LNG) as well as offshore North Sea wind farms, efficiency measures and "indigenous" sources of energy such as renewables and nuclear to secure more reliable supplies for the future. The ministers also began discussions on "emergency mechanisms" to prepare for future threats to energy supplies to Europe.
However, disagreements remained about how to spend EUR 3.75 bn to secure energy supplies. European Commission President Jose Manuel Barroso in January proposed using EUR 3.5 bn of unused EU funds on a list of over 30 projects to increase the block's self sufficiency, boosted by a further EUR 250 mm.
"A lot of questions are still being raised... we will continue to try to justify that our proposal is right," European Energy Commissioner Andris Piebalgs said.

But the EU spending plan has not won universal approval from all the member states.
"We have to make sure that the measures make sense, are cost efficient and not only a sample of national sensitivities," German Economics Minister Karl-Theodor zu Guttenberg said. The European Commission seeks to prevent the kind of energy crisis seen in January when a row between Russia and Ukraine caused shortages in 20 European countries for more than two weeks amid freezing temperature.

Mitrova admitted that "the situation was extremely unpleasant and difficult for everybody, for Russia, for Ukraine, for the EU, especially for Central European and Eastern European countries... I understand all these reasons to start speaking about alternatives, about diversification of supply."
But the Moscow-based expert expressed her doubt that there is enough gas for the EU-backed Nabucco and ITGI (Interconnector Turkey-Greece-Italy) projects.
"If there is no gas, then any talks about diversification won't help," she quipped.

Russia's offer to buy Azerbaijan's gas, a possible source for Nabucco and ITGI, further complicates the situation.
"It's still unclear because Azerbaijan did not give any final answer to the Russian proposal and it seems to me that is just negotiating and looking for the better possibilities," Mitrova said.
"Azerbaijan's gas production is not very high and much lower than it was expected to be in the middle of the 90s so as far as I can estimate this whole production volumes are not enough for Azerbaijan to fill the pipelines," she said, adding that they would need additional sources.

She explained that Azerbaijan is producing now about 7-8 bn cm per year.
"They consume some gas domestically, they export some gas to Turkey and what is left can go to Europe so if we're speaking about 4-5 bn cm it's not enough for a single pipeline. It will be economically inefficient to build this pipeline and pump this gas," she said.

Even when Phase 2 of Azerbaijan's massive Shah Deniz field kicks in supplies may not be enough, Mitrova claimed.
"Again, there some doubts about the timing of this project and the volumes. There're different estimates official and unofficial. How much will be produced in this project? Even if are speaking for example 16 bn cm, which is a very, very optimistic estimate, assuming consumption in Azerbaijan and Turkey it gives only small possibilities for export to Europe so actually it's the same story like with Nabucco -- everybody was looking for this Azerbaijan gas as a source for Nabucco,but finally understood that it is simply not enough to fill this pipeline," Mitrova said.

The expert said that the one possible source for Nabucco would be Iran as initially conceived, but clearly because of the political problems "it's obvious that gas from Iran is not going to reach Europe in the nearest ..."
"These projects do not have enough resources to be developed and so they're in such strange state as frozen. Everybody is speaking about them; there're many conferences and presentations about Nabucco and ITGI, but there's no gas."