Russia: a new confrontation? - Defence Committee Contents


Examination of Witnesses (Questions 96-99)

PROFESSOR JONATHAN STERN AND MR JOHN ROBERTS

17 MARCH 2009

  Q96 Chairman: May I welcome both of you. You are the first wave of our witnesses this morning talking about Russia. You are our energy experts and I wonder if I could ask you to introduce yourselves.

Mr Roberts: I am John Roberts. I am the Energy Security Specialist with Platts. That basically means I look at the relationships in energy between the Caspian/Russia/Europe. That takes in Turkey as well. I have a predominant, increasingly, interest in gas, because while energy security was once considered to be an oil problem, it is now increasingly a gas problem.

  Professor Stern: I am Jonathan Stern, Director of Gas Research at the Oxford Institute for Energy Studies, and I hold appointments at the University of Dundee and Imperial College. I have worked on Soviet and then Russian and CIS energy, especially gas, for over 30 years and I have recently published quite a lot of work on specifically gas security and Europe, not completely but partly in respect of Russian gas supplies.

  Q97  Chairman: Would you agree with John Roberts that this is a gas issue not an oil issue? Or do you see it more as a gas issue?

  Professor Stern: I think the urgent questions relate to gas. I would not say there is no oil issue but the urgent questions are certainly gas ones.

  Q98  Chairman: Thank you. To what extent is Russia using energy as a foreign policy tool?

  Mr Roberts: It has declared publicly from time to time—I think it is there in the 2003 document on Russian energy policy—that energy is a tool to be used as part of foreign policy. It has instituted cut-offs primarily to former Soviet or Soviet-controlled areas: cut-offs in energy have been applied in pursuit of political goals. On the other hand, in its relations with the bulk of the European Union, it has been, at least until the latest crisis, impeccably good and a reliable supplier. You have a rather split mentality between the way Russia behaves to former Soviet territories or Soviet-controlled territories and to western partners.

  Professor Stern: I would partly concur with that, certainly in relation to European energy suppliers. In relation to CIS supplies, the position is very complicated. When normally it refers to Russia using energy as a political tool, it tends to imply the use of energy as a weapon to threaten countries by withholding energy. This is very complicated, because the whole of the post-Soviet period has been punctuated with the inability of these countries to pay anything like market prices for energy supplies, so a great deal of the Russian cut-offs of energy have been largely commercial problems with these countries incurring massive amounts of debt in billions of dollars. Nevertheless, there have certainly been situations where the Russians have used energy if not as a political tool then with political motivations.

  Chairman: Thank you. That is very helpful.

  Q99  Mr Borrow: I would like to move on specifically to the European Union energy policy and the extent to which the European Union is and will be in the future, dependent upon Russia for oil and even more so for gas, and the security implications of that dependency. Would you perhaps explore that a little bit.

  Mr Roberts: I think the principal concern is that Russia is almost in a sense the residual supplier. If you look at likely demand increases for European gas imports, more or less you could say the anticipated increase in demand could be met by increasing production from Norway, obviously, North Africa and, in the near-term future, LNG from Qatar and other suppliers, but that presumes that you have a more or less stable supply of gas coming from Russia, which currently accounts for one-quarter of EU supplies and close to half of EU imports. The problem there is that I do not believe we know what Russia will be producing over the next 10 years or so, what it will be consuming itself over the next 10 years or so, what access it will have to Central Asian supplies to make up the balance, and all of this reflects on Russia's inability to come up with what we would like to see, which is a transparent and coherent investment policy for the development of Russia's own gas resources. It looks to me as if the Russian focus is at least as much on development of new and largely unnecessary transit infrastructure in the form of pipelines, rather than upstream infrastructure in the form of developing new fields. Unless we get that one sorted, there has to be, if not a presumption, a serious possibility of declining volumes of Russian gas for export.

  Professor Stern: I think it is almost impossible to talk about Europe as a whole. One thing that the crisis in January taught us very starkly is that North West Europe, while dependent on Russian gas, can withstand an interruption of very considerable proportions; in fact, most North West European countries could have withstood an interruption for months without even cutting off interruptible supplies of gas. The problem is in South Eastern Europe where most of those countries only have Russian gas or have a very small amount of other gas. There is a big issue about a timeframe here. The situation has changed fundamentally in the last six months to the point where in a book that my institute published a couple of months ago but which I finished in June, I was foreseeing a significant supply crunch for Russian gas as early as 2011. That has now completely gone away because of economic crisis and reduced demand in Russia, in CIS, and in Europe, so we are looking at, if there is a problem, a problem for the mid to late 2010s. But let me make two fundamental points about European security. I disagree with John, in that I believe that this crisis has shown that all the new transit infrastructure that Russia needs to build or is trying to build, specifically the Nord Stream and South Stream pipelines, is essential for Europe, because I believe that this most recent crisis proves that the Russian-Ukraine relationship has broken down probably irrevocably in relation to the transit of gas. The other thing that I think it is fundamental to understand from the Russian perspective is that they do not know what the Europeans are saying to them. Are Europeans saying, "We don't like you and we don't trust you and we want less of your gas—or certainly not more of your gas"? Or are Europeans saying, "Well, in the future we're going to need more of your gas, so please put yourself in a position to provide more by investing"? They do not know and, frankly, I do not know what position Europeans are taking about this.



 
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