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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