No. 1, 2004

The last few months of 2003 were marked by several important events confirming Russia's genuine intention to maintain its course toward fuller integration into the world energy industry and to establish partnership and friendly relations with the EU as one of the centers of global energy policy.

The attention being paid to developing the energy dialogue between Russia and the European Union reflects objective mutual interests in maintaining stability in the European energy supply and energy security system. For example, approximately 16% of all European import of crude oil comes from Russia, and if we include the volume of delivery of Russian petroleum products, this index reaches 21%. It should also be kept in mind that Russian natural gas accounts for approximately 41% of the total volume of Europe's import of "blue" fuel.

As a vital component of partnership and cooperation, the energy dialogue has recently become a conclusive indicator of the level of trust and sincerity in relations between the Russian Federation and the European Union.

At present, the political and legal basis of the energy dialogue between Russia and the European Union consists of the main provisions of four documents: the Agreement on Partnership and Cooperation of June 24, 1994; the TACIS Program (1991); the European Union's General Strategy toward Russia (1999); and the Mid-Term Strategy for the Development of Relations between the Russian Federation and the European Union (2000-2010).

The 6th EU-Russia Summit (October 2002) launched the Energy Dialogue by defining the priority provisions of these agreements on cooperation in energy saving, rationalizing energy resource production, creating transportation infrastructure, investment capacity building, and establishing relations between the producers and consumers of energy resources. Its main goal is to achieve strategic energy cooperation between the European Union and the Russian Federation. The past year has shown that this is an effective mechanism for implementing measures to stabilize the energy situation and establish mutual understanding between the sides.

This new approach was manifested in particular by the opening of the Technology Center of the EU-Russia Energy Dialogue in Moscow on November 5, 2002. During its relatively short lifespan, the activity of this institution has been highly evaluated by Russian industrialists and businessmen, as well as by the European business community.

Yet another important milestone was the Conference on the Comparative Analysis of Energy Strategies within the Russia-EU Energy Dialogue held in Moscow last October. The Russian side was represented by Deputy Chairman of the RF Government Viktor Khristenko, high-ranking officials and experts from the ministries leading companies and research organizations of the fuel and energy complex. The EU delegation was headed by Francois Lamoureux, General Director of the General Directorate for Transport and Energy of the European Commission. The main item discussed at the conference was Russia's Energy Strategy until 2020, recently approved by the RF Government, as well as documents published recently by the European Union Commission on Trends in the European Energy and Transportation Sector until 2030, and the Green Book toward a European Strategy for Ensuring Energy Security. During the exchange of opinions, it was acknowledged that there is a growing energy interdependence between Russia and the EU, as well as the desire to achieve a unified policy, industrial cooperation, and investment interaction, and bring the norms and standards in the energy sector into close harmony in order to open a real continental energy market. As was noted during the discussion, Russia's Energy Strategy until 2020, approved by the Russian government last May, emphasizes its role as an important factor influencing the world energy markets, and the main attention is being focused on increasing the safety of energy deliveries by modernizing and expanding energy capacities through attracting investments into the energy sector, creating a new energy infrastructure, improving internal balance among different types of fuel, and developing a monitoring system. The total volume of investments necessary for achieving the Strategy's goals is estimated at 823 billion euros, whereby 232 billion euros are required for the oil sector and 201 billion euros for the gas sector. These figures show the impressive investment resources of European companies that could be pumped into the Russian fuel and energy complex.

The conference participants noted such general tasks as the safety of energy resource delivery and demand, raising the level of economic competition, lowering the instability of energy markets, joint financing of important projects in the sphere of energy infrastructure that are of mutual interest, ensuring the sustainable development and use of energy resources, cooperation in assimilating new and advanced energy technologies, All the conference participants also highly appraised the crucial role that Russian gas plays and will continue to play in ensuring the energy security of the European continent. During the discussions on the importance of intensifying relations in the energy sphere, the question was raised of transferring oil and gas export payments into euros. Keeping in mind that this question is ultimately a matter to be agreed upon between suppliers and their clients, the conference participants emphasized that switching the settlement to euros would be a clear signal indicating a deeper level of relations in the energy sector between Russia and the EU. The conference participants welcomed the recent EU decision to assist in financing the feasibility studies for the North European gas pipeline with a view to improve Russian and EU energy transportation infrastructures.

It was also noted that fruitful work can be carried out in developing an efficient base for reducing energy consumption. The conference adopted its final document, which states that significant results have been achieved in the past three years within the framework of the Russia-EU energy dialogue. In particular, the importance of long-term gas delivery contracts was confirmed, as well as of efforts to resolve questions relating to territorial reservations that are included into certain long-term gas contracts; the Russian energy sector became more open to European investments; and several important projects of mutual interest were defined in the sphere of energy infrastructure, including the North European gas pipeline.

Yet there is still a number of unresolved problems, which are seriously hindering the energy dialogue between the EU and Russia.

On the one hand, Russia is still burdened by urgent domestic issues regarding further reform of the economy, social sphere, and state administration, which require broad and many-sided efforts to resolve. On the other hand, the real potential of the energy dialogue cannot be utilized due to the unconstructive stance held by some officials from the European Union leadership.

At the end of last year, at a meeting with representatives of the leading industrial corporations of the largest European countries in Moscow, Russian President Vladimir Putin emphasized that "Russia now and again comes up against unjustifiably strict demands, which are essentially blocking Russia's entry into the WTO. Although we constantly hear assurances from the European Union that it supports this process. The matter primarily concerns so-called energy requirements." He went on to say: "We do not have any major differences with the EU about introducing market principles into the Russian fuel and energy complex. As for the interests of energy-intensive industries in the EU countries, we are convinced that their protection in no way requires such drastic measures as an instant increase in domestic energy resource prices."

Vladimir Putin's speech voiced new specific proposals within the framework of the energy dialogue: "… Instead of dead-end bargaining disputes we suggest looking for pragmatic, mutually advantageous models that will expand the joint use of our economic advantages. The development of energy-intensive industries in the EU can very possibly be underpinned by long-term strategic alliances with Russian energy exporters … we need to move toward constructive mutual integration of our energy markets."

Now the ball is in the court of our European partners, from whom we need specific measures for putting the vast potential of cooperation in the energy sphere into practice, which have a special place in the system of coordinates of global energy policy.