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Monday, April 13, 2009

Energy in the end of March, 2009

Today:
  1. Putin warns EU over Ukraine pipeline deal
  2. Russian-Azeri gas deal a blow to Nabucco
  3. Commissioner advertises Russian oil firm
  4. EU strikes deal on energy market liberalisation
A very good one. Especially the first 3 articles which are quite fun actually :) I hope you enjoy reading this as much as I enjoyed writing it!

Putin warns EU over Ukraine pipeline deal

24 March 2009

Russian Prime Minister Vladimir Putin threatened yesterday (23 March) to review his country's ties with the EU after a European Commission plan to modernise Ukraine's gas pipeline system failed to include Moscow.

In Moscow, Putin called the EU-Ukraine gas pipeline modernisation plan, announced yesterday (23 March), "ill considered and unprofessional".

Hours before in Brussels, Russian Energy Minister Sergei Shmatko also blasted the agreement, signed earlier that day between Ukraine and EU representatives, and even warned that the plan may backfire, with serious consequences for European consumers.

The EU-Ukraine declaration, signed with Ukraine Prime Minister Yulia Timoshenko in Brussels, pledges assistance to modernise the country's 13,500 km pipeline system. Shelving his personal conflict with Timoshenko for the occasion, President Viktor Yuschenko also attended the conference, where a Ukrainian 'masterplan' for modernising the country's gas system was presented and hailed by the European Commission.

During his speech, Commission President José Manuel Barroso apparently irked Russia by calling Ukraine "a flagship in driving forward the Eastern Partnership initiative". Over the weekend, Russian Foreign Minister Sergei Lavrov lashed out at the EU's new Eastern Partnership, set for its formal launch on 7 May, describing the pact as an attempt by the EU to spread its "sphere of influence," a criticism which he said his country often stands accused of itself.

Valeri Golubev, deputy chairman of Gazprom's management committee, joined Shmatko in warning that the Commission's plans to modernise the Ukrainian gas system by isolating Russia will trigger "double expenditure" at the expense of the consumer. Golubev also called for any such effort be channelled via the consortium between Gazprom and Ukrainian gas monopoly Naftogaz, in which both sides hold 50%. Additional EU shareholders could also join, he said. The consortium was set up as part of the agreement that ended the January gas crisis.

Both Shmatko and Golubev expressed reservations regarding the idea of setting up a single entity in charge of gas transportation through Ukraine. They also described as "unrealistic" the cost estimates for the modernisation of Ukraine's pipeline system, which the EU and Ukraine valued at 2.5-3 billion euros. source

My comment: As you know I tend to support Russia in their row with Ukraine. But at this occasion, I find their behaviour quite premature. It's absurd to leave conferences in protest, because your country wasn't mentioned as very important. Or to be angry that the EU is spreading its influence, especially when you do the same all the time (and when this is more or less normal). This isn't the behaviour that one would expect for such a big and important country. Who cares what's in that document, if it's unrealistic anyway. If you want to be respected, you must behave in a respectful and self-dignified manner. And I find the whole situation quite shameful. Though, I agree, it's odd to pour money into a country that's not a EU member, especially when it has problems with your biggest supplier. And it's not very smart, neither. Not to mention that the whole problem was never due to the state of the pipes in Ukraine-it was about unauthorised use of gas, transparency problems and the lack of satisfying payments for both sides. How this new European initiative will deal with those problems?

Russian-Azeri gas deal a blow to Nabucco

1 April 2009

Gazprom and the State Oil Company of Azerbaijan last week signed a memorandum of understanding for long-term supplies of Central Asian gas to Russia at market prices, further undermining the EU's favoured Nabucco pipeline, analysts said.

According to a Gazprom press release, the parties committed to "massive long-term cooperation" after an agreement was reached on 27 March to settle the terms of Azerbaijan's gas sales to Russia.

First deliveries are expected in January 2010 on delivered-at-frontier terms, according to the Memorandum of Understanding.

Pavel K. Baev, a senior researcher from the Oslo International Peace Research Institute, suggests that the project could make Nabucco irrelevant as Azerbaijan is seen as the most likely first gas supplier for Nabucco.

Behind the signed agreement lies a pipeline project, Baev said, which like Nabucco could also be named after an opera, such as 'Prince Igor' by Alexander Borodin. The pipeline would channel Russian gas together with supplies from Azerbaijan towards south-eastern Europe, via the planned South Stream pipeline and under the Black Sea, from Novorossiysk to Varna in Bulgaria.

Agata Loskot-Strachota, an energy policy analyst at the Centre for Eastern Studies in Warsaw told EurActiv that sales of Azeri gas to or via Russia would reduce the volumes available for rival pipelines such as Nabucco and weaken the incentive to get involved with them.

"Azerbaijan is forcing both EU and Russia to issue more concrete and commercially attractive offers. This means that the time is running out for those European consumers or companies, who want to have Azeri gas shipped to the EU independently of Russia," the Polish researcher concluded. source

My comment: I don't think this article is very well stated. When you have two competing projects, it makes sense that the their supporters will compete for resources. So, the EU should have been quicker and we should have made a better offer. We didn't so we lost. You can blame your rival for playing smarter than you. And in any case, I prefer Turkey out of the European gas grid, because they already showed signs of black mailing the EU with those projects. And that's not acceptable for me. And shouldn't be acceptable for Europe. So, I find this news for quite good. Even if it means more dependency on Russia. And in any case, the way out of the dependency isn't by finding new sources, but by using new resources-like wind, energy and water-which we have in abundance. And the whole story might help Iran, so one good possible outcome!

Commissioner advertises Russian oil firm

27 March 2009

In an attempt to convince a Russian oil firm executive that the EU is not trying to limit his country's capital investment in the Union, Energy Commissioner Andris Piebalgs in fact ended up advertising that firm at a public event held in Brussels yesterday (26 March).

Speaking at the European Business Summit, Piebalgs surprisingly complimented his fellow panelist, Lukoil CEO Vagit Alekperov, saying that the many Lukoil filling stations in Brussels sell the cheapest petrol.

"If I go now with my car, I will go to the Lukoil petrol station, because it's the best price in Brussels. So it's not true that we are hampering Russian investment," Piebalgs said.

Lukoil, which has recently taken over the entire activity of Conoco-Philips in Belgium and Luxembourg - 157 filling stations - indeed claims that it sells the cheapest petrol on the market. However, if prices are strictly compared, then this is not always true, as can be seen on a specialised website .

Alekperov had attacked the EU for keeping mutual investment in oil and gas sector very low. But Piebalgs countered this, saying that the two sides sometimes had "misunderstandings", but not in all areas.

"Where we have more understanding is [in the field of] electricity, with Russia following exactly in the same way as we do, and opened its market, and we have E.On, Fortum and Enel investing billions in the system, because they know how this market functions. On gas we have different approaches – well, let's find where this misunderstanding comes [from]," Piebalgs said.

"We are not against a common European policy in energy affairs. But we cannot fail to notice that such a policy is based on a stand-off between the EU, as a major consumer, and Russia as a supplier," Alekperov said.

Alekperov advocated the establishment of "fair oil prices".

"Maybe the time has come to put in place new price-setting mechanisms. Such will help reduce the financial bubble and increase the efficiency of markets," he said.

The Russian CEO also called for long-term contracts between suppliers and clients. "Only the coming closer of consumers and suppliers can prevent the transformation of the global economic crisis into a global energy crisis. This into a full extent applies to the relations between Russia and the EU," the Lukoil chief warned.

Piebalgs was challenged with questions on whether the EU was abandoning the Nabucco pipeline project, as that impression had remained following the latest EU summit (EurActiv 18/03/09). He made the point that the public was becoming obsessed with Nabucco, the importance of which was in fact minor. source

My comment: Lol! I fill in Lukoil too, but I'm not walking around and pledging my love for them :) That's so fun. That's definitely something a commissionaire should NEVER do. It's so humiliating anyway. We all know Lukoil is big. We don't have to be reminded all the time. Anyway, it's interesting that they look for long-term contracts. That could mean two things- they either know about new energy source that could make oil/gas very cheap or they want to discourage people into investing in such new sources. Because if we believe that renewables are so...unefficient, that means that gas/oil will only get more and more expensive with time, which obviously will mean long-term contracts are not a good idea. I think they finally have seen the new horizons :) And that's cool! Btw-how did they ever let in E.On and the rest in Russia? I mean, we have them in Bulgaria and it sucks. They don't invest into the grid, they only reap profits.

EU strikes deal on energy market liberalisation

25 March 2009

The European Parliament and the Czech EU Presidency reached a long-awaited agreement on the third energy package late on Monday night (23 March), strengthening consumer rights at the expense of full ownership unbundling.

The informal compromise deal, negotiated between MEPs in the Parliament's industry committee and the Czech EU Presidency, still needs approval by the full EU assembly and member-state representatives in the Council of Ministers.

Both the Parliament and Commission congratulated the Czech EU Presidency for tabling a "bold" compromise, although MEPs had previously expressed concern that other member states may not have seen eye-to-eye with the Czechs (EurActiv 19/02/09). Nevertheless, negotiators themselves had expressed optimism that the deal would be acceptable for all parties.

The Commission originally proposed two approaches. It said member states could either opt for full unbundling, requiring integrated energy companies to sell their grids to fully separate the production and transmission functions, or allow companies to retain their ownership of transmission systems, but let a separate body take over their operation.

MEPs insisted throughout the talks that full unbundling was the only option for electricity and supported a third option, involving a strong independent transmission operator, for gas. The Council, under pressured from France and Germany, said the third option should apply for both.

The Parliament finally gave in, and the compromise allows member states to choose between all three options.

Moreover, Morgan pointed out that European companies were effectively already going down the road of ownership unbundling.

In early 2008, German energy giant E.ON offered to sell-off its high voltage electricity grid to settle ongoing EU antitrust inquiries, in a surprise move that infuriated the German government.

The third energy package differs from the second in that it details the powers and roles of the national regulators. A deal breaker for the Parliament was that the independence of both the national regulators and the community-level agency overseeing their work was strengthened in the agreement.

Indeed, the agency will be tasked with following the 10-year network development plans to be submitted by national authorities and giving recommendations about them.

The third package will also establish a European Network of Transmission System Operators for Electricity (ENTSOE) and gas (ENTSOG) to implement common codes and security standards, to facilitate cross-border trade by creating equal operating conditions in different member states.

The Parliament managed to insert strong obligations on consumer rights to the compromise text. Once the law enters into force, energy customers will be able to change their gas and electricity suppliers within three weeks free of charge, and have access to more information, independent mechanisms for treating complaints and compensation for service failures.

Energy poverty was also dealt with in the text, which requires member states to guarantee universal service to all household customers.

But the measures go still further: national governments will also have to protect vulnerable energy consumers and take "appropriate measures" to address energy poverty, including national energy action plans or social security benefits to ensure minimum energy supply to households.

The text also requires smart metering systems to be fitted to 80% of homes by 2020 as a way of enabling consumers to better monitor their energy use and to avoid peak hours. source

My comment: I must admit this sounds much better than before. Especially the national control and the pan-European grids. I'm almost sure it won't pass, because it requires too much from member-states as social mesures, something they really won't like, but it's better than before. And in the end, it was foolish to expect big companies to sell some of their assets just like that. Operation control, on the other hand is good enough depending of what it actually means.

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