GTE Autumn Conference, Paris, 22-23 October 2003

“The Wider European Energy Policy Perspective”

Address by:

Dr Ria Kemper

Secretary General, Energy Charter Secretariat

GTE Autumn Conference – Address by Dr Ria Kemper 2 22 October 2003

Introduction – The Energy Charter: Inter-governmental process launched

after the Cold War

Founded on common commitment to market-based behaviour and non-discrimination

GTE Autumn Conference – Address by Dr Ria Kemper 3 22 October 2003

The Energy Charter Treaty Signed by 51 European and Asian

states, and by EU collectively

Provides broad framework of rules on energy trade, transit, investments

Helps to reduce risks for foreign investors, with benefits for host countries, investors and transit states

GTE Autumn Conference – Address by Dr Ria Kemper 4 22 October 2003

Natural Gas Markets in Eurasia:

Gas increasingly a fuel of choice in EU, but indigenous production is declining

Consequent policy focus on addressing EU’s future dependence on external gas supplies

GTE Autumn Conference – Address by Dr Ria Kemper 5 22 October 2003

Challenges:

How to ensure security of gas supply in the long-term?

How to extend liberalisation and competition to the Wider Europe (including gas producer-states in former USSR)?

GTE Autumn Conference – Address by Dr Ria Kemper 6 22 October 2003

Why is liberalisation important outside the EU - 1? Huge long-term investments needed in

non-EU gas production areas

Liberalisation of non-EU markets will support mobilisation of investments

Especially important in Russia – where lack of competition and TPA regime has limited investment in the gas sector

GTE Autumn Conference – Address by Dr Ria Kemper 7 22 October 2003

Why is liberalisation important outside the EU - 2? : Around half of all gas produced in

Eurasia is consumed in former USSR.

Liberalised markets will:increase efficiency of consumption;stimulate investment in gas

production; andfree up extra volumes for export.

GTE Autumn Conference – Address by Dr Ria Kemper 8 22 October 2003

Therefore: EU and countries of Wider Europe have mutual

interest in establishing competitive gas market across the Eurasian continent.

Importance of long-term policy focus on: open markets transparent access to pipelines stability of cross-border transportation

GTE Autumn Conference – Address by Dr Ria Kemper 9 22 October 2003

Fundamentals:

Investments in gas projects will come from companies, not governments

Task of governments is to set the “rules of the game” and thus help minimize the investment risks

GTE Autumn Conference – Address by Dr Ria Kemper 10 22 October 2003

Example of Russia: Russian gas industry requires huge

investments over next two decades

Russia has competitors for supplying EU gas market - Norway, North Africa and LNG

Russia needs to complete domestic gas reforms and take on complementary international obligations

GTE Autumn Conference – Address by Dr Ria Kemper 11 22 October 2003

The Energy Charter Process

Map of the Energy Charter’s constituency (full members in green, enhanced observers in orange, other observers in blue)

GTE Autumn Conference – Address by Dr Ria Kemper 12 22 October 2003

But – ECT’s potential not yet fulfilled: Russia has signed, but not ratified, the

Energy Charter Treaty

Non-ratification due to opposition of Gazprom

Ratification would be fully consistent with Russia’s aim of joining WTO

GTE Autumn Conference – Address by Dr Ria Kemper 13 22 October 2003

Transit of Natural Gas:

Increasing recognition among governments of the strategic importance of transit issues, in terms of security of supply

GTE Autumn Conference – Address by Dr Ria Kemper 14 22 October 2003

Transit Problems in Eurasia:

Legacy of USSR’s demise in 1991 – unified system broken up overnight

Resulting lack of transparency over access rights and transit tariffs

Consequent lack of investor confidence in transit-related projects in post-Soviet space

GTE Autumn Conference – Address by Dr Ria Kemper 15 22 October 2003

Energy Charter Transit Protocol:

Under negotiation since 2000

Now close to finalisation – scheduled for December 2003

GTE Autumn Conference – Address by Dr Ria Kemper 16 22 October 2003

Main Features of the Transit Protocol: Supports stable cross-border flows of

energy in transit

Defines the concept of “available capacity for transit” (without imposing mandatory TPA)

Establishes criteria for setting transit tariffs throughout Eurasia

GTE Autumn Conference – Address by Dr Ria Kemper 17 22 October 2003

What does the Protocol offer - 1?For investors in CIS countries:

Clarity over terms of access to Gazprom’s network for non-Russian gas

Transparent rules governing tariffs, once access is granted

GTE Autumn Conference – Address by Dr Ria Kemper 18 22 October 2003

What does the Protocol offer - 2?For Russian gas producers:

Prohibits “Unlawful Taking” of gas in transit

Defines “Available Capacity” taking into account legitimate interests of gas producers who also own/operate pipes

GTE Autumn Conference – Address by Dr Ria Kemper 19 22 October 2003

Transit Protocol will not:

Interfere in commercial decision-making processes

Determine which projects involving transit should go ahead, or which geographical routes should be selected

GTE Autumn Conference – Address by Dr Ria Kemper 20 22 October 2003

Role of the Energy Charter Treaty and Transit Protocol:

Complementary to the EU-Russia bilateral energy dialogue

Multilateral rules, especially on transit, will increase in global importance in future years

GTE Autumn Conference – Address by Dr Ria Kemper 21 22 October 2003

SUMMARY: Gas supply security is dependent, in part, on

extending competitive market principles

Need to focus on minimising risks associated with gas production and transportation

Secure framework of investment and transit rules is a key element in this respect

Bilateral cooperation should be complemented by a multilateral approach

GTE Autumn Conference – Address by Dr Ria Kemper 22 22 October 2003

Producer-Consumer Dialogue: Liberalisation still perceived as a threat

to producers’ interests

Role of long-term supply contracts likely to change over time

But security of demand for natural gas should be stronger within a liberalised market

GTE Autumn Conference – Address by Dr Ria Kemper 23 22 October 2003

Conclusion: Producers have a legitimate stake in the

EU gas market’s development

EU governments therefore need to use all channels – bilateral and multilateral – to develop energy dialogue with producer countries