second kyiv security forum digest

a platform for European security architecture

BLACK-CASPIAN SEA REGION AND EUROPEAN

ENERGY SECURITY

November 6-7, 2008

2 SECOND KYIV SECURITY FORUM

Arseniy YATSENYUK, Ex-Speaker of the Parliament of Ukraine, Founder of Open Ukraine Foundation

Dear Friends!

...In recent times, energy ceased to be a commodity, it became an element of external policy. One of the greatest challenges of the world has been the so-called energy independence. Energy independence is nothing but a myth. All participants in the energy market are extremely dependent on each other. …In this vicious circle we should develop an energy policy that we lack today.

…When the price of oil reached a critical level of $148 per barrel, it de-creased to $60. I am sure that this price is a short-term phenomenon, and

FROM THE FOUNDER OF OPEN UKRAINE FOUNDATION

3SECOND KYIV SECURITY FORUM

during the second half of the year 2009, the price of oil will be about $100. During this period we should act. We have the best chance for energy dependent countries to develop their energy policy and make a constructive decision on what their and the world energy policy should be like.

…After the financial crisis and after the significant drop of energy carriers’ prices, all transport projects were frozen. If they were not frozen publicly, they were frozen in an unofficial way. This will lead us to an inability to diversify energy supply sources, continuing dependence on the traditional suppliers and correspondent risks related to exploitation of the old transport corridors. …Because of the price situation on the external market, there is no sense, from an economic point of view, to develop any alternative or renewable energy sources when the price of oil is $60. It means that in a short-term perspective, we will face more problems: if the price of oil increases, and it is sure to increase, we will face the problems of dependence exceptionally on traditional energy sources. …The situation with oil production is not so bright. ….sooner or later the world will face the problem of scarce energy resources. In its turn, it means that in the future there will be a dictatorship by some monopolist countries again, and we should start preparing for it already today.

It is very important to ensure global security on the energy level. …The number one priority for the WTO should be elaborating energy rules to be followed by everybody. The Energy Charter is a very good document, but, unfortunately, it is mostly a declarative document not covering the main producer, transit and consumer countries. That is why working out energy market rules within WTO frameworks is a priority task for ensuring energy security. …We should also improve the Energy Charter by developing effective controlling and fulfilling mechanisms, by involving all the countries working on the energy market and enjoying their monopoly in one or another sphere into participa-tion and ratification of this Treaty.

With regard to the European Union, unfortunately, the so-called Common Policy of the EU in the energy field has not been established yet. But we hope that when the Lisbon Treaty is ratified and when all the mechanisms of internal cooperation within the EU are installed, Europe will form its Common Energy Policy, and Europe will have clear approaches stipulating Ukraine’s active participa-tion in the European energy policy.

Today Ukraine has a very good chance to be not only a transit country but also a country that actively participates in different investment projects. Such projects should provide for EU’s, Rus-sia’s, Turkmenistan’s, Uzbekistan’s and Kazakhstan’s participation. All the process participants may achieve success only in unity… On Ukraine’s energy market, a lot has been done in the recent pe-riod. I would like to stress that it is necessary to revive the energy monopoly of Naftogas of Ukraine. We need direct contracts, direct relations with suppliers and consumers. Ukraine also needs a clear, independent and efficient energy regulator setting rules on electrical energy, gas and oil markets. …Two years ago Ukraine occupied the first place in the world by energy consumption level. In such a situation, regardless of the price of energy resources, we will not be able to survive. That is why the issue of energy efficiency, reducing the energy consumption level, is the priority task for the Ukrainian state as a whole.

Thank you for your attention. I invite everybody to the discussion!


FORUM AGENDA

DAY 1 – THURSDAY, NOVEMBER 6, 2008Venue: Diplomatic Academy of Ukraine, 2 Velyka Zhytomyrska Street (Conference hall, 2nd floor)

15:00–16:00 Participant registration and press accreditation

16:00–19:00 Forum opening:COMMON CHALLENGES FOR ENERGY SECURITY IN WIDER EUROPE

16:00–16:10 Forum welcome:

Arseniy YATSENIUK, Speaker of the Parliament of Ukraine Founder of Open Ukraine Foundation

16:10 – 18:15 Presentations: Hryhoriy NEMYRIA, Vice- Prime- Minister for European and International Integration, Ukraine Welcome to Forum participants on behalf of Helga SCHMID, Director, Policy Unit, Council of the European Union, General Secretariat Vladimir RAKHMANIN, Deputy Secretary General, Energy Charter SecretariatMariam VALISHVILI, First Deputy Minister of Energy, GeorgiaVytautas NAUDUZAS, Vice-Minister of Economy, Republic of Lithuania Jacek KLUCZKOWSKI, Ambassador Extraordinary and Plenipotentiary of the Republic of Poland to UkraineWilliam TAILOR, Ambassador Extraordinary and Plenipotentiary of the USA to Ukraine

18:15 – 18:45 Question and answer session

19:00 – 21:00 Forum Reception at Hyatt Hotel

Day 2 – Friday, NOVEMBER 7, 2008Venue: Hotel “Rus”, 4 Hospitalna Street (Conference Hall, 1st floor)

8:30–9:00 Participant registration and press accreditation 9:00 – 11:00 Plenary Session I

ARE THERE COMMON PRIORITIES FOR THE EUROPEAN UNION AND BLACK-CASPIAN SEA REGION TO ENSURE ENERGY SECURITY? Moderator: Christof van AGT, Eurasian Oil & Gas Independent Advisor

Suggested topics: · Does Common European Energy Policy work? · Efficiency of the Energy Charter – current situation and projection for the future


9:00 – 10:00 Presentations: Volodymyr MAKUKHA, Deputy Minister of Fuel and Energy, Ukraine Faouzi BENSARSA, Adviser for energy issues, Directorate-General for External Relations of EC, and for the Commissioner for External Relations Ursula GACEK, Member of the European Parliament from Poland Altai EFENDIYEV, Deputy Secretary General, BSECSabukhi TEMIROV, Deputy Secretary General, Organization for Democracy and Economic Development GUAMPavlo SULTANSKYI, Director, Economic Cooperation Department, MFA of Ukraine

Discussants:Stephan de SPIEGELEIRE, Senior Researcher, the Hague Center for Strate-gic Studies, the NetherlandsIngolf KIESOW, Ambassador and Senior Research Fellow, Research Director, Institute for Security and Development Policy, Central Asia-Caucasus Insti-tute and Silk Road Studies Program, Stockholm, Sweden

10:00 – 11:00 Discussion

11:00 – 11:30 Coffee Break

11:30 – 13:30 Plenary Session IINATIONAL ENERGY STRATEGIES VS. REGIONAL SYNERGIESModerator: John ROBERTS, Informational Service PLATTS, UK

Suggested topics · Adjustment of national governments’ policies, incentives and projects in the context of achievement of Common European energy policy

· How political dynamics affect business rationale for new energy projects · Energy security – a complementary role for NATO and the EU· Energy dependency –driving force for decision making?· Evaluating existing regional cooperation projects

11:30 – 12:30 Presentations: Friedemann MULLER, Non-residential Senior Researcher, German Institute for International and Security Affairs, Germany Michael GAUL, Deputy Director of the Defense and Security Economics Di-rectorate, Political Affairs and Security Policy Division, NATO Headquarters in Brussels Bohdan SOKOLOVSKYI, Special Representative of President of Ukraine for International Energy Security Issues, Ukraine Margarita BALMACEDA, Associate Professor, John C. Whitehead School of Diplomacy and International Relations, Seton Hall University and Associ-ate, Ukrainian Research Institute, Harvard University, USA


FORUM AGENDA

Discussants: Andrew MONAGHAN, Research Advisor, Research Division, NATO Defense CollegeSerhiy KORSUNSKYI, Ambassador Extraordinary and Plenipotentiary of Ukraine to Turkey


13:30 – 15:00 Lunch (Restaurant of hotel “Rus”, Hall “Ruskyi”, 2nd floor)

15:00 – 16:30 TWO PARALLEL WORKSHOPS

Workshop 1 (section “A”):BUSINESS DECISIONS AND CORPORATE INTERESTS VS. ENERGY SECURITY AND REGIONAL SYNERGIESModerator: Ihor MITYUKOV, General Director, Institute of Financial Policy; Country Head of Morgan Stanley Office in Ukraine

Suggested topics · Oil and Gas trade – bone of contention or chance for cooperation?· Inter-governmental arrangements/ business projects/ vertical schemes?· Transparency of the energy market· Political instability vs. predictability of arrangements

15:00 – 16:30 Presentations and discussion:

Boris NEMTSOV, Member of the Federal Political Council of the political party SPS, Russian Federation

Patrick van DAELE, General Manager, Shell Ukraine Exploration and Production

Levent ÖZGÜL, BOTAŞ (Turkish Petroleum Pipeline Corporation), Strategy & Business Development Manager, Turkey

Simon PIRANI, Senior Research Fellow, Oxford Institute for Energy Studies, UK

Giorgi VASHAKMADZE, Director, Corporate Development, GUEU White Stream

15:00 – 16:30 Workshop 2 (section “F”):ALTERNATIVE ENERGY SOURCES AND ENERGY EFFICIENCY – INCREASED ENERGY SECURITY?Moderator: Oleksandr TODIYCHUK, President of Q-Club, Head, Energy and Energy Efficiency Department, MIM-Kyiv

Suggested topics:· Research and Development – examples of investments in alternative energy sources· Energy efficiency and saving technologies· Energy efficiency and food deficit


15:00 – 16:30 Presentations and discussion: Kevin ROSNER, Senior Fellow, Institute for the Analysis of Global Security, USA Valeriy BOROVYK, Chairman of the Board, Alliance “New Energy of Ukraine”, Ukraine Heikki LEHTIMAKI, Managing Director, Plan Energy Ltd, Finland

Discussant: Inigo ARENCIBIA GONZALEZ, Project Manager, Centraland Eastern Europe PEP - Energy Efficiency, International Finance Corporation

16:30 – 17:00 Coffee Break

17:00 – 18:30 Plenary Session IIIWAYS TO IMPROVE RELATIONS BETWEEN PRODUCERS, TRANSIT AND CONSUMER COUNTRIES OF ENERGY FOR STRONGER EUROPEAN ENERGY SECURITY Moderator: Sabine FISCHER, The European Union Institute for Security Studies, Re-search Fellow

17:00 – 17:50 Presentations:

Mikhail KRUTIKHIN, Russian Energy Bulletin, Editor, Russia

James SHERR, Head, Russia and Eurasia Programme, The Royal Institute of International Affairs Chatham House, United Kingdom

Mykhailo HONCHAR, Director of Energy Programs, NOMOS Center, Ukraine

Discussants: Oleksandr NARBUT, Independent Expert, Ukraine

Tim GOULD, Programme Manager - Caspian, Caucasus, Southeast Europe, Office for Global Energy Dialogue, International Energy Agency


17:00 – 17:50 Closing remarks:

Arseniy YATSENIUK, Speaker of the Parliament of Ukraine Founder of Open Ukraine Foundation

19:00 – 21:00 Closing Reception at Restaurant “Opanas”


"...IT IS FITTING that this Forum takes place in Ukraine, which is a neighbor of strategic importance for the Euro-pean Union, and key partner in the region. Ukraine's role in the development of our shared continent cannot be overes-timated. Its future affects our common future. I very much welcome Ukraine's leadership in addressing our shared chal-lenge of energy security..."

"...A VERY important part of this work within the European Union will be the proper integration of the most isolated European countries into European electricity and gas grids. Looking to its partners, the European Union is committed to accelerating the development of relations with producer and transit countries, to secure the stability of supply and diversifying energy sources and supply routes. We wish to see the European Energy Community extended to include Moldova, Turkey and Ukraine so that the European Union en-ergy acquis applies across our neighborhood. This will bring transparency, and better regulated markets. This is in our in-terests and in our partners' interests. Accelerating regional co-operation is crucial in this context..."

Welcome to Forum par-ticipants on behalf of Helga SCHMID, Director, Policy Unit, Council of the European Union, General Secretariat

NOVEMBER 6, 2008

Full texts of presentations are available at: http://www.openukraine.org/en/programs/dialogue/security-forum/08/

"...DO NOT BYPASS UKRAINE. Yes, there are issues with transparency and inefficiency within Ukraine but it needs to more effectively integrate itself within the Eu-ropean energy infrastructure system. Bypassing Ukraine will make it much harder for Ukraine to reform. Greater diversity in energy supply and increased transparency in all of Europe’s energy contracts and policies is the only way that Europe can begin to end this age of energy in-security. I think that these priorities should become an integral part of a more ambitious transatlantic transpar-ency initiative as an element of renewed updated trans-atlantic agenda..."

EXPERT FOCUS

Hryhoriy NEMYRIA, Vice Prime Minister for European and Internation-al Integration, Ukraine


"...MEETING policy goals in relation to energy security requires recognition of our interdependence in matters of energy, and the understanding that genuine security and stability need to be based on mutual benefits and advantages all along the energy value chain. I would like to underline the importance of an inclusive debate in-volving all participants in the energy value chain - the producers, the consumers, the transit countries. Given the global distribution of energy resources, current technologies and projections of demand, the priority for policy makers should be on how to manage interdepen-dence most effectively; and how to create functioning and balanced international frameworks that can mitigate the associated risks. ... The main task for governments must be to ensure the operation of international market mechanisms by putting in place predictable, transpar-ent and non-discriminatory conditions for trade and in-vestment. More broadly, governments have to create an environment that will allow the right mix of new energy technologies to emerge for use of fossil fuels, alternative energy sources..."

"...IN ADDITION to the efforts of national governments, an interdependent energy world needs international institutions to promote coordination and to provide a stable framework for cooperation. This is precisely why we see that the Energy Charter Treaty occupies such a valuable and distinctive place in the international legal architecture..."

"...LOW PRICES, if permanent, will jeopardize some ex-isting investments, and can put a hold on planned ma-jor ones. These investments nevertheless are absolutely necessary for the decades to come. Their cancellation or even postponement will endanger the security of sup-ply and in consequence the economy as a whole. In this gloomy context, long-term decisions in the energy sec-tor need assurances that contracts and property will be respected..."

Vladimir RAKHMANIN, Deputy Secretary General, Energy Charter Secretariat

NOVEMBER 6, 2008


"...THIS FORUM justly serves as an illustration to an apparent fact that Energy is a key area of cooperation in the backdrop of the 21st century within which the world’s economic regions are interdependent for ensuring security and stable economic con-ditions. Indeed, we speak about stability and sustainability, and to us, Georgians, these words, for the duration of recent months, have grown in their meaning and value even more..."

"...WITH the current world economic crisis, it becomes more obvious that Russia as a dominant supplier is less likely to fill future European demand due to the lack of domestic invest-ment in new energy projects and infrastructure. The EU needs to develop an active strategy for securing access to the energy resources of the Caspian region, and handling existing competi-tion for these..."

"...AS FOR THE POLITICAL REALM – the EU should speak with a single, consolidated voice to show support to the states of the Black Sea and Caspian Sea Basins. Their adherence to Western principles and their overall economic and political stability are crucial for the sustainable future of the whole continent. Diver-sified hydrocarbon supply sources and diverse supply routes of transportation simply serve as a vehicle to achieve this goal..."

"...IT IS CLEAR that in the long run the gap of demand and supply of energy resources will increase globally, consequently, the prices on energy resources should increase as well. Addi-tionally, taking into account financial crisis, climate change, impending food crisis, we are getting a very dark picture. Are we able to avoid such a situation? The best reply was made by Winston Churchill: “An optimist sees the opportunity in every difficulty.” Is energy independence of Ukraine or the EU a good opportunity? To my mind, it is nothing but just a nice illusion. No country, including Russia, is energy independent. Russia, for example, needs to get technology and equipment for the oil and gas sector. Energy suppliers and energy consumers are highly interrelated, and if we have a hole in the ship we are sinking together...."

"...THE BEST SCENARIO for improving energy security is the Common EU energy policy. The EU should speak with a single voice. The Common EU energy policy is not a front line, is not against Russia or other countries. If energy suppliers are united in OPEC, why is the EU unable to buy gas collectively? Today the EU Common energy policy is still weak. For a very simple reason – because the EU is still weak in the energy sector. We could strengthen energy security with transatlantic co-operation, …even though there are a lot of skeptics about the efficiency of transatlantic cooperation on energy matters..."

Mariam VALISHVILI,First Deputy Minister of Energy, Georgia

Vytautas NAUDUZAS,Minister of Economy, Republic of Lithuania

EXPERT FOCUS

NOVEMBER 6, 2008


"...UKRAINE currently relies on one supplier for the majority of international gas and oil and nuclear fuel. Nearly total dependency on energy from one source clearly threatens Ukraine’s energy security. Today Ukraine has taken a couple of steps in diversifying its energy suppli-ers, increasing transparency in the sector, attracting much needed foreign investment, and developing alternative energy sources. But 17 years after independence, the en-ergy economy of Ukraine is still frozen in elements of the Soviet time..."

"...THERE are people in this room who have told us that the resources in the Black Sea are comparable to the Cas-pian Sea. But they have not been developed. Significant improvement in the business climate is required to attract the investment of billions of dollars needed from interna-tional energy companies for serious development. Ukrai-nian energy legislation and regulation will need to be up-dated to correspond with norms found elsewhere around

"...THE KRAKOW Initiative is additional evidence of the joint contribution of Poland and Ukraine to the energy security of our continent. During our common work we have transformed the idea into the practically completed concept of a common en-ergy corridor. We have agreed upon the next steps that should be made within the framework of implementation of Summit resolu-tions. First of all, we have established an organization, a joint company (Poland, Ukraine, Azerbaijan, Georgia and Lithuania), which coordinates and projects actions of our governments and our national oil-transporting organizations, as well as prepares the legislative and juridical bases for this project. Secondly, af-ter the Kyiv Summit, President Yushchenko enacted a Decree on the termination of reverse oil delivery from Brody to Odesa, which meant that we would come back to the plans made in coopera-tion with Ukraine at the end of the ‘90s. In other words, this part of the oil pipeline (from Odesa to Brody) should have been part of the Trans-European Oil Pipeline from the Black to the Baltic Sea. Unfortunately, for unknown reasons, the Decree has not been fulfilled yet. Nevertheless, I hope that we will see some positive changes in this area soon..."

"...UKRAINE and Poland have more common interests than dif-ferences. In spite of the different level of reform implementation and transformation of the energy systems in our states, Poland and Ukraine face similar challenges in the energy field. Moreover, both countries similarly define their tasks in this area; both coun-tries are interested in effective cooperation for enhancing energy security. We will fight together against attempts of using energy as a weapon against us by any country..."

Jacek KLUCZKOWSKI,Ambassador Extraordinary and Plenipotentiary of the Republic of Poland to Ukraine

William TAYLOR, Ambassador Extraordinary and Plenipotentiary of the USA to Ukraine

NOVEMBER 6, 2008


the Globe. The updated system will need to provide for fair access to geological data, for transparent decision-making processes, for longer licensing periods, the use of model contracts, and truly competitive tenders. … If Ukraine decides to proceed with these reforms, the picture gets brighter. There is boundless potential for improvement in Ukraine’s position. Friendly governments and interna-tional institutions can help with capacity building for ef-fective policies’ execution..."

"...THE POLITICAL will for energy reform is in place. Not only Ukraine would be helping itself but also through en-ergy sector reform it would be making arguably the single and the most important contribution that Ukraine can make to the security of Europe..."

"...MAxIMUM possible integration of Ukraine’s energy system into the European energy system is the key task for today. … Implementation of projects aimed at in-creasing transit capacity of the existing and construct-ing new gas and oil pipelines over the territory of Ukraine requires less financial resources than development of new transit routes by-passing Ukraine..."

"...WE BELIEVE that the Energy Charter today is a unique international multilateral legally-binding agreement in the energy field, which determines multilaterally-agreed rules of regulation of investments, trade, transit, energy efficiency and clinching of arguments. It is important that the Agree-ment unites 51 countries and substitutes for a great num-ber of bilateral agreements that should have been reached without it. Ukraine works actively and is ready to continue its activities towards reaching the main goal of the Energy Charter Agreement, which is ensuring transparency and efficiency of energy markets. We hope that implementing ECA principles will lessen the risks for all the energy chain participants – producer, transit and consumer countries – and will contribute to involving foreign investments in the energy area. Joining the Energy Charter Agreement by the Russian Federation would also immensely contribute to reaching the Agreement’s goals. RF’s ratification of this document would obviously strengthen free competition in production and transit areas, would improve access to tran-sit networks, and would lessen transit risks..."

Volodymyr MAKUKHA,Deputy Minister of Fuel and Energy, Ukraine

EXPERT FOCUS

NOVEMBER 7, 2008


I do not have any indication that the change of administrations (in Russia or the USA) will de-politicize the energy market. Signals are that energy security will become a huge political instrument in the commonwealth. The question of the future is different from the one in the past. You have the question of resurgence of national authori-ties, you have the question of less intervention of the private sector in the development of the resources, you have the terrific challenge of climate change, and you have the tremendous question of the increas-ing demand. In all this challenge, acting on a bilateral level will not be enough. So, acting on a bilateral level, acting on a regional level and acting on a multilateral level – it is essential to coordinate all of these.

"...ALSO a key issue now which we have to face is our com-mon solidarity. I insist very much on solidarity. As you know, in the EU, our Heads of States have moved a step forward by having the EU solidarity mechanism included in the Lisbon Treaty. The Lisbon Treaty will need to be applied for having a “family”-solidarity mechanism within the EU. And today what we are saying is that this solidarity mechanism should also be open, I believe, to our neighbors from the East, and in particular, to Eastern Europe and South Caucasus..."

Faouzi BENSARSA,Adviser for energy issues, Directorate General for External Relations of the European Commission, and for the Commissioner for External Relations

"...LET us make no mistake that undermining Georgia’s credibility as an energy transit country was high on the agenda this August. It may have been about NATO mem-bership, it may have been about flexing muscles, it may have been about spheres of influence, but the energy transit issue was high on that agenda. And currently there is pressure to acknowledge that the Sarkozi-bro-kered cease-fire agreement has been adhered to by the Russians. At best we cannot verify because our observers do not have access to the whole of Georgia and I think many have doubts. So, we have not seen as strong and as united a response to Georgia as we would have liked..."

"...IF BY ACHIEVING A Common energy policy, we expect the EU to speak with one voice on Russian energy issues, I am afraid that’s not going to happen. There are too many particular interests. And even the Lisbon Treaty with its solidarity clause still does not deny member states of their sovereign right to decide on their energy mix, suppliers and routes. That is not the right that member states will sur-render. So, if this is the way that we define Common energy policy, we may have problems..."

"...THE EU MAY not be the perfect way of achieving energy security, but it’s the best we have..."

Ursula GACEK,Member of the European Parliament from Poland

NOVEMBER 7, 2008


EXPERT FOCUS

"...THE BLACK SEA AREA is a natural bridge between en-ergy deficit/consuming regions and energy rich/producing regions; it provides access to new alternative sources of en-ergy; and for over a decade is the largest energy infrastruc-ture development area (over 20 new projects realized, under implementation or in projection). The area also has become the theater of fierce competition for control over sources of supply and transport routes; moreover, existing conflicts and political tensions impede comprehensive cooperation in energy..."

"...THE BLACK SEA REGION is challenged by the neces-sity to develop a comprehensive formula for energy secu-rity for the Wider Black Sea area; by the need to shape the Wider Black Sea area of growing geo-strategic importance as a stable, cohesive region; and by the internal require-ment to develop multilateral mechanisms of cooperation in the field. There are common priorities for the EU and Black-Caspian Sea region to ensure energy security. What is needed is a common, consistent and pro-active EU en-ergy policy towards the region; engagement of all stake-holders in the process; and acknowledgement and active involvement of BSEC as a partner in the process, since it is a regional framework and platform for a dialogue and con-sequently an instrument of regional policies in energy..."

"...WE HAVE BEEN talking about the danger of using oil as a weapon, but we also have to consider the problem of us-ing weapons for getting oil and gas. I think that in order to achieve on a global scale a wider reach, a real global reach of the basic principles of the Energy Charter, there will have to be made some compromises for the new desperate countries like India and China, giving them some more room in the field-hunting in some way. And there will have to be nego-tiations but we have not even talked about the negotiating on the international level of this problem. And I think it is high time to do that exactly..."

Altai EFENDIYEV,Deputy Secretary General, Organization of Black Sea Economic Cooperation

Ingolf KIESOW,Ambassador and Senior Research Fellow, Research Director, Insti-tute for Security and Development Policy, Central Asia-Caucasus Insti-tute and Silk Road Studies Program, Stockholm, Sweden

NOVEMBER 7, 2008


"...WE ARE FACING complicated international relations and new challenges that were unknown to mankind be-fore. The challenges need quick reaction via establish-ing new global structures and involving global resources for overcoming these difficulties. We have neither global structures, nor global resources. Insecurity will be deep-ening because of the breakdown of the existing system of international relations. The old international rela-tions system still functions, however, it needs to be fun-damentally modernized or its basic principles have to be changed..."

"...NATIONALIZATION of the energy resources by the producer-states and technological egoism of the con-sumer countries are casting doubts on production growth and unobstructed transit of energy resources. The third constituent which is a transit constituent cannot exist without the two mentioned components, and as a result, the transit countries including Ukraine will suffer dam-ages. …Resource nationalism leads to transformation of national governments’ relations with international com-panies operating on producer countries’ territories; tech-nological egoism does not solve the problem of secure energy supply. Thus, both tendencies will worsen the ex-istent world problems, establishing additional barriers for business development in energy field and decreasing the states’ energy security level..."

Pavlo SULTANSKYI,Director, Economic Co-operation Department, Ministry of Forgeign Affairs of Ukraine

"...THE ADVANTAGEOUS geographic position of the GUAM countries forming a natural bridge between Europe and the rich in energy resources countries of Central Asia and the Caspian region is one of the main conditions for development of energy transportation corridors and corresponding infrastructures..."

"...WE HOPE that cooperation in the energy area in the “GUAM+…” format will be reinforced. We are undertaking the necessary steps for that. For example, the last meeting of the GUAM working group on energy issues that took place in spring in Tbilisi was also attended by Japanese representatives inter-ested in cooperation with GUAM in the energy area..."

Sabukhi TEMIROV,Deputy Secretary General, Organization for Democ-racy and Economic Devel-opment GUAM

NOVEMBER 7, 2008


"...EUROPE’S SECURITY of the supply of oil and natural gas is sensitive and of major interest to potential suppli-ers. There are not too many of them and it is important to know whether these exporters link political interests with the economic interest of optimizing trade revenues. It is no question that the main supplier to Europe of oil and natural gas, Russia, has a political agenda linked to its oil and natural gas exports. .....Most experts say that, considering this situation, Europe has to speak with one voice in order to be a strong advocate of the common European interest of a secure energy supply. However, different national interests of European states make it difficult to formulate a common European energy policy, but in spite of the national differences of interests with-in Europe it is obvious that the common interests should be made use of to design a common policy..."

"...IF RUSSIA cuts the natural gas supply for a week it creates panic on the consumer side. If the consumer countries don’t pay their bill for a week it will hardly find any public attention on the Russian side. This asymme-try gives Russia the opportunity to play with the weapon of European dependence as it did during the negotia-tions with the EU on Russia’s WTO membership. The de-pendence is extremely strong due to the fact that infra-structure does not allow to ship natural gas to East and Central European countries in case of a Russian delivery stop even if suppliers, for instance from North Africa or the Middle East, would provide the necessary amount of natural gas..."

"...WE NEED a very different European approach with re-gard to the two most important energy carriers – oil and natural gas. Since we know that oil will never become a product of a free and fair competitive market again and the limited remaining reserves will be more needed by states who don’t have the technologies for alternatives to oil, the European states, like North America, should make a major effort to speed up the transition from the oil age to the post-oil age..."

"...IF we don’t start to think about the management of the transition period into the post-oil age we might get increasing distribution conflicts and a further power shift from the major consumer to the producer regions..."

Friedemann MULLER,Non-residential Senior Researcher, German Insti-tute for International and Security Affairs, Germany

EXPERT FOCUS

NOVEMBER 7, 2008


"..THERE are two major threats to the energy security of Ukraine – internal and external. The external threat involves the fact that Ukraine has a large quantity of gas which is delivered by one supplier..."

"...AN URGENT problem for Ukraine is the internal threat – the energy is used irrationally: each consumer in Ukraine on the average uses more energy than you can expect in a country with such level of industrialization. Furthermore, Ukraine spends huge sums of money to im-port gas from Russia, though there is no need to use such a large quantity of gas..."

"...TWO YEARS AGO, in 2006, the European Commission-er on Trade stated that the EU is not seriously concerned with relationships between Russia and its neighbours on the gas price issue. The point is that Europe should get gas without interruption. Europe’s position has changed since then. These two positions are correct irrespective of each other. First, Russia really has been a reliable sup-plier for the main consumer countries of Western Europe since the 1970s. At the same time, one cannot name it a reliable supplier for post-Soviet countries and those in-fluenced by the USSR. After EU enlargement and the en-try of East European countries, we found ourselves in the same ship. Russia’s reliability for some does not preclude its unreliability for others. The policy has to be consis-tent. That is why the EU as a whole and its member-states separately are watching Russia’s steps regarding the in-terruption of supplies for post-Soviet republics more at-tentively than earlier..."

John ROBERTS,Informational Service PLATTS, UK

"...WITH REGARD to natural gas we have to make any effort to improve the transport infrastructure which allows to have alternatives to the current very limited supply infrastructure from outside Europe to Europe. We also need an infrastructure within Europe which allows the transportation of natural gas from where it is avail-able to where it is needed. The current infrastructure is far from this. Moreover, the world’s most natural gas rich region between the Caspian Sea and the Persian Gulf has to get access to the world’s largest natural gas import market, which is Europe. This is good for compe-tition and thus for lower prices but also for the security of supply..."

NOVEMBER 7, 2008


EXPERT FOCUS

"...WHEN you strip all the official presentations that we’ve heard from the diplomatic niceties, you still see that the underlining consensus is quite fragile: I mean the divergent priorities, there are very few common priorities. So, you get a pretty dim view of the security and energy problem; we get the idea that there should be institutional solutions to the problem. The economic crisis is pushing us into what some are calling a grim new deal, whereby governments all across the world are all of a sudden grasping the opportunity to come up with new novel solutions..."

"...I DISAGREE with both of these premises. From my point of view, the energy security of Europe, of Western Europe has hardly been as bright as it is turning out to be today. And I also don’t think that institutional solutions are going to get us out of it..."

"...THE ECONOMIC crisis is pushing us into what some are calling a grim new deal, whereby governments all across the world are all of a sudden grasping the oppor-tunity to come up with new novel solutions..."

"...SO, all of a sudden, the policy focus that comes with the financial economic crisis, I think is making the likely sort of solutions much better, contrary to what we have heard today. And it’s not an institutional one; it’s the sort of a bottom-up one..."

"...I THINK policy-makers tend to underestimate the incredible accelerating pace of changing technology, which will make a lot of discussions we have today obso-lete in a relatively short period of time..."

"...IT SEEMS to me that the Energy Charter is useful for those countries who want to play ball. I personally still question why we need so many sector-specific rules of the game, and why we could not have encompassed these in the broader frameworks. I do not think right now it helps us with some of the issues for the coun-tries who don’t want to play ball. So, I do not necessarily agree with the sort of 10 years of the consensus that has emerged so far..."

Stephan de SPIEGELEIRE,Senior Researcher, the Hague Center for Strategic Studies, the Netherlands

NOVEMBER 7, 2008


"...THE NOTION of producer, consumer and transit states is also misleading. In fact, every state can start thinking at least in two of these roles, if not all three. We have to try to consider that major producers are also major transit states, are also producers and consumers themselves. This has a fundamental impact on our relations with them. If producer states run short of gas because they cannot con-sume efficiently or produce enough, we also have prob-lems. We need to share technology in this respect..."

"...Diversification is a nice handy word for people to use and they like to use “we must diversify”, - full stop, and a new paragraph. … In many cases the call to diversify is not backed up with significant enough relations with the states to whom we intend to diversify. However difficult the relations are with other states in this partnership, this is always a dialogue. We have to engage, we cannot simply discuss energy without Russia or without Saudi Arabia for instance. We have to engage with all of them for a strategic horizon..."

Andrew MONAGHAN,Research Advisor, Research Division, NATO Defense College

"...INSTEAD of energy interdependency, you can also say it is a kind of mutual vulnerability between produc-ers, transit countries and consumers..."

"...ENERGY security is a global issue with strong regional characteristics. Therefore, international organizations have a role to play either as regulator, facilitator, or as security providers. NATO as a political military organiza-tion has specific tools that can be used in promoting and contributing to energy security in a comprehensive way. NATO compliments the other international organizations’ efforts in this field. NATO has no ambitions to take over these activities that the EU has in its portfolio. But NATO has other means and other ways to deal with this area..."

"...ENERGY security is not more and not less than the provision of an adequate, affordable, reliable, timely, clean and uninterrupted energy supply. Energy security is of global concern and therefore we do this kind of co-operation to address this area in a comprehensive way. And it was mentioned before, energy security forces us to work together and there is a certain opportunity for solving frozen conflicts, for bringing peace and stability through cooperation..."

Michael GAUL,Deputy Director of the De-fense and Security Econom-ics Directorate, Political Affairs and Security Policy Division, NATO Headquar-ters in Brussels

NOVEMBER 7, 2008


"...WE SUGGEST development of new additional mecha-nisms within the framework of the new informal com-munity stemming from the Krakow Initiative. Dialogue among the participants of the initiative is taking place on the highest political, governmental, business and scien-tific level. De-facto, we reached cooperation synergy. We have regular meetings of experts, governmental officials and presidents discussing the most important issues, tak-ing decisions that are to be fulfilled in accordance with norms and procedures of participating states, taking into account international obligations of every state as well. So, within the framework of the Krakow Initiative, the Caspian-Black Sea-Baltic Energy Transit Space has been established. Within the framework of this initiative, the first cooperation forms have been developed enabling us to discuss options for improving the existent instru-ments and using new instruments..."

"...For example, Ukraine suggested joint use and de-velopment of the meteorological center which is being developed in Ukraine for some years with the European Commission’s support. The center can be used for ensur-ing qualitative and quantitative control over transit of energy carriers in real time and a real mode..."

"...THE NExT project which we suggest for implementa-tion is targeted at developing a common, absolutely open logistic center that would ensure control over transit of energy carriers and provide for a quick decision-making process on each stage of the transporting corridors. ...One more mechanism is development of a joint struc-ture that would ensure quick reaction to challenges, dan-ger or accidents that may happen in any part of the oil or gas pipeline..."

Bohdan SOKOLOVSKYI,Special Representative of the President of Ukraine for International Energy Security Issues, Ukraine

EXPERT FOCUS

NOVEMBER 7, 2008


"...IT HAS BEEN argued that given the general atmo-sphere of lack of transparency, some would say corrup-tion, in energy trading of the former Soviet Union, the role of non-transparent intermediary companies was an informal means of redistribution of energy runs, and has been one of the only means available to maintain rela-tively low prices. So, what is wrong with this picture? First of all, the myth that the intermediary companies are the only way to maintain low prices has been used to pressure Ukraine. Yes, intermediary companies may offer softening of prices, but at what price? The energy subsidization im-plied in the business models used by intermediary com-panies on the conditions like the one we see in this area are not really free subsidies coming from Russia or from Turkmenistan or out of air, but forced subsidies coming from both Russian and Ukrainian state budgets or Central Asia’s state budgets indirectly from future generations as the hidden cost of subsidies that surface later in the form of budget deficit inflation and increase in foreign indebtedness. The second problem with this is that all of this happens exactly at the same time as the Russian side is intensifying its attempts to act as monopolist in buying Central Asian energy, seeking to buy the entirely available gas production in countries like Turkmenistan, Kazakhstan and Uzbekistan...."

"...Diversification will not come cheaply to Ukraine. There is too much in terms of legacies, and too much in terms of high cost of diversifying pipeline structures. And here, the actual quality of the Ukrainian political process, the actual quality of the Ukrainian democracy matters, because only broadly accepted energy policy has the chance to survive and be put in practice despite the short-term hardship involved in its implementation..."

Margarita BALMACEDA,Associate Professor, John C. Whitehead School of Diplomacy and Interna-tional Relations, Seton Hall University, USA

NOVEMBER 7, 2008


"...NOW GASPROM has a lot of advantages: Gasprom can act as a corporation, Gasprom can act as a private party which can open unlimited financing on whatever it could see as beneficial. …So, it is using the ability to play interests against each other; and Mr. Nemtsov raised a very interesting question about the South Stream. Exactly, the South Stream is an instrument. It may not be the real goal. And the real goal could be to take over Nabucco. To control Nabucco is a much more interesting thing for Gasprom than building South Stream, because controlling Nabucco will mean much stronger leverages in Turkey and more surer isolation of Caspian from Europe. …We need to understand the difference between the goal and the instruments. And the goal is to link Cas-pian with Europe, to make Western companies get to the Caspian region, not only Turkmenistan and Azerbaijan and Kazakhstan..."Georgi VASHAKMADZE

"...RUSSIA definitely has a strategy, and its strategy is very impressive. From my point of view, it is very simple and it includes several major points. First of all, it is to monopolize resources; second is to monopolize routes for their delivery; third, to block inner diversification projects which may bring other resources rather than Russian and Central Asian through Russia to Europe; and, fourth, to divert attention and efforts of the internation-al community from real problems and real projects to sur-real ones, like South Stream, Blue Stream, North Stream or gas OPEC. Russians are very impressive in working with some European governments to secure markets for future increasing of gas delivery. What instruments do we have to counter this strategy? We have to accept it, we have to work with it, and we have to do something with it. I agree that national strategies are very important, but on the national level we cannot work with Russians and we cannot solve real energy security problems in Europe be-cause this is the nature of the modern world. No one can fight global problems alone, so we need a kind of synergy or even synergies..."

"...I HAVE found a striking similarity with regard to two – Ukraine and Turkey. In both cases instead of mov-ing fast and decisively to those two countries to include them into the European energy area, to secure the ex-isting energy transit corridor which is Ukraine and the future key transit corridor for energy which is Turkey, the EU, I mean Brussels, is very reluctant to move decisively ahead and to work with both countries to bring them into partnership which will secure European interests, and in-terests of those countries as well..."

Serhiy KORSUNSKYI,Ambassador Extraordinary and Plenipotentiary of Ukraine to Turkey

EXPERT FOCUS

NOVEMBER 7, 2008


"...GASPROM really controls not only the Russian mar-ket but the markets of its neighbors and of Central Eu-ropean countries. Mainly this corresponds to Ukraine, Baltic states, Belarus, and now Gasprom has huge in-fluence in Turkey. There are also ideas to connect with Israel and the Middle East. A lot of Gasprom custom-ers are very nervous about the future because of two points. First, the prices, and second, predictability of supply. As far as prices are concerned, the most serious situation is with Ukraine. My estimation is that finally Ukraine will pay like Europeans pay, of course, includ-ing transportation, etc., and this is Ukraine’s payment for sovereignty. If you want to be an independent state, you have to pay…"

"...WHAT we have in the future? Of course, all European countries, Ukraine included, everybody needs diversifi-cation. The Kremlin understands that and the Kremlin proceeds with an absolutely different policy, policy of monopolization and control of fields. We have some changes inside the Russian legal system and the main one is that only Gasprom can sell gas outside the coun-try – this is a new chapter of Russian law. The problem is that Gasprom is a very inefficient company. The last 9 years of gas production of gas look like stagnation (in 1990 it was about 546-549, and in 2007 – 148). If you compare Gasprom with oil companies like Lukoil or Ros-Neft, it is a disaster. That’s why Gasprom faces a deficit of gas not only on the international market, but even on the Russian market. That will be a dramatic choice for Putin and Medvedev for the near future, because if nothing happens in production by 2010, Russia will face a deficit of gas of about 60 billion cubic meters..."

Boris NEMTSOV,Member of the Federal Political Council of the political party SPS, Russian Federation

NOVEMBER 7, 2008


"...THE CONVENTIONAL oil and gas resources – those are really the more difficult hydrocarbons that we now need to go after, producing more difficult barrels, and that will depend on deploying new technologies, build-ing superior capabilities and also sharing best practices. We believe that no country and also not one company can tackle these challenges of the future alone. That’s why we at Shell advocate very strongly that we need to share our knowledge, we need to work together, and we need to bring one another to a common understanding of the energy system. ..."

"...THIS YEAR we have painted two possible scenarios for the world. One we call the Scramble Scenario, and the second one – the Blue Print Scenario. As the words al-ready suggest, Scramble means that this is the scenario where countries are focusing mainly on their own short-term energy security and they are putting off actions on energy efficiency and CO-2. In the Blue Print scenario, that is a model of more cooperative, collaborative effort, where international agreements on market measures are included that promote efficiency and reducing emis-sions. And these scenarios we are discussing with the governments in the countries where we operate. I think that is fair to say that the state governments so far have failed to agree on some of these common positions, and it’s a little bit of a scramble at the moment..."

"...AT THE MOMENT there is only one sizable cooperation between an international oil major (Shell) and Ukrainian state company. We all know that the state companies are struggling for investment, for technology, wanting to bring global best practice to their companies. Why do I not see more encouragement of such partnerships from the government? ..."

"...THE ENERGY SECTOR in Ukraine is really suffering from underinvestment and I think in order to bring that investment it is very important that the rules of partici-pation for companies are very clear and transparent, and competition is encouraged rather than discouraged. As an example, the Ukrainian domestic gas market is over-regulated. We believe that by progressively deregulating the market we will actually encourage that competition. So, my other question is: when will we see the first con-crete tangible steps towards these deregulated markets in Ukraine?..."

EXPERT FOCUS

Patrick van DAELE,General Manager, Shell Ukraine Exploration and Production

NOVEMBER 7, 2008


"...SINCE we’ve heard many times at this Forum that the way that Russia uses gas is in its state interest, I want to stress that there is a very strong commercial interest. I mean, Gasprom is not only one of the largest companies in the world by market capitalization. It is also, even from the government’s point of view, not only a stick with which to hit people that the government doesn’t like, but it is also a com-pany which pays more tax than any other in Russia. … it is only the fact that Gasprom paid its taxes that enabled Russia to get through the 90‘s; and it’s on the basis of those taxes that the so-called Putin revival has partly been built..."

"...EVEN THOUGH I agree that Gasprom is inefficient in many ways, I think that the bigger problem is the delay of in-vestment decision on Yamal and on Stockman. …What is cer-tainly opening up is a potential gap in Russian supply, we see that between about 2011-2012. And in the time when Yamal starts to produce considerable volumes to make up for what Russia is losing by the natural decline of Western Siberia, we see a real problem. As Mr. Nemtsov said, the Russians will sell gas to the Europeans rather than to their own people, if they find themselves short. I am skeptical about that. I think that for Russia it’s extremely important to keep the Russian popu-lation supplied with the gas. Perhaps the people who need to worry about this gap that could appear in 2011-2012 are those who are on annual contracts of purchases from Gasprom which, of course, in the first place, is Ukraine..."

"...WE ALL ExACTLY know that EU definitely demands hundreds of bcm of additional gas for the near future, and we all also accept policy which indicates definite source and route diversification. Turkey, as the already intercon-nected fourth corridor, is seated on a bridge of 150 bcm just between Caspian, Central Asian, Russian and MENA up-stream, and the EU downstream. ....The Nabucco project is a main element of Turkey’s main gate for Europe. A recent “market sounding” study indicates that there is high-level upstream and downstream interests, therefore Nabucco is completely feasible. ...Nabucco will be on stream in 2013, South Stream will also be realized by 2015, and White Stream will definitely be realized around the 2020s..."

"...WHAT is the cost of “non-available gas”? Nothing is simple... We have multi-billion-dollar energy and de-fense agreements, strategic partnerships, conflicts, and securing “energy routes”. Nothing will be realized with-out regional and global win-win deals..."

Levent OZGUL,BOTAŞ (Turkish Petroleum Pipeline Corporation), Strategy & Business Devel-opment Manager, Turkey

Simon PIRANI, Senior Research Fellow, Oxford Institute for Energy Studies, UK

NOVEMBER 7, 2008


"...DURING the Forum many discussions have been held on how to get as much gas as possible to Ukraine and gas transit through Ukraine. Is it really worthwhile to direct, to use and to fight for them, - wouldn’t it be preferable to look for change of the type of energy carrier used, or type of energy, that is being received from gas? Shouldn’t we make an accent on renewable sources of energy first of all, or change over to another type of energy? Ukraine, unfortunately, occupies one of the first places in the world by the amount of energy used per production unit, so accents should be changed..."

"...UKRAINE and its citizens have an opportunity to forge a new energy future not based on theory, not based on unproven technologies, but based on the individual decision of citizens and the resolve of their national gov-ernment. The responsibility for your future lies with you, not with the international community, not with Russia and not with the European Union and not with the Unit-ed States. Moving the world off the oil in the transporta-tion field is probably the smartest, most meaningful step any oil importing country can take in terms of ensuring its own energy security..."

"...IF WE ARE to cut back on our dependence on oil, then today’s vehicle fleet must be able to accommodate alterna-tive fuels. For a cost of approximately 100 dollars, each car that comes out from the production line in Detroit can be made into a flexible fuel vehicle, which can essentially run on any combination of gasoline or fuel ranging from ethanol, methanol from a variety of its stocks derived from agricultural materials to waste and coal. Flex fuel vehicles provide a platform on which fuels can compete and let consumers in the market choose the willing fuel in this stock based on economics..."

Oleksandr TODIYCHUK,President of Q-Club; Head, Energy and Energy Efficiency Department, MIM-Kyiv

Kevin ROSNER,Senior Fellow, Institute for the Analysis of Global Secu-rity, USA

EXPERT FOCUS

NOVEMBER 7, 2008


"...INDUSTRY accounts for 40% of total final consump-tion of energy of Ukraine, district heating systems ac-count for 45% of Ukrainian natural gas consumption, and these sectors bear serious energy efficiency poten-tial, while the potential of renewable energy sources is neglected so far. Recommendations for better energy efficiency (EE) and renewable energy sources (RES) use in Ukraine include: ensuring that prices cover full, long-term cost of energy supply; development and implemen-tation of energy efficiency standards for equipment and buildings rather than relying on normative use of energy per unit of output and its associated penalties; making it mandatory to have heat, electricity and gas meters; using tax policy to promote EE and RES; create incen-tives for efficient energy use on state-owned enterprises through performance-based contracts for management; supporting the introduction of voluntary energy efficien-cy agreements; development of energy efficiency funds; as well as increasing public awareness campaigns and training programs..."

"...UKRAINE’S New Energy Alliance is a non-profit orga-nization which carries out projects in the field of energy conservation, energy efficiency as well as advancement of energy efficiency policy, lobbying of bills, regulatory and legal framework at the legislative and executive levels. ...We’d like to give an overlook of the real things that can be done in Ukraine and what is being done to transfer at least 10-12% of the Ukrainian economy to use of alternative energy sources. We are preparing grounds for building wind power plants; we have advanced great-ly in the project of generating energy from wave power; we intend to develop geothermal power engineering in Ukraine. One more project, which we believe will be very important for Ukraine, concerns creation of the techno-logical centre of future energy. We also intend to create in Ukraine an investment fund on energy-saving and en-ergy project implementation. ..."

"...UKRAINE Has a huge potential, which, however, is not exploited, because there is no consistency in the state decision-making system. As of today our political leaders are focused on the extension of their powers, and not on the implementation of the strategic projects. We are firmly convinced that this time will come. Moreover, by means of our actions and the actions of our colleagues we urge fundamental decision-making..."

Valeriy BOROVYK,Chairman of the Board, Alliance “New Energy of Ukraine”, Ukraine

Heikki LEHTIMAKI, Managing Director, Plan Energy Ltd, Finland

NOVEMBER 7, 2008


"...FIRST OF ALL, energy efficiency and renewable energy sources are a business opportunity, and a huge economic opportunity for national economies. In the particular case of Ukraine, the country is foregoing the opportunity to add a whole new economic activity by making sure that there’s a sector of the national economy that evolves around implementing and defining energy efficiency of renewable energy resources. Secondly, energy efficiency can play a key role in lessening the effects of economic downturns like the one we are currently experiencing... Energy efficiency provides a reduction of the operating costs of enterprises, thus increasing the competitiveness of those enterprises. Those managers who manage to re-duce their energy costs in the coming years will be in a perfect position to make the most of the upturn in the economic cycle..."

"...MACKENZIE GLOBAL CONSULTANCY’S assessment was that investment in the development of new energy sources and new transmission capacities is twice as ex-pensive as the investments needed to achieve equivalent energy savings worldwide. That is, for every two dollars that would have to be invested in new energy sources and transportation, we can achieve the same result for invest-ing one dollar in energy efficiency measures...."

"...IF WE TAKE into consideration the fact that 25-35% of Russian production is the cost of energy, then we see how important this is for the nation. We have heard that state is using the energy supply as a political weapon. I doubt this very much because, basically it is Gasprom which is using the foreign policy of the Russian state as a weapon to pursue its commercial goals and not vice versa. We must remember that when Mr.Putin was President of Russia, during almost all of his foreign trips he promoted some interests of Gasprom... We see that corporation acts in the best manner to generate more cash and cover the shortages of supply..."

"...WE HAVE another hope – a very big and a very serious cri-sis. If this corporation-government faces a crisis of payments, a crisis of very acute shortages, e.g. of gas, (Mr.Nemtsov pre-dicts gas shortage, and some of his associates even predict that next winter the Russian government will have to evacu-ate millions of people from large cities just to save them from cold because of disruptions in energy supply). I do not believe in such a possibility but the signals that come from Gasprom, from the government and from some ministries are very worry-ing. I believe that a very serious crisis could make the Russian government to do something with Gasprom..."

Inigo ARENCIBIA GONZALEZ,Project Manager, Central and Eastern Europe PEP - Energy Efficiency, International Finance Corporation

Mikhail KRUTIKHIN,Editor, Russian Energy Bulletin, Russia

EXPERT FOCUS

NOVEMBER 7, 2008


"...UKRAINE is at the point when it has to make a choice. But Ukraine is not making a choice. Ukraine is declaring its adherence and its respect for general standards and principles and also is allowing the state as well to con-tinue to develop all of its unhealthy dynamics..."

"...THE GEORGIAN conflict has vindicated and strength-ened something that today is much more worrying than Russia’s actual policy in this part of the world. It is the mood of Russia. It is the mood based upon a combination of very deep sense of injury and resentment. And a mood of feeling satisfaction and pride in Russia’s revival with dealing with the countries which today is both bully and victim at the same time. And this complicates relations across the board. And the apparent success of what has occurred in Georgia has strengthened this mood and the interests that are most closely associated with this. And the means that strengthened some of the least healthy interests in Russia that Gasprom and much of the energy sector hold within that sector..."

"...The outcome of the Georgian crisis and the conduct of the Georgian war underscore key points which the leaders of Russia want us to understand: that all energy projects that exclude Russian participation are inherently unsafe. And that means unsafe investments to make..."

"...The position outlined by Romania’s Prime Minister is in fact identical to that of the European Commission and of the majority of states in Europe. What is said recently is this: Russia is interested in preserving it state’s gas and oil suppliers. Romania’s interest is a commercial partner-ship with Russia for gas supplies. Why at the same time creating competition by finding an alternative supplier? I don’t see any indication there is a policy to isolate Rus-sia or exclude Russia, it’s not possible. But there is an increasingly firm determination to ensure that Russia cannot be involved in everything or block everything..."

James SHERR,Head, Russia and Eurasia Programme, The Royal Institute of International Affairs Chatham House, UK

NOVEMBER 7, 2008


"...WHAT is the formula for improving relations between pro-ducer, transit and consumer countries – from upstream via midstream to downstream? There are four main components: strategic reserves + integrated infrastructure + sources and routes diversification + transparency. So, the first position: strategic reserves. The events of 2004-2007, connected with Russian-Ukrainian and Russian-Belarusian gas disputes, ne-cessitate the creation of strategic gas reserves.... Of course, developing strategic gas reserves is not a simple thing, but quite possible. If you have gas reserves, you feel freer in case of some extraordinary situation. Ukraine’s advantages lie not only in the pipeline network with capacity of carrying 130 bln cubic meters of gas to EU annually; it’s main advantage is that Ukraine possesses the largest capacity gas storages in the world capable of ensuring continuous gas delivery to European consumers in different emergency situations..."

"...THE QUESTION is how do financial flows circulate? We should pay attention to the fact that when people talk about transparency problems, Ukraine is always mentioned with respect to this issue. That is only partial truth. The is-sue is that the final result of the gas traffic is a financial flow emerging at a European end of the pipeline. ...As you know, Ukraine consumes Turkmen gas. But if you think that Ukraine buys gas in Turkmenistan, you are mistaken; Ukraine and Turkmenistan do not have any relations. Neither does Ukraine buy gas in Russia. De jure, Ukraine buys gas in Switzerland, in Canton Zug, exactly where RosUkrEnergo is registered. NaftoGas of Ukraine has a contract with Ro-sUkrEnergo; by that contract, Ukraine buys Turkmen gas that is transported through the Russian gas pipeline system to Ukraine and partially to the EU. And if you think that this scheme is unique and devised for Ukraine only, you are also mistaken. This scheme is actively cloned in the EU. Where is the office of the North Stream? In Canton Zug, Switzerland. Where is the office of the South Stream? In Canton Zug, Swit-zerland. Where is the office of Stockman Development? In Canton Zug, Switzerland. You may just imagine how big these projects and the financial flows are… And such companies are established with the aim of redistribution of financial flows in a non-transparent way..."

"...THUS, as long as these problems are not solved, it would be impossible to establish any system for relations improvement, especially considering the fact that some groups do not want that. In this regard, the financial crisis is a bad thing, but it is good since it forced us to pay attention to the existence of the off-shore companies being part of the serious businesses and also partially causing the current crisis on the stock market..."

EXPERT FOCUS

Mykhailo HONCHAR,Director of Energy Pro-grams, NOMOS Center, Ukraine

NOVEMBER 7, 2008


"...AS LONG as European companies and politicians are not aware of the importance of consolidated actions within the framework of the new European Energy Transit Space initia-tive, it will be difficult to talk about possible balance of rela-tions - that is one side. From the other side, it seems to me that an elegant formula where the transit constituents play the key role is applicable. The transit components are not just the link that is important for consumers and for pro-ducers; it is the link by which being transformed into real profitable business makes it possible to diversify not only transport routes but also energy supply sources..."

"...EUROPE has a chance to pay more attention to the Energy Charter as a perspective instrument. We need to do that in order to ascertain ourselves once again, that it is not so bad, and that we should not adapt it in accordance with Russia’s wishes. More attention has to be paid to the transit states such as Ukraine, Be-larus, and assistance should be provided to them to modernize market energy relations within these states, transforming their transit component into real business..."

"...I WOULD encourage us to further discuss whether politi-cally motivated interruption to supply, in fact, is the largest risk facing Eurasian and European energy security. From the IEA perspective, the risk of underinvestment to the upstream appears to be a very significant one. Also important is the issue of generalized lack of transparency along the energy value chain. I am not just referring to some of the upstream issues or midstream issues, or issues facing Ukraine, but also things that we have been encouraging the EU to focus on in terms of transparency of information, of operation of the Eu-ropean gas market. Another risk that we face is the difficulty of generating investment in infrastructure..."

"...THE DEBATE on diversification of sources and supply along our discussion has occasionally been framed in a more antagonistic way that it was explicitly diversification away from the reliance upon Russia. I think that if you set the debate up in an antagonistic way, you are likely to get an antagonistic debate. The challenge is about where addi-tional gas will come from for Europe? Some of it may come from Russia; it’s entirely legitimate for European consum-ers to look in North Africa; from international LNG market; from Norway; but also from the Caspian and Middle East as a source for additional gas. There are formidable challenges about getting that gas out of the ground. It’s not going to be a short and easy process, but it’s an entirely legitimate aim for the EU to put together a series of policies that could make a compelling case for Caspian producers to dedicate resources to the Southern corridor..."

Tim GOULD,Program Manager, Caspian, Caucasus, Southeast Europe, Office for Global Energy Dia-logue, International Energy Agency

Oleksandr NARBUT,Independent Expert, Ukraine

NOVEMBER 7, 2008


CAMERA FOCUS


SUMMARY REPORT

SUMMARY REPORT

Energy security is one of the tremendous challenges of the in the 21st century – along with the economic and financial crisis, nutrition crisis, and climate change. All of them are interrelated, but energy security is probably the most demanding among them.

Energy security is a global issue with strong regional characteristics. The Black-Caspian Sea re-gion is an extremely relevant region for the energy security of Europe. Countries of the region are major producers as well as major consumers, possessing diverse and complex transportation networks for energy resources.

Since the problem is global, it requires a common, multiparty response. There have been numer-ous calls for collective energy security arrangements, or even synergies. Mutual interdependence and the security vacuum should be solved within a broader, multilateral framework. The Second Kyiv Security Forum presented an opportunity to discuss mutual vulnerability between producers, transit countries and consumers.

MAJOR CHALLENGES TO ENERGY SECURITY

All Forum participants agreed that energy security challenges are truly becoming global. In the long-term perspective, the gap between demand and supply of energy resources will deepen in the EU, in the region and in particular countries. Consequently, the prices of en-ergy resources will also increase. Major producing states reached their peak production with hydrocarbon fields being depleted more intensively than newly discovered fields are put into exploration. Furthermore, global energy demand is changing in rapidly growing economies, such as China or India.

There is an urgent need for massive investment to meet future energy demand. But in light of the global financial crisis and the extreme volatility of energy prices, it represents an exceptionally difficult and risky challenge. Nevertheless, these investments are absolutely indispensable; their postponement will endanger the security of supply and subsequently, the economy as a whole.

There is also the growing challenge of climate change. Environmental protection, which used to focus on prevention of pollution, is now increasingly focusing on reducing global greenhouse gas emissions and mitigating their climate change impact.

The world is now experiencing greater state involvement in the global energy markets, and therefore political risks increase, which will have certain impact on international investment


policy. Energy became an element of foreign policy and a mean in international relations. De-politicization is not expected. Since the security of oil and natural gas supplies to Europe is sensitive and of major interest to potential suppliers, political interests will always be linked with economic interests. Almost all producing countries have a political agenda of their resource exports are connected closely to commercial interests. In different times and circumstances, Russia, some Middle Eastern (Iran) and North African (Algeria, Libya) states used energy supplies as a political weapon.

As a result of the resurgence of national authorities and less intervention of the private sector in resource development, the global community is facing the problems of “resource nationalism” along with “technological egoism”. The former leads to change in state policies toward foreign companies functioning on the domestic market, and the latter complicates the security and sta-bility of supply. China and India are examples of creating national oil companies backed by the governments which are quite efficient in “field hunting” and pushing out the traditional Western companies from the market.

This leads to state competition for both oil and gas. As one of the Forum speakers argued, even though the danger of using energy resources as a weapon was discussed, the problem of using weapons for getting oil and gas also must be considered. Competition for resources will aggra-vate, so compromises and negotiations on the international level as well as increased energy efficiency are seen as the best ways to approach the issue.

Whether caused by political or economic reasons, regional conflicts in the Black-Caspian Sea region present serious challenges to the security of supply and operability of transit corridors, as regions and states threatened by instability are at the same time essential producers or transit nations. De-freezing of local conflicts often strike on critical infrastructure. The Georgian crisis in August threatened the realization of competitive energy projects which do not include Russian interests or investments. This presents a serious risk to construction of new pipelines from the Caspian region to the European market.

Transparency of energy deals earlier was viewed as a problem of national character for some states; however, now it is becoming higher on the European agenda. Not only Ukraine or other transit countries are challenged by non-transparent intermediary or investment companies – the whole of Europe suffers from “Swiss syndrome”. The problem of non-transparent cash flow and shadow economy deals which harm European energy security was cited by many participants.

EXISTENT EUROPEAN AND REGIONAL COOPERATION MECHANISMS

IN ENERGY SECURITY

Global distribution of energy resources, current technologies and projections of demand set the priority for policy-makers to respond to the challenges most effectively and to create functioning cooperation mechanisms that can mitigate common risks. In addition to the efforts of national


governments the role of various international organizations as regulators, facilitators, or security providers should be advanced.

The Kyiv Security Forum participants agreed that the Energy Charter is a constructive conceptual framework signed by almost 60 countries declaring readiness to follow such core principles as national sovereignty over energy resources; respect for contract and property; stable and open frameworks for flows of energy-related capital, technology and investment; orientation towards market solutions, non-discrimination, transparency, energy efficiency and sustainable develop-ment; and predictable, transparent and non-discriminatory conditions for trade and investment.

The Energy Charter provides an accessible multilateral policy forum for a very diverse group of countries, and a valuable platform for regulatory dialogue on issues effecting the movement of energy also across the Black-Caspian Sea region. So it is a unique legally-binding, legally-based multilateral mechanism for cooperation in the energy sector which brings together producers, consumers and transit countries.

Despite all the positive rhetoric, the Energy Charter was widely criticized. This international body fails to deliver a comprehensive framework for transit of energy resources from Central Asia to Europe. Its Transit Protocol has been under development for many years and not adopted yet. Such important countries for energy security as Russia or Norway did not fully adopt the Char-ter, and this represents a major challenge to basic rules accepted by contracting parties. Some speakers even referred to “institutional fetishism”. But it does not mean the Energy Charter should be rejected. It has to be updated and strengthened by new mechanisms and new tools to control its implementation.

Regarding the European Union there is a lack of common approach, of common energy policy, which is the best scenario to strengthen energy security. Discussion of perspectives of the Eu-ropean energy policy split the audience into optimists and pessimists. The relatively weak com-mon position of the EU is determined by particular interests of its member states, which differ because of divergences in energy mix and sources of supply, as well as national political interests. However, there are still common goals and priorities. The main points for those are the reform of the price mechanism (towards its equal and transparent formation), the focus on common policy goals (e.g. strategy on climate change), and the development of energy-efficient and energy-saving technologies. Many also believe that the current financial and economic crisis presents an opportunity for new solutions.

The common European energy policy is developing on the following principles: diversifica-tion of suppliers, efficiency in energy consumption, alternative energy sources, transparency, dealing with climate change, and, finally, the principle of solidarity of all EU countries which is quite controversial and depends on the ratification of Lisbon Treaty to be implemented. In the broader sphere, the EU is continually working on a common framework to integrate national energy markets.

Due to its holistic approach to security, NATO as a political-military transatlantic organization

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acts not only in defense and security sector reform, interoperability, training and exercising but also in democratic and economic reforms. Not aspiring to become a leading organization in the area of energy security, NATO has specific tools that can be used in promoting and contributing to energy security in a comprehensive way, that allow it to play a limited complimentary role. It links together North American markets, European markets with Turkey as a major transit state. NATO en-joys more advanced partnerships in other parts of the world that the EU lacks: the Mediterranean, Middle East, Russia, Ukraine, South Caucasus, and Central Asia. The engagement of all partners brings the Alliance closer to a strategic horizon for energy discussions and solutions.

The NATO Bucharest summit declaration sets out specific principles and guidelines, and five areas in which NATO will engage in the field of energy security: information and intelligence fusion and sharing, project instability, international and regional cooperation, support of consequent management and support of the protection of critical energy infrastructure.

The Organization of Black Sea Economic Cooperation (BSEC) as a regional framework and platform for a dialogue can also contribute to the establishment of regional energy policies. The concept of a wider “Black Sea area” considers the region as a natural bridge between the energy consum-ing region and energy producing regions and as the largest energy infrastructure development area. As a regional multilateral organization, BSEC operates via several working groups on energy and a Project Development Fund. It also shares a common interest with the EU which is being implemented through the Black Sea Synergy initiative. BSEC could become a regional framework to create integrated energy markets, to diversify supply and supply routes, to secure vital energy transportation networks, and to provide equal access to natural resources. However, its activities should be oriented towards deeper cooperation with the EU to effectively achieve these goals.

Another regional organization – the Organization for Democracy and Economic Development GUAM – associates countries whose preferable geographic location is also as the bridge between Europe and Caspian and Central Asian states. Its activities include coordination of member states’ efforts to strengthen energy security by protecting existent transport infrastructure and develop-ing new energy transit corridors, as well as by implementing common projects connected to alter-native energy sources. Given the fact that GUAM is a rather new initiative, capable mechanisms are still to be developed. A very promising issue might become cooperation with other states in a GUAM+ format.

SECURITY OF SUPPLY

Energy security first of all means provision of an adequate, affordable, reliable, timely, clean and uninterrupted energy supply, which is particularly important for a Europe dependent on an exter-nal sources of supply.

Supply security implies that an exporting state keeps its promises linked to supply deals and does not misuse its sovereign position to interfere in supply deals. The Kyiv Security Forum discussed the mutual dependence of demand and supply, particularly European dependence on the energy


supply from Russia, a major player in the Black-Caspian Sea region. The dependence is asymmetric due to the fact that infrastructure limits provision of alternative (to Russian) natural gas supplies to Eastern and Central European countries even if producing countries from North Africa or the Middle East would provide the necessary amount of natural gas.

The question was raised: “If Russia cuts the natural gas supply for a week what will happen?” Some speakers insisted that it will create panic on the consumer side and reflect the asymme-try which provides Russia with opportunity to misuse European dependence. Other discussants pointed to Russia’s fundamental interests in being a reliable energy supplier to Europe.

External energy policy is determined by the combination of commercial and state interests, so it was suggested that basically Gasprom is using energy resources as a weapon to pursue its com-mercial goals. The Russian corporation acts in its best manner to generate cash and to cover its own deficit of resources, therefore, the probability of cutting off the gas supply is marginal. Nevertheless, Russia as a political player definitely has a strategy to control the entire energy value chain. It acts to monopolize sources and routes of energy supply, blocks any diversification project which may bring other resources rather than Russian and Central Asian through Russia to Europe, and promotes its own infrastructure projects. Russian exporting monopoly Gasprom is present not only on the Russian market but also on the market of Central European countries and Western Europe. Gasprom controls markets in Ukraine, the Baltic states, Belarus, and has huge influence in Turkey and Central Asia. It is also quite successful in working with some European concerns and governments which signed long-term bilateral agreements and contracts to secure the supply, or to become a hub for Gasprom in Europe, or to have access to Russia’s rich reserves. Such a strategy was criticized by some speakers who emphasized that Russia does not play fair or pointed towards “Schroederization” of Europe.

Patience and dialogue were proposed among the solutions to counter the Russian strategy and to provide better supply security. Moreover, quite a few participants stressed that Gasprom will face such objective factors as crisis of payments and gas shortages, which will change its policy. It was also mentioned that some European countries also need to enforce control over domestic politics and conflicting groups that have specific relationships to the Russian energy establishment in order to prevent a prevailing of private interests over national ones. Special attention was also paid to the necessity to search for alternative sources of supply.

Traditional energy supply channels to Europe are Norway, Russia, North Africa, and the interna-tional LNG market. The considerable oil and gas resources of the Caspian, primarily in Azerbaijan, Kazakhstan, and Turkmenistan, constitute the most accessible alternative energy supplies for Eu-rope. The EU needs to develop an active strategy for securing access to the energy resources of the Caspian, and handling existing competition for them. The problem is that Central Asia and the Caspian region are landlocked and the only pipeline systems they are connected to Europe are through Russian territory and are controlled by Russia. Therefore, these routes do not offer any diversification perspectives. Additionally, the Russian monopoly Gasprom bought all export amounts of gas from Turkmenistan, Uzbekistan and Kazakhstan for the next 20 years. Western

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governments and companies should be more interested in exploration production and invest-ments in these countries.

Diversification of routes and, more crucially, of sources is needed to secure the supply. It would allow countries and regions to mitigate the facts of dependency on one supplier and to neutralize possible interruptions. Markets function best when there are alternative sources and competition among them.

Europe, being dependent on an energy supply, should be in the position to import equal shares from all big suppliers. Countries have to make efforts to develop transport infrastructure (pipe-lines and power bridges) for alternative supplies. The infrastructure within Europe also needs development to make it possible to transport natural gas from where it is available to where it is needed.

Infrastructural needs include the construction of a “Southern corridor” – pipelines which would allow Europe to get energy resources from many producing countries south of Russia such as Turkmenistan, Iran, Iraq, Azerbaijan and possibly Qatar and Saudi Arabia. The world’s most energy rich region between the Caspian Sea and the Persian Gulf has to get access to Europe - the world’s largest energy import market. Without these changes, consumer and transit nations in Europe will remain divided and insecure in the face of supply monopolies.

What is even more important is sufficient and timely investment. Underinvestment in production is a clear problem. The costs of getting oil and gas out of the ground have become much higher and full of risks. More difficult hydrocarbons need new technologies and cash flow, which are pos-sible through close cooperation of private enterprises and policy makers. Production countries also need various incentive programs for strategic foreign direct investments.

Forum speakers underlined the business inefficiency of Russian monopoly Gasprom. Gasprom’s production of gas declined from about 546-549 bcm in 1990 to 148 bcm in 2007. Without a seri-ous increase of investments, it will face a deficit of gas not only on the international market, but even on the domestic Russian market. The biggest current problem is the delay of investment decisions on huge projects requiring enormous expenditures – Yamal and Stockman gas fields. Fortunately, Russia has the opportunity to increase production of gas via independent producers operating on its market and via attracting strategic investors.

SECURITY OF DEMAND

Growth of demand in both advanced and emerging economies puts enormous pressure on the global energy market. Therefore, each country has to maintain a competitive and transparent domestic market which efficiently consumes energy resources. It is mainly the responsibility of national governments and institutions, but international organizations also have to be engaged, there should be a political consensus over the much needed internal market reforms.

Creation of strategic oil and gas reserves integrated with developed infrastructure is of tremen-


dous importance. Such reserves are a guarantee of safe supplies in extraordinary cases such as shortages, embargo or natural disasters. Ukraine has excellent preconditions for creation of stra-tegic reserves, since it possesses one of the world’s largest systems of underground gas storage facilities which together with an interconnected pipeline system could a provide continuous gas supply for both the domestic market and European consumers.

It was stressed by many speakers that the most important fundamental element of the function-ing market – both for Ukraine and other Black Sea region states – is keeping the prices at the market level. Prices and tariffs (including transit tariffs and payments for storage space) should be equal for residential consumers and budgetary organizations as well as for industrial consump-tion. The principle of equal profitability should dominate energy trading, and countries have to be prepared to pay market prices. Another priority should be establishment of a capable national regulating body, which should establish game rules on the market of oil, gas and electricity. It needs to be strengthened to function effectively and independently.

Transparency should also be increased since development of a shadow economy is harmful for supply security, demand and transit. In the context of the above-mentioned “Swiss syndrome”, the role of intermediaries – such as RosUkrEnergo which functions in Russia, Ukraine, Hungary and Poland, and is not just a transporter but also the operator of all Ukrainian gas imports – was under thorough scrutiny by experts. A transparent system of energy supply based on direct agree-ments between state monopolies is a system preferred by European energy consumers.

The EU also has to focus on the European gas market. Non-transparent cash flow that is generated by offshore companies cannot be controlled by national authorities and bureaucracy in Brussels. The only way to solve the “Swiss problem” is to maintain transparency and freedom of the press in order to make information available to the public. Transparency of transactions and of ownership can be reached by dialogue and the involvement of national governments, European organiza-tional bodies, various NGOs, and the International Energy Agency.

Significant improvement in the business climate is required to attract investments needed from international energy companies for serious development of various energy sectors including hy-drocarbons, nuclear materials, electricity and alternative energy. State legislation and regulation in almost all countries of the region have to be updated to correspond with internationally recog-nized norms: fair access to geological data, transparent decision making processes, longer licens-ing periods, use of model contracts, and truly competitive tenders, including production sharing agreements. Only after such enhancements can the development of the promising potential of the Black-Caspian Sea region be possible.

Participants of the Kyiv Security Forum also discussed current European policies and instruments capable of improving the security of internal energy markets. The Energy Community Treaty will be enlarged through the accession of Moldova, Turkey and Ukraine. The target countries are ex-pected to apply the whole energy legislation of the EU (i.e. all acquis communautaire). One of the priorities could be ‘sectoral’ integration in the field of energy, namely joining the Union for the Coordination of Transmission of Electricity (UCTE). The appropriate steps and measures are

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being taken with the recent start of negotiations. However, some criticism towards the EU was voiced – especially with regard to its reluctance to move ahead decisively in order to bring target countries into partnership.

Currently the EU is using its European Neighborhood Policy (ENP) as a general approach and general framework for cooperation with the countries of the Black-Caspian Sea region. The imple-mentation of the bilateral Memoranda of Understanding on the cooperation in the field of energy provides a significant step towards further mutual integration on the basis of joint strategic interests. Latest developments offer Eastern Partnership for strengthening relations with Eastern Europe and South Caucasus within the broader framework of ENP. Some speakers also believe that the solidarity mechanism introduced by the Lisbon treaty should also be open to EU’s neighbors.

Forum participants also addressed the possibility of lessening the energy dependency of the con-suming states beyond a geographic variety of sources to a variety of fuels. Different options are available and gradually developing – from wind-power stations, solar stations, to geo-energy and wave stations. However, available analysis argues that investment in the development of new energy sources and new transmission capacities is twice as expensive as the investments needed to achieve equivalent energy savings worldwide.

Therefore, the exceptional importance of energy efficiency for energy security of individual states, the region and Europe as a whole was specifically underlined. Some Forum participants insisted that energy efficiency is a major pillar towards energy security. Energy efficiency, as well as renewable energy sources, are seen by many as a business opportunity, and a huge economic opportunity for national economies. Most of Black-Caspian sea region states in particular could add a whole new economic activity by making sure that there’s a sector of the national economy that evolves through implementing and defining energy efficiency of renewable energy resourc-es. Moreover, energy efficiency can play a key role in lessening the effects of economic downturns like the one the world is currently experiencing. Energy efficiency provides a reduction of the operating costs of enterprises, thus increasing the competitiveness of those enterprises.

SECURITY OF TRANSIT

The transit element of energy security is also vital. After the breakups from the financial crisis and sufficient decline of oil prices almost all transit projects were stopped, which will have a negative impact on the diversification of supply and risks connected with old infrastructure. Transit therefore should become a real functioning business which makes possible the diver-sification of both routes and supplies. That is why participants of the Second Kyiv Security Forum concentrated on the perspectives and criticism of the new transit facilities which have to connect the Black-Caspian Sea region, rich in energy resources, with sufficient and interested European markets.

Some actions should be undertaken with regard to specific countries: closer engagement of Turkey into European security structure as a key element of fourth energy corridor (in addition


to Norway, Russia and North Africa), modernization of gas transportation and storage systems in Ukraine through needed investments, as well as reestablishing Georgia as key energy transit country by restoring its infrastructure.

More intensive and sometimes controversial discussions were held regarding specific transporta-tion projects. The Nabucco pipeline is considered by the EU as project of pan-European interest. It will certainly contribute to the energy security of Europe as it is expected to meet 10% of the EU demand in 2015 with its full annual capacity being up to 31 bcm. But the construction of Nabucco as an alternative route is complicated by problems with investments and gas supply sources. There should be competition with other projects and other companies; serious negotia-tions should be conducted with Iran and Turkmenistan as major producers; involvement of alter-native sources with better conditions of supply - Azerbaijan, or even Egypt and Iraq, - should be considered. Nabucco is also closely related to a number of shared borders involved, and therefore to the security situation in the Caucasus.

Such underwater pipeline projects as North Stream and South Stream were mentioned as even less realistic than Nabucco. They either require too much investment or depend on political decisions from Russia’s coastal neighbors which so far mainly strongly oppose for a number of reasons. Their contribution to European energy security is doubtful – on the contrary, they tend to lock energy supply routes on Russia and isolate Caspian resources from Europe. One of the questions raised is why do some countries still insist on South Stream if it will further deepen their depen-dency on Russia-controlled routes of gas supply? Another issue pointed out is the limitation of Russian gas resources for both pipeline projects. Even already functioning underwater gas pipe-line Blue Stream is filled only by 50% of its initial capacity. The environmental aspects should be also taken into account.

Participants of the Forum also touched upon the Odesa-Brody-Plock pipeline – part of the Euro-Asian Oil Transportation Corridor project. It is supposed to increase and strengthen the energy security of the participating countries through the establishment of a reliable route of trans-portation of crude oil from the Caspian deposits to international markets via the territories of Azerbaijan, Georgia, Ukraine, Poland, and Lithuania. However, the continuing conflict and the question of how and under which circumstances the pipeline would be filled with commercial oil postpone the final implementation of this project.

Another project discussed was White Stream, which is supposed to transport Caspian gas via Georgia and the seabed of the Black Sea to Europe. This pipeline project could encourage in-vestments in Caspian gas field development by diversifying export options and transport routes directly to European Union territory – but only if it will be supported by governments and needed funds.

The Trans-Caspian pipeline should have linked Kazakhstan and Turkmenistan, rich in hydro-carbon reserves. with available transit routes in the South Caucasus. It was not constructed since the middle of the 1990s, while the producing countries were not as much engaged in that project. The realization of a Trans-Caspian pipeline nowadays is problematic due to a lack of

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interest and no definite offer from the pipeline consortium and producers, as well as opposition of some European countries which rely on long-term contracts with Russia.

The emergence of new regional initiatives in the Black-Caspian Sea region was also pointed out, - namely, the Baltic-Black-Caspian Sea Energy Transit Space. The process was launched by Ukraine, Poland, Georgia, Azerbaijan, and Lithuania last year, with Latvia and Estonia joining in. It is directed by providing a secure, transparent and safe supply and transit of energy resources; and to provide a mutually beneficial balance between interests of producers, transit countries and consumers according to the main provisions of Energy Charter and other international docu-ments. Being an ambitious intergovernmental community of transit countries, it tries to propose new mechanisms to guarantee security of transit and new approaches towards overall European energy security.

The Baltic-Black-Caspian Sea Energy Transit Space countries are targeting promotion of projects of commercial interest to increase transit flows from Caspian producers to European markets. It is viewed by participating parties as an attempt to develop regional synergy and to build a pool of countries to use more optimal routes of energy resources transportation and formation of secure transnational corridors. Some speakers, however, raised concerns, that this is response to the EU’s inability to create a common energy policy, the lack of political dialogue on this is-sue, and the absence of common regulation framework on transit. It was stressed by many, that the initiative should not be treated as a threat but as an opportunity for the improved European energy security.

FINAL REMARKS

Participants of the Second Kyiv Security Forum agreed that spheres of upstream, downstream and midstream are mutually interdependent. They agreed that major producers are also major transit states, and also consumers themselves. This has the fundamental impact on understanding that the idea of energy independence is nothing but a myth; therefore, common solutions are needed for future security policy.

Pertinent response to the challenge of energy security would be acting at bilateral, regional and multilateral level. Any initiative to enhance regional cooperation between the EU, the Black Sea and the Caspian regions now becomes even more important. It has to continue providing security of supply to the consumers, security of demand to the producers, and security of transit to the transit countries and those on both ends of it.

The Kyiv Security Forum provided a channel for dialogue to establish a stronger energy policy framework of producers, consumers and transit space countries. Thus, energy security and the mutual vulnerability in this field provide an opportunity to continue and further strengthen the dialogue and cooperation which is today of great importance.


November 14, 2008Michael Gaul: NATO Membership will Bring More Energy Security to Ukraine Yuriy Onyshkiv

“….Glavred: Who Plays the Biggest Role in European Energy Security – the EU or NATO? Michael Gaul: “The EU and NATO both play dif-ferent and complementary roles in European energy security. NATO is definitely not an organization that works on energy issues, and energy is not the main element of security that NATO works on. Nevertheless, already in 1999, energy security was mentioned in NATO’s strategic concept. Vital resources are also of great importance for our allies. That is why it is an important security element for us.”

November 8, 2008Energy for Creation, not a Leverage of InfluenceNadiya Smiyan

“…Yesterday, the Second Kyiv Security Forum finished its work. The Forum was organized by Open Ukraine Foundation, financially supported by Victor Pinchuk Foundation under the aegis of the Ministry of Foreign Affairs of Ukraine. 300 participants from 25 countries took part in the Forum. It is a very important Forum on the eve of the Energy Summit that will be held in Baku…”

October 11, 2008 Vicious Circle of Energy Market: Ukraine’s AdvantagesNataliya Bilousova

"…The Energy Charter should systematize the European energy market. But not all big gas producer countries ratified the Treaty. Russia, in fact through Gasprom, dictates its gas policy to Europe and former CIS states, even though it has signed the Energy Charter, nevertheless, it is not in a hurry to ratify and therefore conse-quently implement the Treaty. Instead, Russia strengthens its gas positions monopolizing all the Central Asian gas supplies...”

November 11, 2008On its Own Field Naftogas of Ukraine Strengthens its Posi-tions in spite of the World Crisis Oksana Lyven

“…Arseniy Yatseniuk welcomes the revival of Naftogas’ monopoly on the internal state mar-ket. “It is a priority task that the Government is working on and the Verkhovna Rada sup-ports the Government in it”, – said Mr. Yatse-niuk. Hryhoriy Nemyria, Vice Prime Minister of Ukraine on European and International In-tegration stressed: “We are satisfied that Ro-sUkrEnerhgo will be removed from the Ukrai-nian market. It is really a step forward. Our

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government urges for increased transparency and consistently upholds this principle…”

November 14, 2008EU Urges Ukraine to Accept Eu-ropean Rules on Energy MarketYuriy Onyshkiv

“…As Helga Schmid said, this week the Euro-pean Commission will publish Strategic Energy Review, where special attention is paid to se-curity of energy supplies. The review contains information on independent integration of the most isolated European states into European gas and energy networks. In close cooperation with its partners, the EU intends to intensify relations with producer and transit countries for ensuring sustainable supplies and diversi-fying sources and routes…”

November 15-22, 2008Black Sea-Caspian Region and European Energy SecurityAlla Yeriomenko

"...Everything is simple in the energy security sphere. The European Union tries to avoid pay-ing attention to the Ukraine’s issue because the financial crisis is a bigger problem. It is strange that in this situation everybody acts in his own interests. There is no Common en-ergy policy in the EU. And the most gas de-pendent states, such as Germany, France and

Italy, managed to make long term contracts with Gasprom for 25-30 years. And in these terms, the mentioned countries are less de-pendent on European energy policy. The other countries have been late. Ukraine is also late. Though it is not part of the EU, it is one of the biggest transit countries transporting the ma-jority of gas exported by Gasprom through its territory. Nevertheless, long term contracts on supplying Ukraine with gas and on gas transit through Ukraine’s territory have been always the object of bargaining. I hope economic bargaining…”

November 11, 2008Is it Possible to Establish a Transit States’ OPEC in Eastern Europe?Vitaliy Martyniuk

"...Transit states in Eastern Europe are in the most difficult situation as compared to pro-ducer and consumer countries. The first thing is that they are also consumers and are depen-dent on producers. The second point is that as transit countries they suffer from the double pressure of producer and consumer countries. Transit states could derive benefit from their geographic nearness to oil and gas production places. But they have to coordinate their tran-sit policies for that. Close cooperation may be ensured by establishing an organization like OPEC aimed at promoting and protecting inter-ests of transit countries in their dialogue with producer and consumer countries…"


November 7, 2008Taylor Wants Yushchenko and Tymoshenko to Work Together

"...It is very important that the President, Verkhovna Rada and Cabinet of Ministers work together on problems”, said Mr. Taylor. The US Ambassador underlined that Ukraine should intensify its program on energy efficiency in the economic sector. In accordance with Am-bassador Taylor’s words, price reform in ener-gy sector means increasing prices, which will be a potential danger for the most vulnerable consumer groups..."

November 11, 2008 Maya Zakhovanko

“...In the capital of Ukraine, the Second Kyiv Security Forum “Black Sea-Caspian Re-gion and European Energy Security” started its work. About 300 participants, high rank-ing officials, well-known analysts, business representatives of the EU, Russia, USA, Black Sea-Caspian region states and international organizations will take part in it. The main issues that will be discussed by the Forum participants are challenges of European and Ukrainian energy security; the role of Ukraine, Russia, states of the Black-Sea-Caspian region in the new energy policy of Europe..."

November 7-11, 2008“Black Sea-Caspian Region and European Energy Security” – Forum in KyivBohdana Kostiuk

"...According to Vladimir Rakhmanin’s words, the high level of representation at the Forum proves that energy security is an integral part of international trade, international policy in the Black Sea-Caspian region and on an all-European level as well. Vytautas Nauduzas, Deputy Minister of Economy of Lithuania, stressed that energy relations connect states of different regions stronger than historical relations. There are no absolutely energy-in-dependent states. Even Russia has needs from its energy partners - modern equipment for oil extraction, timely payments for energy carri-ers’ transit and so on…"

November 7, 2008

".. .In 2009, Ukraine intends to partially turn to a new energy market model, an-nounced Volodymyr Makukha, Deputy Minis-ter of Fuel and Energy, at the Second Kyiv Security Forum “Black Sea-Caspian Region and European Energy Security” organized by the Open Ukraine Foundation that was

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founded by Arseniy Yatseniuk. According to the words of Volodymyr Makukha, the Ministry of Fuel and Energy plans to con-vert 10% of the Ukrainian energy market to the model of direct contracts. This will create favorable conditions for investment in and development of the Ukrainian power system, said the Deputy Minister. He also noted that reforming the Ukrainian energy market is necessary for uniting European and Ukrainian power systems…"

November 15, 2008Energy Dependence: Threat to Security or Ground for Dialogue?Olga Reka

"...John Roberts: It is difficult to answer whether Ukraine has an energy strategy. From a logical point of view, Ukraine should be in the third or fourth stage of the global program on reforming energy sector. That means that Ukraine should work on reducing its dependence on imported gas, implement-ing a wide-scale energy saving program, developing its own gas fields and other re-sources. But in reality, there is no progress. Talking about foreign companies willing to work on the Ukrainian market, whom should they negotiate with? Who represents Ukrai-nian authorities? Is it the President, the Prime Minister, official ministries? Do they need to wait for some wide coalition? Do they have guarantees that if they conclude a

contract with one official structure, the con-tract will not be broken by another official structure? There is no stability at all. ….. Very often we hear that soon Ukraine will tell the world about its great achievements in the energy sector. It would be better to hear about its small progress made on a day-to-day basis. That is why it is difficult for me to see any energy strategy in Ukraine’s actions. I should say I would be pleased if I am wrong..."

Kyiv, November 8, 2008Energy Security for AllDmytro Kachura

"...Hryhoriy Nemyria, Vice Prime Minister on European and International Integration, said that Ukraine’s integration into the Eu-ropean energy security system is a strategic priority for our state. The Vice Prime Minis-ter supposes that in the event of successful integration, Ukraine will be able to involve more investors, modernize and adapt to ad-vanced technical energy standards. That will also contribute to Ukraine overcoming the problem of inefficient energy consumption. Hryhoriy Nemyria stated that soon Ukraine will start negotiations on joining the Energy Community Treaty.. ."


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