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Eurasia in the Global Energy Dialogue

28 October 2004

Moscow, Russia

The International Energy Forum Secretariat takes pride in co-chairing this roundtable session on 'Energy Co-operation in Eastern Eurasia and Asia-Pacific Region'. Eurasian is important not only for energy developments worldwide, but also in the wider economic and geo-political context. I am eager at this roundtable to learn from your Eurasian energy experience and perspectives. To understand better the challenges that you see. And how you propose to meet them. But first a few introductory remarks from my perspective, which is global. 

The International Energy Forum is the venue for informal dialogue between energy producing and consuming countries at the level of Ministers. The series of Ministerial meetings in the IEF started in Paris 1991. The latest was held in Amsterdam in May this year and gathered sixty countries, among them the Russian Federation. Ministers met across traditional political, economic and energy policy diving lines. They focused on energy security and the investments required to satisfy increasing global demand. 

The perspective of the producer-consumer relationship - both with regard to conflict and dialogue - has traditionally been bi-polar. The industrialized, consuming countries in the IEA on the one hand. The OPEC producers on the other. The global dialogue in the IEF includes both the IEA and OPEC countries as well as the many countries outside these two main producer-consumer organizations. Countries like Russia, China, India, Brazil, and South Africa - to mention a few - that will increasingly impact the global scenario. Today, we see the contours emerge of new multi-polar global energy order where Eurasia has its distinct dimension. 

Eurasian focus

The focus of our roundtable is regional. Eurasia, whether you define it as the connected landmass of Europe and Asia comprising almost half of the land area of planet Earth, or narrow it in geographical scope, is a region of great energy importance and potential. Eurasian production and consumption, exports and imports, as well as transit, of oil and natural gas will strengthen many traditional patterns of economic and political co-operation and also contribute to shaping new co-operative patterns and new geo-political realities. 

We are all interwoven in a Global Energy Policy Interrelationship. A wide and complex network of interaction at political, commercial and technical level, on bilateral, regional, inter-regional and global basis. This network involves governments, industry, international organizations and financial institutions - all with a role to play in the confidence building and partnerships that are necessary to deal successfully with the global challenges ahead. The Russian Oil and Gas Week has become an important forum for interaction among representatives of the various elements of this energy network. 

Investment Challenges

Let me mention some of the shared perspectives that emerged from the IEF Ministerial in Amsterdam as a global backdrop for our regional focus at this roundtable. 

Ministers expressed concern about the high oil prices. Unanticipated strong demand, tight capacities up- and downstream as well as geopolitical uncertainties were seen as drivers. Economic recovery worldwide, especially in developing countries, would benefit from stable oil prices at a reasonable level. Both producer and consumer countries should take action to ensure sustainable price levels.

Ministers considered present oil and gas reserves sufficient to meet the world's increasing energy needs, provided that necessary investments are made in time. They advocated unhindered access to capital, energy technology and markets would promote the development of production, transit and transport capacity. They reaffirmed the sovereign rights of states over their natural resources while also recognizing the commercial objectives of oil and gas companies. 

Ministers echoed the strong message from CEOs of leading energy companies in the preceding International Energy Business Forum that fair and equitable treatment along with stable and transparent economic, fiscal and legal frameworks will enhance the flow of foreign direct investment and other resources. Bilateral and multilateral investment agreements could help clarify conditions and provide a secure environment that facilitates the mobilization of investments. 

Ministers underscored the importance of investments in cleaner fossil fuels and of reducing the detrimental effects of growing energy use. The importance of developing alternative energy sources was stressed. Their vision was a smooth transition to a new energy era for the longer term, facilitated by the presence of still ample oil and gas reserves. The importance of energy for sustainable development was also emphasized, especially bearing in mind the energy needs of a growing world population. 

A Eurasian Dimension

Eurasia in its more narrow sense limited to Russia and other members of the Former Soviet Union has great energy exporting potential. The higher oil prices of today, and market uncertainties, have increased world interest in what Russia and the region can do to help meet future demand. 

Eurasia, in its geographically extended sense, has great energy importing potential. Energy hungry countries on the eastern and southern perimeter of the wider Eurasia such as China, India, Japan and Korea will increasingly compete with Europe and other markets and, indeed, also among themselves for oil and gas supplies from Russia and the Caspian. The growing economies and industrialization of key Asian countries are already influencing oil prices and market developments. 

The energy sector in the Russian Federation is undergoing profound transformation and fueling your economic recovery and development. Your economy has become increasingly dependent on the oil and gas sectors. Russia towers internationally as the world's foremost combined producer of oil and natural gas. 

Oil and natural gas account for 60% of world energy demand today and will keep that relative position also as global demand increases to a level 60% higher than today by 2030. It should be no surprise then that also foreign companies are knocking on your door eager to take part in this new and exciting era of Russia's seasoned petroleum saga and the new challenges of the Caspian. Your energy capacity today and potential into the future affects not only your domestic scene. It affects foreign interests as well, both governments and companies in other consuming and producing countries. 

Substantial investments are required to keep up present production and add new infrastructure that will enable Russia and other producers to contribute to meeting increasing global oil and gas demand. This includes investments in exploration and development, not least in frontier regions, and in oil pipelines and sea terminals for increasing exports. 

We learnt on the first day of this conference that the IEA expects that Russia's oil industry will require total investments amounting to some USD 375 billion up to the year 2030, some 90% of which would be in exploration and development. The natural gas industry would require some USD 300 billion over the next 25 years, more than half of which would be in exploration and development, most of the rest would be in pipelines for export and domestic use. 

The Caspian theatre, too, holds great promise as a major supplier. For the oil sector, investment needs of more than USD 100 billion are foreseen the next 25 years for oil, the greater part in Kazakhstan, but also in Azerbaijan. Investments in export infrastructure are important, as is Russia's role as a transit country. For the gas sector, likewise USD 100 billion, three-quarters of which would be exploration and development, and gas pipelines. 

Energy Security, Dialogue and Partnerships 

In conclusion Ladies and Gentlemen, this Roundtable is taking place at a time when energy security again is at the top of the political agenda for geo-political and economic reasons in addition to the energy imperative. National and international political leaders are concerned. Russian oil and gas exports are welcomed and necessary contributions to the energy security of others. Foreign exchange earnings from these exports are fuelling your domestic economic development. These exports can also help you secure beneficial trade relations and closer political ties with importing countries. The mutual desire for long-term energy security binds together not only Eurasian energy exporting and importing countries, but also Eurasian energy exporting countries and energy importing countries outside the region. 

Energy trade, almost entirely in fossil fuels, will expand rapidly and increase mutual dependence among countries. This poses new challenges. Vulnerability to disruptions of energy supply due to terrorist onslaught or technical mishap can increase. Maintaining the security of international sea-lanes and pipelines assumes increasing importance for energy security. 

Energy security is more than technical arrangements and infrastructure. It has also to do with economics, politics and the environment. It has domestic and foreign policy implications. Dialogue can 'lubricate' international energy relations so that they run smoothly without hick-ups and conflict. Governments and industry need each other and should join hands in partnerships. Political level dialogue is important for the development of conducive frameworks for commercial ventures. 

We greatly appreciate the resolve of the Russian Federation to play her important and responsible role in international energy co-operation as confirmed yesterday by Minister of Foreign Affairs Lavrov and Minister of Energy and Industry Khristenko. As a major energy producing, consuming and exporting country, and with her wider economic and political importance, Russia has a very special contribution to make. We are happy that Russia sees the International Energy Forum as a multilateral mechanism through which to make her voice heard in a forward-looking global energy dialogue and in promoting energy security in our World of increasing interdependencies.