Address to the Stability, Security, and Sustainability of Asian Hydrocarbon Economics Round Table in New Delhi.
Participants: energy ministers of Azerbaijan, China, India, Japan, Kazakhstan, Republic of Korea, Russia, and Turkmenistan.
November 25, 2005.
Ladies and Gentlemen!
You all know the man who should be credited for giving us an opportunity to gather here in New Delhi the first-rate energy exporters and importers of the Asian market. This is Mani Shankar Aiyar, Indian minister of petroleum and natural gas, and I would like to thank him for creating here an excellent working environment and a wonderful platform to share our views on the pressing geopolitical and geoeconomic processes that have changed Asia and the Asia-Pacific region. In organizing this event, Mr. Aiyar has shown that his own energy reserves are enormous.
1. Asia-Pacific As a New Center of Gravity in the World Economy
Asian and Asian-Pacific markets, including the energy market, are the fastest-growing in today’s world.
The International Energy Agency estimates the growth of energy demand in Asia at 3% to 4% annually in oil and 4% to 6% in natural gas, which makes Asia the most rapidly developing market in the world.
I agree with most of Mr. Aiyar’s assessments but would like to look at the broader picture as well. Asia is part of a global market, and performance in Asia should also be viewed from a global energy perspective.
Preparing for today’s conference, we in Russia looked back to the many steps our country had taken on the international markets as well as into the next year when Russia will assume a very special mantle of G8 presidency.
Russian President Vladimir Putin has just ended his Asian tour to Turkey, Korea, and Japan. The agenda of these visits was shaped by energy as well as general political and economic issues. Main energy issues were the East Siberia/Russian Far East development effort, a pipeline that is to connect Siberia with the Pacific coast, the Sakhalin energy projects, where production at offshore oil and gas fields has already begun, and the Russian-Turkish direct Blue Stream gas pipeline. On this last count, we see Turkey not only as an end customer but also as a future hub that we hope will support our new major gas infrastructure projects.
All those visits, meetings, and discussions have once again demonstrated what we already felt: that the dependence between national, regional, and global challenges and efforts is complex and absolutely nonlinear. I am therefore convinced that to resolve issues the Asian energy market is facing would be impossible without a clear understanding and consideration of the global energy situation.
2. Global Energy Agenda
Most forecasts today estimate that global energy consumption will rise by a third in the coming 15 years and by about 45% in the coming 20 years. Global demand for oil might grow by 35 million barrels per day by 2025 (which is 42% higher than today), and for gas – by 1.7 trillion cubic meters per year (which means a 60% increase).
Current global agenda is to a large extent shaped by four main challenges:
1. In the near future, fast-developing Asian nations will account for up to 45% of the global projected increase in oil demand.
2. Developed countries will see a widening gap between rising oil and gas consumption and decreasing internal production. By 2020, Europe might import 60% to 70% of its natural gas, while for most Asian countries this proportion is already even higher.
3. There will be an overall shortage of refining, shipment, and additional production capacities.
4. There is a lack of transparency in world oil trade.
We believe all these challenges make energy security a vital concern. Due to Russia’s position on the global markets, we treat energy security, the capability of nations to provide stable and sustainable energy supply to their peoples, as less a national than a common issue that affects the entire global community.
We are well aware that Russia does make difference in the world as an energy producing country thanks to its vast resources, shipment-friendly geography, and reliability of supplies.
When in Russia, Mr. Aiyar praised the role of the Soviet Union in supporting India’s territorial integrity for the preceding 50 years. He said Russia could play a similar role in India’s energy security for the following 50 years, a proposition which, considering Russia’s unmatched mineral capacity – over 34% of global gas reserves, around 13% of prospected oil reserves, nearly 20% of prospected fossil coal and 32% of lignite coal reserves – is, I believe, true not only for India. Today’s world energy market cannot exist without a country that is the world leader in gas exports and second-largest exporter of oil and petroleum.
Currently Russia exports over 90% of its energy to Europe but we are looking more closely at Asian and Pacific destinations. We forecast Asia’s share in Russian oil exports to grow from today’s 3% to 30% in 2020, a proportion corresponding to 100 million tons. Asia’s share in our gas exports could grow from the current 5% to 25%, which would make 65 billion cubic meters.
Russia’s agenda of energy security and energy efficiency, proposed for the forthcoming 2006 G8 summit, reflects an understanding of our nation’s role in the global energy system – an understanding that we believe could also be applied to regional energy issues we have gathered here to discuss. 3. Global Energy Security
I would like to tell you how Russia plans to address the issue of global energy security during its presidency.
We suggest discussing the following main provisions:
1. Reliable supply of traditional hydrocarbon resources to the world economy at reasonable prices.
2. Diversification of energy supplies through the use of new sources of energy.
3. Enhancing the efficiency and safety of power engineering.
4. Creating conditions for transition to a fundamentally new, ecologically clean power engineering.
We need to decide on a common approach to the following comprehensive issues:
1. The stabilisation of energy markets, which entails:
- developing global and new regional energy markets;
- ensuring market predictability through broader use of long-term contracts and dialogue between energy producers and consumers;
- ensuring greater access to and the transparency of data on reserves, demand, stocks and production capacities.
2. Enhancing investment into the energy sector, including:
- improvement of the investment climate;
- introduction of insurance mechanisms and distribution of financial risks.
3. Spurring effective development of power engineering and energy infrastructure which provides for:
- raising the effectiveness of exploration, production, deep processing and use of hydrocarbon reserves, including their non-traditional forms;
- diversifying transportation;
- developing gas-fuelled power engineering, including the use of liquefied natural gas (LNG);
- ensuring the physical safety of energy facilities and infrastructure.
4. Power engineering and the environment:
- elaborate measures to enhance energy efficiency and conservation;
- develop safe nuclear power engineering, including with a closed fuel cycle;
- step up research and introduce the latest advances in power engineering (hydrogen, thermonuclear, renewable, low carbon energy, etc.);
- introduce effective ecologically clean transport systems.
Taken together, the above measures constitute our vision of the main global security issues on the G8 agenda, not only for the next year but in a longer term. Any of the above issues can be discussed in an extended format. I am presenting them to you in the hope of feedback that would allow us to link together all the debated issues.
Some of the measures are the follow-up on the energy issues on the G8 agenda, and we welcome this continuity. This is a kind of a relay baton. Ecological security, which has become the key issue during this year’s presidency of Great Britain, is closely connected with energy security. Soon after our meeting, a conference on climate problems will be held in Montreal on November 29. The subject of the conference - to reduce hazardous emissions by two-thirds - is closely connected with the operation of power engineering.
However, we should not go to extremes. We need to arrive at compromises between environmental problems and existing conditions for economic development, which should take into account the specific features of all market players, both hydrocarbon suppliers and consumers.
This is a formula of dependence of ecology on energy, the two E’s. But it can be easily and logically complemented with one more E – energy efficiency. In fact, a model of economic growth based on energy efficiency should become the global response to the challenges of ecological and energy safety.
Russia plans to carry on working towards this goal as it takes over the presidency of G8.
The G8 is to discuss global energy security issues. There are plans to approve a general political declaration formulating main goals and tasks in the energy sphere, as well as an indicative action programme of their implementation.
It should be stressed that long-term energy security issues require comprehensive actions on the part of all players in the global energy market. It would be expedient to study the possibility of discussing, charting and consistently implementing various measures that would enhance energy security. These efforts should involve countries, major suppliers of energy resources, as well as countries posting the highest energy consumption growth levels. In this connection, we believe it would be expedient to establish specialised permanent working groups that would analyze the main energy security aspects within the G8 framework. Apart from G8 representatives, such groups should involve representatives of energy resource supplying and consuming countries. This concerns first of all the representatives of the countries present here. They should discuss issues of regional energy security and energy efficiency in line with the G8 global agenda.
We expect to achieve the following important results, after global energy security initiatives are implemented:
-- well-balanced energy resource markets, especially, the oil market;
-- the establishment of a new global market, namely, that of liquefied natural gas;
-- attracting investments into the energy sector’s development and its transport infrastructure;
-- exchanging technological advances;
-- harmonising national energy policies among G8 countries and leading industrial states, whose intensive economic development and rising energy demand strongly influence global energy markets and the sustainable development of the entire international community.
This is, doubtless, an important issue. We must not adopt a simplistic approach towards the global energy infrastructure as a number of businesses that can offset present-day and future economic development risks in line with the corporate survival logic. A number of serious risks, especially mid-term and long-term, cannot be neutralised at this level. This concerns national, regional and even global risks today.
The international community has come to realise this. Comprehensive and applied joint efforts are therefore essential.
At the same time, Russia starts from the premise that the world’s energy market must follow transparent and clear-cut rules. We have published our Energy Strategy, and we abide by its provisions. We do not conceal information about the Russian fuel and energy sector’s development, production volumes and regions of production, pipeline construction plans and our other actions that can influence the global and regional energy situation. We do not scheme against our partners. Nor do we resort to cunning ploys in relations with them. And we expect our partners to behave in a similar way.
Energy Security: position of RussiaWe firmly believe that the stability, security and sustainability of the hydrocarbon economy of Asia cannot be ensured without solving the problem of global energy security. Only by balancing this issue at the global, regional and national levels can we correctly identify, diversify and meet the risks of economic development.
An effective management of non-political risks directly in the hydrocarbon sector of the economy is possible only through a comprehensive attainment of the following goals:
- greater access to and the transparency of data on reserves, demand and stocks;
- market predictability through broader use of long-term contracts and dialogue between energy producers and consumers;
- efficient development of the energy infrastructure in the interests of the market.
For its part, Russia is prepared to assist in the task of ensuring energy security and hence reduce risks in the following ways:
- increase exports, including to Asia (in the past five years, Russia has quadrupled oil deliveries to Asia and gas supplies have grown from zero to 5 billion cubic metres);
- diversify the commodity structure and increase the volume of higher-processed commodities (Russia will ensure higher processing of hydrocarbons and increase the share of high-quality petrochemicals and oil and gas products);
- expand the export geography on conditions of economic expediency, primarily in the Asia-Pacific region. (Russia is creating an infrastructure to link new oil and gas production centres in Siberia and the Far East to the countries in the region. The creation of a port infrastructure for Sakhalin-1 and Sakhalin-2 projects and the construction of the East Siberia-Pacific Coast oil pipeline will make Russia’s hydrocarbon reserves available to most Asia-Pacific countries.);
- take steps to stimulate foreign investment into Russia. A relevant example is the successful implementation of the Sakhalin-1 project, whose transition to the commercial stage Mr. Aiyar and I attended in October this year. Major partners from Russia, India, the Untied States and Japan are taking part in this project. I think that this positive example of cooperation should be promoted and carried on;
- develop new forms of international cooperation and create mechanisms for coordinating the state policy of regulating foreign trade in the energy sphere.
I would like to stress again that the formulation of the global energy security concept, which the G8 colleagues are to work on, would be impossible without the consolidation of efforts and the involvement of the basic hydrocarbon exporter and consumer countries, including in Asia.
In conclusion I want to express confidence that this meeting will become the first step towards this goal.
Thank you.
