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Putin Reassures G8 on Global Energy Security
03.17.2006 13:33

G8_summit President Vladimir Putin promised Russia would continue to boost global supplies of energy by bringing major new projects on line and called for nuclear energy to be more accessible as he hosted talks for Group of Eight energy ministers Thursday.

As he received ministers from the world's biggest economies in the Kremlin, Putin sought to cement Russia's credibility as the world's biggest energy exporter in times of tightening supply.

"Russian companies are already realizing projects that have strategic importance for a real strengthening of global energy security," Putin told the ministers in televised remarks at the end of a day of talks on shoring up energy markets. Russia has put energy security at the top of its agenda as G8 president this year as consumer nations feel the pinch of soaring oil prices amid growing fears of a supply crunch.

Putin highlighted projects such as the development of the vast Shtokman field, which contains more than 3 trillion cubic meters of gas, the construction of the North European gas pipeline under the Baltic Sea and an oil pipeline from eastern Siberia to the Pacific Rim as being just "the first in a series that world markets would benefit from soon."

He also sought to ease fears about the rules of the game changing by saying that the State Duma would soon pass laws, such as the subsoil law, that would clear up the role of foreign investors in future projects.

Russia has more than doubled exports of oil and oil products from just under 3 million barrels per day to 7 million bpd, becoming the world's biggest energy exporter, including of gas, as global demand soars. But amid growing bottlenecks in pipeline capacity, a growing state role in the energy sector and a slowdown in investment over the last year, fears have grown that Russia will not be able to keep pace with demand.

"No other country has added so much extra energy to the world in the last five years," said Chris Weafer, chief strategist at Alfa Bank and a former adviser to OPEC. He said that, so far, Russia had resisted calls to join OPEC as a way of controlling output. "If Russia had not delivered that extra 4 million barrels per day, the price of oil would have undoubtedly gone over $100 by now," Weafer said.

The oil price is currently floating at around $60 per barrel, prompting increasing criticism of producer nations by consumer nations such as Japan.

"Russia is president of the G8 today because it more than doubled oil exports under Putin," Weafer said. "Its credibility for staying in that elite company is the prospect it might be able to double exports again over the next 15 years.

"Other G8 ministers want assurances that is going to happen. The G8 is trying to make sure Russia lifts the obstacles to future investment."

Industry and Energy Minister Viktor Khristenko has cited International Energy Agency figures that put worldwide investment needed to ensure global supply at $17 trillion.

At the end of Thursday's talks, Russia issued a communique calling for major new investments in global energy. "We recognize that to attract to investment, it is essential for countries to have open and favorable investment regimes," it said.

Publicly, G8 ministers, including U.S. Energy Secretary Samuel Bodman, have called on Russia to liberalize its markets as a way of allowing more competition and ensuring energy security.

European ministers in particular have been spooked by the state's growing role in the Russian energy market.

After Gazprom cut off supplies to Ukraine in January, leading to shortfalls in Europe, the continent's political leaders called for ways to reduce dependency on Russia and pushed for Russia to ratify the Energy Charter. The charter requires member countries not to interrupt energy flows during disputes and would require Gazprom to negotiate in good faith on allowing other Energy Charter countries access to excess pipeline capacity.

Currently, the EU receives 25 percent of its gas supplies from Russia, most of which comes via Ukraine.

On Friday evening, European Commission President Jose Manuel Barroso is to present Putin with an EU plan for a new energy pact with Russia.

Russia's communique also called for "diversification of the energy portfolio in terms of energy sources, suppliers and consumers as well as delivery methods and routes." The communique said such an approach "will reduce energy security risks not only for individual countries, but for the entire international community."

But as Khristenko and a top Gazprom official publicly rebuffed calls to reduce the state's hold on transportation networks and allow greater access for third parties during conferences this week, it appears that G8 ministers are also privately resigned to the idea that the Russian state will not relax its grip and will insist on taking the lead role in major projects, Weafer said.

"The public agenda is for open access, but the pragmatic private approach is to push Russia to remove obstacles to investment and for foreigners to join at a minority level and provide technology," he said.

The communique was billed as a "chair's statement," suggesting it did not have the backing of all G8 countries. Khristenko, however, told a news conference after the talks that there had been no disagreements.

Khristenko conceded that Russia had yet to reach agreement with the EU on ratifying the Energy Charter, which Russia signed in 1994 but has yet to ratify. "Negotiations are going on, but they are very difficult," Khristenko told reporters, reiterating that Russia and the EU had to reach agreement on a transit protocol governing transit tariffs and several other issues.

The Energy Charter was not mentioned in the communique.

Bodman told the news conference that in his meetings Wednesday with Putin and Medvedev, he had restated the U.S. position "that free markets are a very important part of maintaining energy security through the world." He said he had not raised the question of third-party access to Gazprom's pipelines.

Khristenko reasserted Russia's intention to maintain a strong government hand in the sector. He said he supported diversification of energy sources, transit routes and markets, as "that kind of variety certainly reduces risks."

Major multinational energy projects such as the Northern European Gas Pipeline, in which Russia is partnering with Germany, and the Shtokman gas field, in which Gazprom will invite two or three foreign partners, required government participation, Khristenko said.

"The government should play a role in the realization of such enormous projects in order to reduce non-commercial risks," Khristenko said.

The communique, an 11-point statement, also said fossil fuels would remain the most important means of satisfying global energy demands at least for the first half of the 21st century, while also saying that nuclear power was a crucial "safe and secure" way of diversifying supply. Both assertions came in for harsh criticism from environmental groups late Wednesday.

"The nuclear industry is desperate to secure funding of billions from the taxpayers of the G8," Shaun Burnie of Greenpeace International said, Reuters reported. "If they succeed, we will fail in securing a sustainable energy future and will fail to prevent dangerous climate change."

The communique came in marked contrast to the one at last year's G8 summit in Gleneagles, Scotland, which called for ways to reduce emissions of greenhouse gases.

British energy minister Alan Johnson sharply denied that the concluding statement's acknowledgement that the world would rely chiefly on fossil fuels for the next half-century meant was a sign of resignation. "I refute entirely any suggestion that this statement implies more of the same," Johnson said.

Instead, the energy ministers have based their strategies on recognition of hard realities, including suspicions in developing nations that calls for reduced carbon emissions were attempts by rich nations to curb their growth, Johnson said.

"This is realpolitik. We're not trying to pretend that the world is anything other than it is," Johnson said.

Khristenko told reporters that steps toward greater use of nuclear energy were unavoidable. "We came to the conclusion that nuclear energy is an unavoidable prospect for a whole series of leading economies," he said.

Bodman and Putin echoed those remarks.

"Atomic energy alternatives must be accessible to other countries, including developing countries," Putin told a group of energy ministers that included G8 and other countries' representatives in the Kremlin, Interfax reported.

"We are hopeful for a very substantial worldwide rebirth of the nuclear power industry, which appears to be happening in much of the world," Bodman told the news conference. Bodman's comment came a day after he invited Russia to work with the United States in a multibillion-dollar nuclear energy partnership that would provide nuclear fuel for a revived U.S. nuclear industry, as well as for client nations.

It was unclear how the plan would coincide with Putin's recent call for Russia to build a nuclear fuel-processing center of its own to provide fuel to other countries.

The final decision about major nuclear projects "is the prerogative of our government leaders," Khristenko said.

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