GTE Autumn Conference, Paris, 22-23 October 2003 “The Wider European Energy Policy Perspective”

1. GTE Autumn Conference, Paris, 22-23 October 2003“The Wider European Energy Policy Perspective” Address by: Dr Ria Kemper Secretary General, Energy Charter Secretariat

2. Introduction – The Energy Charter: • Inter-governmental process launched after the Cold War • Founded on common commitment to market-based behaviour and non-discrimination GTE Autumn Conference – Address by Dr Ria Kemper

3. The Energy Charter Treaty • Signed by 51 European and Asian states, and by EU collectively • Provides broad framework of rules on energy trade, transit, investments • Helps to reduce risks for foreign investors, with benefits for host countries, investors and transit states GTE Autumn Conference – Address by Dr Ria Kemper

4. Natural Gas Markets in Eurasia: • Gas increasingly a fuel of choice in EU, but indigenous production is declining • Consequent policy focus on addressing EU’s future dependence on external gas supplies GTE Autumn Conference – Address by Dr Ria Kemper

5. Challenges: • How to ensure security of gas supply in the long-term? • How to extend liberalisation and competition to the Wider Europe (including gas producer-states in former USSR)? GTE Autumn Conference – Address by Dr Ria Kemper

6. Why is liberalisation important outside the EU - 1? • Huge long-term investments needed in non-EU gas production areas • Liberalisation of non-EU markets will support mobilisation of investments • Especially important in Russia – where lack of competition and TPA regime has limited investment in the gas sector GTE Autumn Conference – Address by Dr Ria Kemper

7. Why is liberalisation important outside the EU - 2? : • Around half of all gas produced in Eurasia is consumed in former USSR. • Liberalised markets will: • increase efficiency of consumption; • stimulate investment in gas production; and • free up extra volumes for export. GTE Autumn Conference – Address by Dr Ria Kemper

8. Therefore: • EU and countries of Wider Europe have mutual interest in establishing competitive gas market across the Eurasian continent. • Importance of long-term policy focus on: • open markets • transparent access to pipelines • stability of cross-border transportation GTE Autumn Conference – Address by Dr Ria Kemper

9. Fundamentals: • Investments in gas projects will come from companies, not governments • Task of governments is to set the “rules of the game” and thus help minimize the investment risks GTE Autumn Conference – Address by Dr Ria Kemper

10. Example of Russia: • Russian gas industry requires huge investments over next two decades • Russia has competitors for supplying EU gas market - Norway, North Africa and LNG • Russia needs to complete domestic gas reformsand take on complementary international obligations GTE Autumn Conference – Address by Dr Ria Kemper

11. The Energy Charter Process • Map of the Energy Charter’s constituency (full members in green, enhanced observers in orange, other observers in blue) GTE Autumn Conference – Address by Dr Ria Kemper

12. But – ECT’s potential not yet fulfilled: • Russia has signed, but not ratified, the Energy Charter Treaty • Non-ratification due to opposition of Gazprom • Ratification would be fully consistent with Russia’s aim of joining WTO GTE Autumn Conference – Address by Dr Ria Kemper

13. Transit of Natural Gas: • Increasing recognition among governments of the strategic importance of transit issues, in terms of security of supply GTE Autumn Conference – Address by Dr Ria Kemper

14. Transit Problems in Eurasia: • Legacy of USSR’s demise in 1991 – unified system broken up overnight • Resulting lack of transparency over access rights and transit tariffs • Consequent lack of investor confidence in transit-related projects in post-Soviet space GTE Autumn Conference – Address by Dr Ria Kemper

15. Energy Charter Transit Protocol: • Under negotiation since 2000 • Now close to finalisation – scheduled for December 2003 GTE Autumn Conference – Address by Dr Ria Kemper

16. Main Features of the Transit Protocol: • Supports stable cross-border flows of energy in transit • Defines the concept of “available capacity for transit” (without imposing mandatory TPA) • Establishes criteria for setting transit tariffs throughout Eurasia GTE Autumn Conference – Address by Dr Ria Kemper

17. What does the Protocol offer - 1? For investors in CIS countries: • Clarity over terms of access to Gazprom’s network for non-Russian gas • Transparent rules governing tariffs, once access is granted GTE Autumn Conference – Address by Dr Ria Kemper

18. What does the Protocol offer - 2? For Russian gas producers: • Prohibits “Unlawful Taking” of gas in transit • Defines “Available Capacity” taking into account legitimate interests of gas producers who also own/operate pipes GTE Autumn Conference – Address by Dr Ria Kemper

19. Transit Protocol will not: • Interfere in commercial decision-making processes • Determine which projects involving transit should go ahead, or which geographical routes should be selected GTE Autumn Conference – Address by Dr Ria Kemper

20. Role of the Energy Charter Treaty and Transit Protocol: • Complementary to the EU-Russia bilateral energy dialogue • Multilateral rules, especially on transit, will increase in global importance in future years GTE Autumn Conference – Address by Dr Ria Kemper

21. SUMMARY: • Gas supply security is dependent, in part, on extending competitive market principles • Need to focus on minimising risks associated with gas production and transportation • Secure framework of investment and transit rules is a key element in this respect • Bilateral cooperation should be complemented by a multilateral approach GTE Autumn Conference – Address by Dr Ria Kemper

22. Producer-Consumer Dialogue: • Liberalisation still perceived as a threat to producers’ interests • Role of long-term supply contracts likely to change over time • But security of demand for natural gas should be stronger within a liberalised market GTE Autumn Conference – Address by Dr Ria Kemper

23. Conclusion: • Producers have a legitimate stake in the EU gas market’s development • EU governments therefore need to use all channels – bilateral and multilateral – to develop energy dialogue with producer countries GTE Autumn Conference – Address by Dr Ria Kemper