Speech of Arseniy Yatsenyuk, Speaker of Verkhovna Rada of Ukraine, Founder of Open Ukraine Foundation
Dear Friends, good afternoon! I am pleased to see all of you already for the second time at the Kyiv Security Forum held by Open Ukraine Foundation. We are discussing a very interesting topic today, which is energy security. It would be natural if we discussed the issue of the global financial crisis, but there are so many experts discussing it, that, to my mind, the Forum would not bring anything particularly new to the crisis issue. The only thing that I should mention about the global crisis is - let us wish all of us and people working on the crisis problems that we manage to overcome the crisis in the shortest possible time and the world and Ukraine come back to their pre-crisis activities. Though, we understand that this remains questionable.
In any case, the energy issue is a part of any crisis including a financial crisis. Before the financial crisis came, there had been two other crises in the world – the energy crisis and food crisis. That is why the topic of the Second Kyiv Security Forum was chosen a year ago. Unfortunately, in recent times, energy ceased to be a commodity, it became an element of external policy. There was a strange correlation – the higher the oil price on the New York market was, the bigger the energy impact was on external policy aspects.
Today we have a totally different situation. The question is what should we expect in the future?
One of the greatest challenges of the world has been the so-called energy independence. I will tell you what I think about it. Energy independence is nothing but a myth. It is impossible to be energy independent. All participants in the energy market are extremely dependent on each other: suppliers on transit countries, transit countries on consumers; it is a vicious circle. And in this circle we should develop an energy policy that we lack today and that we have to discuss today.
I will divide the energy security issue into some elements. Let us start from the first element – the financial element of energy security. Let’s go back to the year 1998. If I am not mistaken, one barrel of oil cost about $10. In July of 2008 the price for one oil barrel grew up to $148. Is it a normal situation for the globalized world? Is it a normal situation for the world economy? No, it is not. These are tremendous challenges that the world has faced and that Ukraine has faced. When the price of oil reached a critical level, it decreased to $60. What is next? I am sure that the price of $60 per one barrel of oil is a short-term phenomenon that is connected with a number of internal and external aspects. I think that during the second half of the year, the price of oil will be about $100. What should we do during this period? Should we bide for some time? No. It is not time for waiting. We should act. Now we have the best chance for energy dependent countries to develop their energy policy and make a constructive decision on what the world energy policy should be like, on what Ukraine’s energy policy should be like.
I read a very interesting article in the Financial Times today. In a week, the International Energy Agency was going to publish a report on what the situation with oil will be by 2030. But for some unknown reason, the report has been published in the press today, a week earlier. In accordance with the IEA’s report, in 2030, the price of oil will grow up to $200. I doubt that, as nobody knows the way that the world economy will be developing up to 2030. Nevertheless, the trend is clear – the prices for energy carriers will be increasing.
What happened after the price of oil decreased to $60? Let us talk about the second element, which is the transport element of energy security. 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. In fact, on all the territory from Canada to Kazakhstan the intensive development of energy transporting corridors, which has been the case during the last 5 years, has been stopped. What will it lead us to? Of course, that 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.
A very important issue which has not been discussed for quite a long time and that cannot be answered is: are there any rules for playing the transport market game? No, there are not. In its time, Ukraine urged for working out a kind of a transport document or a transport charter determining rights and obligations of transit countries. But this suggestion remains only on paper and should be discussed during our Forum as well.
The next element of energy security directly related to the price situation on the external market is the issue of renewable energy sources. This process has also stopped today. And it is clear for all of us that 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 fourth thing that we should be of concern to us is production. The situation with oil production is not so bright. Oil production correlates with external oil consumption. Nevertheless, in accordance with the IEA’s data, production of oil, petroleum derivatives and energy products falls by 9% annually. In other words, every year there is a 9% production decrease. In the case of significant investments being made into this economy sector, we can reduce the production fall almost by 3%. So, the production decrease will form around 6% in this case. That means that 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.
How does energy security influence the global economy? How does the energy crisis influence the global economy? During the times when the prices were growing from $100 to $148, the OPEC countries made the most of the situation. According to different estimations, by 2030 the OPEC member states will get around $2 billion in additional financing. Two billion American dollars – that is a huge amount that may have significant impact on the global economy’s development. Today, energy consumption takes up to 1,2% of the world’s GDP. But we expect the consumption level to grow by 2030, and, correspondingly, the world will have to pay more. So, 2% of the world global GDP will be devoured by energy consumption. The situation will bear far-reaching implications, as the countries controlling the main world resource are getting fantastic profits. Of course, these profits are directed somewhere. These incredible profits will influence currency exchange rates, the value of different assets, prices for different goods and for different infrastructure projects that will or will not be financed by these countries.
It is very important for us to ensure global security on the energy level. Just look at what is going on. Just yesterday, if I am not mistaken, there was an explosion on the Kherikhan-Jeihan oil pipeline. Some months ago, there was an explosion on the Baku-Tbilisi-Jeihan pipeline. Very often, for different reasons, the countries stop the work of these or other oil or gas pipelines and start repair works. What does it mean? It means that the energy sphere may directly impact global balances and global security. Transport corridors as well as energy market rules have direct impact on global world tendencies and the world’s security level.
What should we do? First of all, I should say that there are no rules for playing the game on the energy market, common rules followed by everybody. That is why the number one priority for the WTO should be elaborating energy rules. The Energy Charter is a very good document, but, unfortunately, it is mostly a declarative document not covering the main resource-owning producer countries, main transit countries and main resource consumer countries. That is why working out energy market rules within WTO frameworks is a priority task for ensuring energy security.
The second issue is so-called energy separatism. In 1998, when the price of oil was $10 per barrel, nobody talked with the resource-owning producer countries. In 2008, when, the price of oil was $148, nobody talked with consumer states. And that vicious circle will be kept forever if we will not work to understand that the chain of supplier-transitor-consumer should be mutually beneficial for all of us. Within the framework of any international organization, regional or even global, we should harmonize the rules of the world energy market.
Concerning gas, it is a separate specific energy product that has considerable impact on Ukraine’s economy with no clear supply rules and no clear pricing rules. That is why we need to take a decision that gas is an exchange commodity; and if it is not possible to make it an exchange commodity, we should clearly identify pricing mechanisms for gas as it has become a very complicated political commodity.
There was an idea of establishing a gas OPEC. As an idea it is very interesting. However, I would like to underline that a gas OPEC should not form a new monopoly on world markets. Gas OPEC should integrate into the world energy sector and serve exceptionally as a mechanism of equal access for all energy market participants to energy resources but not as mechanism of OPEC’s dictatorship.
Let me once again turn to the Energy Charter. I would like to stress that a number of countries have not ratified the Energy Charter. That is why it is at least incorrect to suppose the Energy Charter, also for Ukraine, is an effective mechanism. Nevertheless, it does not mean that we should forget about the Energy Charter. It means that we should improve it 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 participation and ratification of the Energy Charter.
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 participation in the European energy policy.
And one more thing which concerns Ukraine. We should clearly understand that in the situation when price of oil is $60, everybody will talk with us. 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, Russia’s, Turkmenistan’s, Uzbekistan’s and Kazakhstan’s participation. All the process participants may achieve success only in unity. In the other case, only a small number of people will derive benefit from the situation. But when the situation turns bad, everybody will feel that.
On Ukraine’s energy market, a lot has been done in the recent period. I would like to stress once again that it is necessary to revive the energy monopoly of Naftogas of Ukraine. That is the priority task that the government is working on and Ukrainian parliament supports this as well. We need direct contracts, direct relations with suppliers and consumers. Another issue is regulator. Ukraine needs a clear, independent and efficient energy regulator setting rules on electrical energy, gas and oil markets. I would like to emphasize that there is such a regulator but it lacks independency.
One more issue is related to production. Under the circumstances of the financial crisis, Ukraine is unable to finance production on its own. But Ukraine has conducted a series of tenders and if the tenders correspond to Ukrainian legislation and national interests in terms of involving foreign investors, involving internal resources, Ukraine should actively start working on the issue of extraction resources on its own territory and on the territories of neighboring countries.
As to energy saving, two years ago Ukraine occupied the first place in the world by energy consumption level (per $1 of GDP). 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 government, Ukrainian state and Ukrainian business as a whole.
That is a short plan that I wanted to present to you as a ground for discussion. I would like to stress once again that regardless of the energy price-drop, the energy issue remains acute. The energy issue and low prices for energy carriers is one more chance for energy-dependent countries to set the rules, to sign long-term contracts and ensure mutually beneficial interests for consumer countries, transit countries and suppliers.
I welcome you to an interesting discussion that we will have for the next 2 days. In a few days, the next Energy Summit will be held in Baku. And I hope that our Security Forum will prepare a positive foundation for the meeting in Baku.
Thank you for your attention. I invite everybody to the discussion!
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Speech of Arseniy Yatsenyuk, Speaker of Verkhovna Rada of Ukraine, Founder of Open Ukraine Foundation
