Tim Gould, Programme Manager - Caspian, Caucasus, Southeast Europe, Office for Global Energy Dialogue, International Energy Agency

I am in the situation when everything has been said but not yet by everybody. So, I will try and be relatively brief. There was one thing that struck me during the discussions today was that – there did not seem to be consensus on the risks and vulnerabilities that we face. Judging from interventions you would understand that the largest risk facing Eurasian and European energy security is politically motivated interruption to supply. I would encourage us to further discuss, whether this in fact is the largest risk, that we face. Another risk, that was mentioned here by Mr.Pirani, and which from the IEA perspective appears to be a very significant one, - that is the risk of underinvestment to the upstream. The IEA is pointing out for some time concerns of the amounts of capital expenditure in Gasprom investment plans.

In 2008 the amount that is being dedicated to upstream investment by Gasprom has increased significantly. But at the same time we are also aware that the developments that are undertaking are technologically exceptionally difficult and the costs for all producers of getting oil and gas out of the ground have become much higher: labor, rigs, you name it; it has become scarcer, more expensive. Or is the issue of generalized lack of transparency along the energy value chain and here I am not just referring to the some of the upstream issues or midstream issues, or issues facing Ukraine. But also things that we have been encouraging the EU to focus on in terms of transparency of information, transparency of operation of the European gas market. I think you will hear from producers that they find selling into the European market sometimes a challenging proposition. They knew how to do that in the old days, I mean they had long term contracts with established companies that were monopolists in the defined geographical area. They also are aware of how it is possible to sell it to deep-liquid gas markets. What is more difficult is to sell into semi-liquid markets with relatively weak players. Then it is much more complicated for producers to manage the risks over extended period of time.

Another risk that we face is the difficulty of generating investment in infrastructure. I mean again the old model was relatively well established and particularly for the complicated issue of getting supplies from the former Soviet Union to European markets. The Soviet Union would deliver at this political border between East and West, it would look after all a transit question along the way. And then within Europe you had again established incumbents who would look after necessary infrastructure development within the defined areas. Now you have the issue particularly evident in discussions of the Southern Corridor that it is for the midstream players and for the downstream players to put together infrastructure projects that are bankable, and they are being asked, and all of a sudden the European Union is being asked to try and construct corridors of regulatory certainty that lead back towards the producer countries. And that is a new challenge for the EU. But it’s exceptionally important one along the Southern Corridor because of the shared number of borders involved in a number of transit countries. If you go from Turkmenistan to Austria, you have 6 transit countries to cross, and getting that alignment right is a major challenge for the EU. I mean, in the particular case of the Southern Corridor I would highlight the very interesting presentation from Turkish colleague earlier. And you see that there is a difficult task for Turkey to balance the issue of gas transit with increasing gas demand and concerns of security of gas supply. And the resolution to that debate is essential to giving the signals of both upstream and downstream for gas to flow along that Southern Corridor.

I would just like to make a final point on the issue of diversification of sources and supply because this debate has been framed in different ways at different stages along yesterday’s and along today’s discussion. Occasionally in a more antagonistic way that it was explicitly diversification away from the reliance upon Russia. I think that if you set the debate up in an antagonistic way, you are likely to get an antagonistic debate. The challenge is about where additional gas will come from for Europe? That additional seems to be a slightly different way of looking at the problem. If you look at the challenge of securing additional gas for Europe, where will this gas come from? Some of it may come from Russia; it’s entirely legitimate for European consumers to look in North Africa, from international LNG market, from Norway, but also from Caspian and Middle East as a source for that additional gas. There are formidable challenges about getting that gas out of the ground, particularly in Turkmenistan – where it’s deep, it’s high temperature and high pressure, it’s sour gas, which has a range of complicated developmental problems associated with it. It’s not going to be a short and easy process by any means, but it’s an entirely legitimate aim for the EU to put together a series of policies that could make a compelling case for Caspian producers to dedicate resources to that corridor.

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