Speech by Secretary of State Torstila at  Finnish-German Energy Day,
15.11.2011, Crowne Plaza Hotel, Helsinki

Secretary of State Mr. Pertti Torstila, Ministry for Foreign Affairs of Finland

The EU and Global Energy Interests

Energy challenges

1.      Energy issues continue to dominate the headlines. The recent events in North Africa and the Middle-East, as well as their effects on the energy markets, raise questions. Will political unrest spread to other energy producing countries? How will Libya be governed and how soon will the country’s energy production resume to a normal level? The oil market, in particular, has been  in the center of major economic and political changes. Wars and civil unrest, social turmoil and political upheavals, as well as regional conflicts, all can affect not only current energy production and reliability of energy supplies, but also investment and future prospects. Geopolitics and environmental and climate politics, can alter the timing and scale of development of energy resources.

2.      Also the future of nuclear power is very much debated. We follow closely the after effects of the Fukushima nuclear disaster and the ensuing worldwide repercussions. Will anti-nuclear feelings spread in Europe, and what will such a development  - and in particular, the gradual shutdown of all nuclear power plants in Germany - mean for Europe’s climate change ambitions and the prospects of economic growth and price of energy?

3.      A third theme is the natural gas market. It too has recently experienced momentous changes. As this informed audience very well knows, a new gas supply route - the Nord Stream pipeline - has been opened in the Baltic Sea. Within the EU, other new and ambitious alternative gas routes are being planned. Shale gas is expected to be a game-changer not only in the United States, but in many other countries, too. Poland is estimated to have huge reserves of shale gas. With increased exports of liquefied natural gas (LNG) and development of LNG infrastructure, the world is no longer dominated by pipeline gas only.

4.      The security implications of cyber-related aggression against the energy infrastructure have also been reflected in the media, drawing attention to the Achilles’ heel of the energy network. And there are other energy related issues with major political impact, such as the increased economic sensitivity of shipping lines.

5.      Energy is a global business. Growing population and rising standards of living could push global energy demand up by 40 percent before 2030. Energy production and use might threaten climate systems as well as the environment and human health. International solutions in the energy sector are needed to achieve the global objectives for reducing global greenhouse gas emissions.

The wake-up call for the EU’s external energy policy

6.      As a major energy consumer, importer and technology provider, the EU has an interest in the energy policy developments of its partners across the globe. The EU, which counts 500 million consumers, imports over 60 percent of its gas and over 80 percent of its oil. It faces growing competition for fossil fuel resources, including from emerging countries and energy producers themselves.

7.      For us Finns, the EU is the most important forum to tackle issues related to energy security. For a long time, however, the EU lacked the mechanisms to handle such issues. Energy policy was traditionally left for member states. It was only in the beginning of 2006, as the first gas crisis between Russia and Ukraine erupted, that the EU as union started to take energy security seriously. We in Finland remember this lack of tools as we had the EU presidency during the second half of that same year. During 2006, there were constant attempts to tackle the issues culminating in the succesful EU summit in Lahti to which president Putin was invited to discuss energy security with the EU leaders.

8.      External energy policy has long been a source of discord in the EU. This has often been attributed to the inability of the EU to “speak with one voice” in international energy deals and in particular towards its principal supplier - Russia. The second gas crisis between Russia and Ukraine in the beginning of 2009 affected seriously the EU area and finally led to increased efforts to strengthen EU cooperation.

9.      What is the situation now in the EU? Are we better prepared? How are we to face any future energy crisis? How can we cooperate with partners in the energy field in order to support our economic growth, enhance global stability and combine the economy with ecology?

10. The Lisbon Treaty set out clear objectives for the EU energy policy, further developed in the Europe 2020 strategy. In February this year, the EU leaders decided at their Energy Summit to call on the Commission to come up with proposals to improve the coherence of the EU’s external energy policy. In response to this request, the Commission has recently unveiled a proposal for a wholly new external energy policy for the EU. The aim is to enhance the ability of the EU’s external energy relations to support and strengthen the completion of the EU’s internal market. Many elements of the common EU energy policy relate to the EU’s ambitious goals in climate policy, the well known 20-20-20 targets by the year 2020. These relate to cuts in emissions, increased share of renewables and ambitious targets in energy saving. Poland, which currently holds the rotating EU presidency, has made external energy policy a priority for its term in office. Under Warsaw’s watch, energy ministers are due to discuss the Commission’s proposals on the 24th of November, and the European Council will take stock of the situation on the 9th of December.

11. The Energy Community Treaty is the reference point for the majority of the EU’s neighbours willing to be a part of the European energy system. With the recent accession of the Republic of Moldova and of Ukraine, the Energy Community has the potential to link the EU market with nine neighbouring countries. Switzerland is another energy priority for the Commission and it will be fully integrated into the EU electricity market, as was done with Norway through the European Economic Area (EEA).   Turkey also will be soon linked to the EU power grid and could become a major gas hub and gas transiting country for the EU.

12. More principles for energy trade and investment are currently promoted through the Energy Charter Treaty, which provides a legally binding international multilateral framework for energy trade, transit and investment. To maintain its relevance, the Energy Charter Treaty should seek to extend membership towards North Africa and the Far East. However, a question mark continues to hang over the Charter’s relevance since Russia has not ratified it.

Energy relations with Russia

13. Russia has a uniquely important role in Europe's energy market. Russia has used energy as a power tool in relations with some of its neighbours. And yet, Russia needs at least as much stable income from her well-paying European partners as the EU countries need Russian gas and oil.

14. Enhanced cooperation between the EU and Russia will be to everyone’s benefit, and also stabilize the energy markets. The Commission now proposes a joint EU-Russia Energy Roadmap to 2050 that identifies opportunities for long-term cooperation.  We also need a proper leagl base for our energy relations. The WTO membership for Russia will be a step in the right direction. Even more should be achieved in direct negotiations between the EU and Russia. The New EU-Russia Agreement needs to address crucial topics such as 

• access to energy resources
• networks and export markets
• investment protection
• crisis prevention and cooperation
• the level playing field for businesses, and
• pricing of energy recources.

An early warning scheme has been created with Russia in order to mitigate the effects of any disruption in energy trade. The experience of the two gas crisis is a living reminder of such needs.

15. Uncertainties in the European gas market, the growth of liquefied natural gas and unconventional gas, and the decline of domestic oil production are forcing Russia to rethink its energy strategy, in particular the investment plans. Russia needs western capital and technology in order to develop its energy production. Nord Stream, the new pipeline running under the Baltic Sea to transport gas from Russia to Europe came officially online just one week ago, on 8 November. Finland – alike many others - has positive experience over many decades in energy imports from Russia.

Shaping up energy relations

16. Connecting the three Baltic States to neighbouring EU countries and the internal market is now a priority for the EU. This requires full implementation of the internal market rules in order to enable the three Baltic States to participate in the EU market. An agreement between the EU, Russia and Belarus should be concluded on the technical rules for the management of electricity networks in the Baltic region. So far, the Baltic electricity network system is integrated into the Russian network. Connecting the electricity networks of Estonia, Latvia and Lithuania to Central Europe would mean disconnecting them from the Russian system.

17. The importance of the Mediterranean region in EU energy supplies is growing, both for fossil fuels and potentially for electricity from renewable sources. The EU could and should therefore be more actively engaged in the development of energy infrastructure in this region. Economic, technical and even political challenges remain formidable. One has just to think about the the Levant Basin in the Eastern Mediterranean and the Desertec project in the Sahara where German companies have a leading role.

18. The energy situation in the Southern Mediterranean calls for special attention.   The European Union is responding to the establishment of democratic order following the demise of the Gaddafi regime, and the EU stands ready to extend its offer of building comprehensive energy partnerships with Northern African countries also to Libya. We have to cooperate in order to help stabilise the country whose challenges are big and include the restoration of energy production. The expected return of Libyan oil to the world market will help to ease price pressures, even more so if the emerging slow-down in the world economy will continue and deteriorate. Much will, of course, depend on the reaction of the other oil producers.

19. A comprehensive approach can be better reflected in existing cooperation with other main hydrocarbon suppliers. The EU has recognised the need for new initiatives to develop mutually beneficial energy partnerships with key players on all subjects of common interests, including energy security, investments in sustainability and environmental protection, low-carbon technologies, energy efficiency and nuclear safety. Enhancing partnerships through EU-level agreements with third countries may become ever more necessary.

20. Falling gas production in the EU and concerns over gas supply security call for new gas import pipelines. Here special effort has been made by the Commission. A key infrastructure priority for the EU is to open the Southern Gas Corridor – a supply route for roughly 10-20 percent of EU estimated gas demand by 2020. Nabucco is the EU’s flagship of the southern corridor. The Council of the European Union has given a mandate to the European Commission to negotiate an agreement with Azerbaijan and Turkmenistan for the legal framework for a Trans-Caspian gas pipeline system. This offshore section through the Caspian Sea is crucial to the ultimate success of Nabucco. The competing Russian project is South Stream, under the Black Sea. The main problem for Nabucco is how to secure sufficient supplies of gas.

Other global partners

21. Among industrialised countries, the Trans-Atlantic Dialogue is significant for EU energy policy. Energy is an important component of the EU-US dialogue in the 21st century, having profound effects across our foreign, economic and development policies. By working together on energy, the EU and the U.S. are increasing mutual security and prosperity. Highly important are our mutual efforts to speed up the deployment of tomorrow’s clean and efficient energy technologies and coordinate our research programs on new technologies.

22. The remarkable role of countries in Asia, such as Japan, needs to be appropriately reflected in EU's external efforts. China is already the world's biggest energy consumer. With more than half of the growth in global energy demand in the next 25 years expected to come from China and India, the balance in energy markets is changing fast. There are several other major devoloping countries whose consumption of energy per capita is growing even more rapidly than in China. All this calls for a strong response from the EU to tackle the challenges it creates. Energy demand in emerging countries is growing at an unprecedented rate. This will have an increasing effect on the world economy, and on climate policy. The scarcity of resources may lead to unhealthy competition and can entail growing political and security risks.

23. The EU has also a well-established energy cooperation with OPEC and most of its members. Alongside these traditional suppliers, the Caspian, Central Asia and Gulf regions hold significant potential for the EU diversification policy, as does the Arctic region, Norway and countries like Brazil, Venezuela, Canada and Nigeria, as well as other African producers.

24. The EU should intensify its efforts in the multilateral frameworks, including within the International Atomic Energy Agency (IAEA), to ensure that the highest nuclear safety standards are made legally binding worldwide.  All in all, the EU could better coordinate her approach in various international fora.

Conclusions

25. Meeting the triple challenge of energy security, climate change and economic growth requires radical measures. Also, we have to take green growth seriously. The scale of these challenges is becoming ever more difficult. We must change the way we use energy, and change the way we provide for our energy. For most countries, the alternatives to hydrocarbons are renewable energy and energy efficiency. For Finland and many other countries, nuclear power continues to be another much needed alternative in view of the above mentioned challenges. At the same time, the lessons from the Fukushima accident underline the need of constant efforts to improve nuclear safety.

26. A further challenge is the population growth. Growing populations and rising energy demand in developing countries contribute to volatile energy and food prices, energy security concerns and increasing greenhouse gas emissions. Today, 1.4 billion people around the world, most of them in Sub-Saharan Africa and South Asia, still lack access to electricity. 2.7 billion people still rely on traditional uses of biomass for cooking. Transportation modes are rapidly developing and growing in Asia and elsewhere. Dynamics of the energy market are increasingly determined by non-OECD-countries. What will happen to the long-term goal of limiting the global average temperature rise to 2 degrees centigrade when there will be, let us say, 9 billion people on earth instead of the current 7 billion? There are major geopolitical and security risks involved in this mega-trend.

27. Still another mega-level challenge is the present economic turbulence which affects the energy and climate policy. It has not been easy to get 27 members of the EU to stand shoulder-to-shoulder in financial matters. Concern for debt crisis has taken attention away from energy policy for the time being. This is unfortunate because the longer-term demand for energy is bound to rise. Plans for a much more integrated external energy policy will be yet another “stress test” for the unity of the Union.  The EU needs its partners and must engage them better in order to tackle these huge global risks. Implementing the EU energy policy objectives can contribute to achieving greater security, stability, sustainability and prosperity across the world.