"Crises and Prices – Energy Security Amidst Multiple Uncertainties": A Report from the 2015 Berlin Energy Security Summit

The third Energy Security Summit hosted by Frankfurter Allgemeine Forum and the Munich Security Conference was held in Berlin on May 6 and 7, 2015. Whether on the topic of the creation of a joint European energy policy, energy implications of the Ukraine crisis, price developments in the global oil market or the difficult balance between competitiveness and sustainability – the discussions all featured the overarching theme "Crises and Prices – Energy Security Amidst Multiple Uncertainties".

The panel on the energy policy dimension of the Ukraine crisis (Photo: Weddig).

The opening speakers launched the conference by giving an inventory of the German energy transition and the state of play concerning efforts to establish a genuine EU Energy Union. Rainer Baake, State Secretary of the German Federal Ministry of Economic Affairs, stressed that the future of the energy transition lied with Europe and that consultations with European partners thus closely accompanied the German domestic debate. Baake further affirmed the necessity to link the energy transition with the common European market and the nascent European Energy Union.

Similarly, Stephan Steinlein, State Secretary of the Federal Foreign Office, underlined the importance of the energy transition, which he dubbed the "German 'Man on the Moon' project." In fact, by means of phasing out nuclear power, increasing the share of renewable energy and using it more efficiently, the energy transition had disconnected economic growth from the consumption of fossil fuels, he argued. This strategy could become a path to follow for many countries in achieving sustainable development.

Maroš Šefčovič, European Commissioner for Energy Union, stressed that both a common energy market and the completion of the necessary infrastructure were crucial for the actual creation of the European Energy Union. This implied, among other things, the harmonization of network codes, increasing storage capacities as well as the establishment of a regulatory framework for the whole of Europe. According to the President of the Federation of German Industries (BDI), Ulrich Grillo, a functioning continental pipeline network as well as a network of grids and power plants were necessary to allow electricity transactions in Europe. In addition, he argued, energy efficiency had to be improved – an approach which could be strengthened by the Europeanisation of the energy transition. A broad consensus existed among participants that a European Energy Union would not only serve the member states' interests. It could also, fifty years after the creation of the European Coal and Steel Community, serve new impetus to the European integration as a whole through energy matters.

Options for European energy supply security

Another key aspect of ensuring supply security is through the foreign policy side of European energy policy. The Southern Gas Corridor is scheduled to supply Europe with gas from the Caspian Sea by 2019. Azerbaijani Energy Minister Natig Aliyev emphasized that his country was a reliable partner of the EU. He also stressed that with its reserves and its enormous production potential, Azerbaijan was ready to provide attractive offers for the European gas supply. Next, panelists intensively discussed the general relationship between the EU and Russia, in which energy issues have been a key component for decades. Volkmar Pflug, Vice President of the Market and Competitive Intelligence division at Siemens Energy, pointed out that Russia covered one third of the European gas consumption, half of which transited Ukraine. Kirill Molodtsov, the Russian Deputy Energy Minister, reiterated the sustained Russian interest in a stable cooperation with Europe. He also stressed that Russia had always complied with joint agreements. Molodtsov blamed the politicization of energy relations for the current crisis of confidence, which in his opinion had to be countered. He also stated that Russia was ready to double its gas deliveries to Europe. Friedbert Pflüger, Director of the European Centre for Energy and Resource Security, underscored the importance of European diversification efforts. At the same time, he acknowledged that Russia could not be replaced as the most important energy partner of the EU in the foreseeable future. In his view, this interdependence had gone well beyond economic benefits and had stabilized peace between Russia and the EU for decades. Given the EU's rising import demand, he argued for an intensification of bilateral relations, which could be strengthened through pipelines and long-term supply contracts.

As during the previous year's Energy Security Summit, the energy dimension of the crisis in and over Ukraine was intensely debated. Olena Zerkal, Ukrainian Deputy Foreign Minister, emphasized the reform efforts her country had undertaken so far. Along with the fight against corruption, these reforms concerned also the energy sector. The CEO of Naftogaz, Andrey Kobolev, stated that it was of vital importance for Ukraine to design more efficient pricing policies in the gas market. At present, he said, Ukraine was in the process of stopping subsidies for energy sources and prepared the adoption of a new law for the gas market. Ivan Grachev, Chairman of the State Duma Committee on Energy, bemoaned the politicization of energy relations between the EU and Russia and argued in favor of mutually beneficial relations through closer economic cooperation. The modernization of the Ukrainian pipelines would be cheaper for Europe than the development of a Southern Gas Corridor. However, he pointed out that Russia was also considering diversification options, and that the EU’s demand would be in competition with China. Norbert Röttgen, Chairman of the Foreign Affairs Committee in the German Bundestag, stressed that the fate of Ukraine was relevant to Europe not only in terms of energy policy but that it was also determinant for the future division or unity of Europe.

The increase in the global oil supply

Subsequent debates focused on the global oil price, which had fallen sharply in 2014. Experts widely agreed that the price volatility in the market would persist. Yet, there were divisions over the expected duration of the current period of lower prices. Mohammed bin Hamad Al Rumhy, Oil and Gas Minister of Oman, pointed to the economic difficulties arising from the weak oil price for export-dependent countries. In general, he affirmed, the oil price was influenced not solely by market forces. The current level of prices, he estimated, would not persist over a long period of time. Thus, OPEC member states could – also against the will of Saudi Arabia – decide to curb their production in order to increase the oil price and hence their state revenues.

According to Jason Bordoff, founding Director of the Center on Global Energy Policy at Columbia University, a real and functioning oil market, in which supply and demand were increasingly detached from political decisions, had been established. Amos J. Hochstein, U.S. Special Envoy and Coordinator for International Energy Affairs, added that the current oil price was not remarkably low when put into a historical perspective. He noted that the most important structural feature was the greatly increased supply, mainly through North American production. He acknowledged that energy would certainly further be used as a foreign policy tool and that, due to the important role of national energy companies, political decisions were likely to remain an important component of pricing. Nonetheless, he argued, today's oil market could, much more easily than it used to be able to, compensate for production losses in one part of the world by extending the supply in another part. A larger market risk, he continued, was the enormous dependence of rentier states on oil production as their sole source of revenue.

The Iranian Oil Minister Bijan Namdar Zanganeh gave a detailed account of the energy policy plans of his country. He asserted that, should the sanctions against Iran be lifted as part of an agreement concerning Iran's nuclear program, the country would soon play a central role in the global energy supply again. He further argued that Iran as the country with the largest gas and the third largest oil reserves in the world would be ready to modernize its existing infrastructure, to rapidly recover lost market shares, and to establish close energy relations with partners around the globe.

The general consensus among the conference attendants was that today's global energy security was characterized by various crucial simultaneous developments – oil price volatility, the conversion of energy systems, increasing global energy demand, and climate change mitigation – and will remain a multi-dimensional challenge.

24 June 2015, by Stephan Liedtke