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Volume 449: debated on Wednesday 19 July 2006

To ask the Secretary of State for Trade and Industry (1) how much gas his Department estimates the UK will import from Russia in (a) 2006, (b) 2010 and (c) 2020, (i) as a percentage of total consumption and (ii) in cubic metres; and what percentage of that gas his Department estimates will be (A) produced by Gazprom and (B) transported through Gazprom's pipeline network; (85082)

(2) what assessment his Department has made of the impact on the security of gas supply to the UK of the law passed by the Russian State Duma on Gazprom's control of gas exports from Russia;

(3) what his assessment is of the impact on UK businesses of the proposed amendments to Russia's Subsoil Law on foreign participation in Russian oil and gas projects;

(4) what his assessment is of the impact on security of energy supplies to the UK of the Russian Federation's (a) level of compliance with the provisions of the Energy Charter Treaty and (b) policy on the Transit Protocol to the Energy Charter Treaty;

(5) what assessment his Department has made of the impact on UK investments in Russia of the Russian Federation's level of compliance with the Energy Charter Treaty;

(6) what plans he has to make representations to his Russian counterpart about the proposed amendments to Russia's Subsoil Law on foreign participation in Russian oil and gas projects.

The UK's gas import dependence is set to rise to 80-90 per cent. by 2020, of which a significant proportion is expected to be imported from the European mainland through existing and planned interconnection capacity. The International Energy Agency forecast that the EU will import 25 per cent. of its gas needs from Russia by 2030. It is, therefore, possible that some Russian gas will be imported into the UK, albeit indirectly and commingled with gas from other sources (such as Norway, the Netherlands and LNG from outside Europe) as part of the European gas system.

The contractual origin of imports into the UK is a decision for companies operating in the UK's liberalised gas market, taking into account elements such as cost, reliability, availability and the need for a diverse range of sources to provide security of supply. Given that there is no direct physical interconnection capacity with Russia and contractual flows do not necessarily follow physical flows, estimates of the type requested are not made.

Given that the UK does not import directly from Russia, any impact on the UK from Russia's legislation or compliance with international agreements such as the Energy Charter Treaty will be felt most directly through its effect on European markets. As such, the UK will continue to press for open, competitive and liberalised European energy markets.

In the short term, we expect the Russian gas export laws to have very little real effect on European security of supply, as Gazprom's already holds a defacto monopoly on exports by virtue of their network ownership. Longer-term effects are unclear; however, should gas transit through Russia become too commercially unattractive, Caspian and Central Asian producers will begin to seek alternative supply routes for their products to European and global markets.

The proposed legislative changes surrounding Russia's subsoil law continue to be subject to discussion in the Russian government. The DTI and FCO are in contact with UK businesses involved in the Russian Energy market, in order to remain updated on the impact that any final series of laws may have.

The UK, with other EU member states, will continue to encourage Russia to liberalise its domestic markets and provide fair and open access to its resources and pipelines in order to foster further competition in energy supplies into Europe and to ensure best use is made of its finite resources.

The UK, with other G7 members, has encouraged Russia to move forward during its G8 presidency and ratify the Energy Charter Treaty, of which it is already a signatory and applies on a provisional basis. We would envisage that these Global Energy Security discussions will continue during the Russian presidency of the G8.

Russia has called for the negotiations on the Transit Protocol to be completed before it can ratify the full Treaty. Through the EU, we continue to work with Russia towards an agreed text for the Transit Protocol while at the same time emphasising to Russia the importance of open, transparent, efficient and competitive markets at all stages of the energy supply chain as the key to global energy security..

Whilst the absence of ratification may bring some uncertainty to the rights of both foreign and domestic investors, it is important to note that the UK has a separate bi- lateral investment Treaty with Russia that protects the investment of UK firms.