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Russia/Ukraine Gas Dispute

Volume 486: debated on Tuesday 13 January 2009

Yesterday I attended the extraordinary EU Energy Council, called to discuss the dispute over gas supplies between Russia and Ukraine. Ministers discussed the impact of the dispute on member states, the importance of resuming gas supplies to Europe swiftly and the longer-term implications of policy for Europe.

In all, across Europe (European Union and wider), eight countries have declared states of emergency. A further 10 European countries, including Germany, Italy and France, have taken emergency measures. It is clear from the Energy Ministers meeting yesterday that all countries in Europe have an interest in an early resolution of this dispute.

Britain gets less than 2 per cent. of its gas supplies from Russia. UK demand has been met by a number of sources, including from the North sea, imports and storage. However, the Government will continue to be vigilant, working with Ofgem and the National Grid, which is closely monitoring impacts in the gas market.

During the dispute, the gas supply situation in continental Europe has resulted in higher energy prices. However, there has not been a significant impact on wholesale prices in the UK as a result. Furthermore, any short-term movements in wholesale prices would be no excuse for energy companies to delay price cuts, insofar as they buy gas in the forward market and do not therefore have to reflect short term wholesale price movements in their charges to consumers.

European Ministers agreed unanimously that it was totally unacceptable that a commercial dispute between two countries had escalated into something which was now affecting the whole of Europe, and indeed affecting the citizens of some countries very severely, particularly in Bulgaria, Slovakia, Serbia and Moldova.

Since last week, the European Commission and presidency had been working to get both parties to sign up to an agreement to enable transit of gas to Europe to resume. I have made clear the Government’s strong support for these efforts.

Both Russia and Ukraine agreed to a solution involving EU monitors to ensure that the levels of gas flowing into and out of Ukraine can be independently verified.

Yesterday, we received assurances from Russian and Ukrainian Ministers present at the meeting that gas would start to flow today. In their interests as well as those of Europe, they need, without further delay, to ensure gas does flow and resolve their differences.

The Energy Council also discussed the longer-term implications of this dispute. Energy security remains primarily a matter for member states and the clear lesson from this situation is that member states need diversity in their supplies of gas and diversity in their energy mix more generally.

It is also clear, and this is reflected in the Council conclusions (attached), that Europe can also play an important role in ensuring the energy security of its member states. This was the rationale for the European Commission’s strategic energy review, published late last year.

It is also a key part of the case for early and rigorous implementation of the third package on the EU’s internal energy market. These measures will make Europe’s gas markets function more effectively and strengthen our resilience to shocks.

As I made clear at the meeting, our priorities in the forthcoming debates will be:

encouraging greater investment in diversification of supply routes, including developing the southern corridor for gas supplies from central Asia;

making urgent progress towards ensuring greater interconnection between countries and;

ensuring improved response mechanisms for situations such as these.

The Council agreed that urgent work would be done on these issues for concrete action to be agreed at the spring European Council.

This dispute reminds us of the geo-political nature of energy supplies and the need for Europe to act strategically, but above all, Ministers agreed it was essential to send a united message to Russia and Ukraine about their responsibilities.