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Russia and Ukraine: Gas

Volume 706: debated on Tuesday 13 January 2009

Statement

My right honourable friend the Secretary of State for the Department of Energy and Climate Change (Ed Miliband) has made the following Written Ministerial Statement.

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, in so far 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 geopolitical 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.

Annexe

Draft council conclusions on Energy Security in relation with the Russia/Ukraine gas dispute

The extraordinary Energy (TTE) Council met in a critical moment caused by the current unprecedented interruption of gas supplies from Russia via Ukraine to the EU. The council urges both parties to resume gas deliveries to the EU immediately in order to rebuild the credibility of both parties and avoid further economical harms and suffering to the citizens of the EU and of neighbouring countries.

The council evaluated the situation of gas supplies in relevant member states and appreciates domestic and solidarity measures already undertaken, which—despite the limited possibilities in the short run—have helped to mitigate the impact on European citizens and national economies. Member states are encouraged to sustain and deepen solidarity measures until the supplies are restored.

The council welcomes the steps undertaken by the presidency and the Commission with the aim to facilitate the dialogue between Russia and Ukraine in order immediately to restore gas deliveries and appreciates that the EU and its member states co-ordinated their approach towards third parties.

The council appreciates the steps taken towards the establishment of the technical monitoring mission, which should be maintained as long as necessary, and expects all parties to facilitate prompt results from its work. The council will follow up closely the information provided by this monitoring mission.

Furthermore, the council calls on both parties to develop lasting solutions that would prevent the recurrence of such dispute, and in any case ensure they will honour their obligations and guarantee the continuity of gas supply to the EU.

The present crisis has documented the importance of urgently reinforcing the energy policy in member states and at EU level in order to be able to prevent possible future major supply disruptions or cope with their consequences. In this respect and building on the 2nd Strategic Energy Review, the council agrees on the necessity urgently to develop and strengthen medium and long-term measures along the following priority axes:

Transparency regarding physical gas flows, demand and storage volumes must be enhanced in both member states and their industry, and in supply and transit countries, including by installing reliable metering systems where appropriate. In this framework, the council recalls the contribution of long term contracts to the reliability of both countries towards European final customers.

The council invites the Commission to present a report on this issue in time for the March European Council. The functioning of the early warning mechanism must be assessed as well.

Regional or bilateral solidarity arrangements, including on a commercial basis, addressing disruption of supplies must be enhanced. The Commission is invited to suggest possible forms of such agreements. The Commission is also invited to speed up the revision of the Security of Gas Supply Directive 2004/67/EC by the end of 2009, notably with respect to the definition of the "major supply disruption" indicator and the related Community and national mitigating measures in crisis situations. Access to and investment in gas storage must be improved and strategic gas stocks could also be considered by member states as well as other means to improve security including the capacity of each member state to free up security margins.

In order to identify missing interconnections and accelerate the relevant work, the Commission is invited to carry out a thorough assessment of network interconnection, identify gaps, suggest action and to speed up the revision of the TEN-E framework with a view to considering the development of a comprehensive EU Energy Security and Infrastructure Instrument as suggested in the 2nd Strategic Energy Review. Member states are urged to speed up the implementation of network planning provisions foreseen in the 3rd internal energy market package and inform the Commission of the planning and realization of their most urgent projects.

The contribution of diversified transport routes and sources to the energy security of the EU and its member states, including LNG terminals suitably connected to the internal market to be of use to all member states, must be a major criterion for selecting projects eligible for Community co-financing and other instruments such as those managed by the EIB. In this context the council calls for mobilizing potential resources under the Community budget and other financing instruments to strengthen investment in vital energy infrastructure, and calls also for urgent progress on the European Economic Recovery Plan as agreed by the European council conclusions of December 2008.

The council recalls that early implementation of measures and commitments related to the internal market, energy efficiency and renewable energy also contribute to energy security.

The council invites the Commission to identify with the member states affected, the economic and social consequences resulting from the crisis and to map out the relevant measures, including state aid rules where necessary, in assisting those member states.

The council will review the situation and progress made and will decide on further concrete medium and long-term measures envisaged in the 2nd Strategic Energy Review as well as in these council conclusions. The council invites the Commission to report on the progress reached at the 19 February Energy Council in order for the spring European Council to agree on the necessary responses on energy security.