Change is in the air

Russia seems to be ready for more international cooperation in the energy sector. The Russian government is considering easing legal hurdles for foreign companies wanting to invest in the Russian energy sector. It also wants to attract foreign investment in sustainable energy and energy efficiency projects. And it is preparing a ‘Global Energy Code’ after rejecting the Energy Charter Treaty. ‘The plan is to create global production and technology chains in the supply of Russian energy resources.’

Valery Yazev, Vice President of the State Duma and Chairman of the Russian Gas Society
Russia is still pursuing the idea of a new international energy law. This is one conclusion that emerged from the 3rd German-Russian Raw Materials Forum (Deutsch-Russische Rohstoff Konferenz) held on 18 March in Freiberg, Germany. At the forum, the prominent Russian energy politician Valery Yazev said the Russian government is preparing ‘the concept of a Global Energy Code’. According to Yazev, who is Deputy Chairman of the Russian parliament as well as Chairman of the Russian Gas Society, President Medvedev has drawn up a draft version of such a code. A German-Russian working group of the ‘Petersburg Dialogue’ discussion forum discussed the draft in early March. The details of the new Global Energy Code concept – made in Russia – would be unveiled in May, Yazev added.

The attention Russia is devoting to its own version of an international energy law, may be viewed as a sign of changing times. As is generally known, Russia never ratified the Energy Charter Treaty (ECT), which it had originally signed in 1994, and which was intended to integrate the energy sectors of the former Soviet Union and Europe after the demise of the Soviet Union in the early 1990s. Even under former President Boris Yeltsin, when the energy sector was opened up to western interests, the Russian parliament could not be convinced of signing the ECT. Under Yeltsin's successor, Vladimir Putin, Russia went back to a much more nationalistic energy strategy. In August 2009, Putin, now prime minister, announced his decision to definitely not sign the Energy Charter Treaty. On 20 August, the Russian Federation officially informed the Energy Charter Conference that it does not intend to become a Contracting Party to the Treaty. Incidentally, Russia is not the only country not to have ratified the Treaty. Norway, Belarus and others have made the same decision.

Nevertheless, Medvedev had also made it clear that he did not reject some sort of international energy law altogether. In April last year, he made his own proposals for a new or amended Energy Charter, without explaining the details to the public. At a summit meeting between Russia and the European Union, he then declared that Russia would not sign on to the current version of the Energy Charter. José Manuel Barroso, president of the EU Commission, supported the idea of taking Medvedev’s proposals into consideration in a future reworking of the Energy Charter.

Outstretched hand

At the Freiberg forum, the German federal government, too, signaled its willingness to eventually reach an agreement: ‘Our wish is that Russia once again approach the process of modernizing the Energy Charter,’ said Cornelia Pieper, state secretary of the German Foreign Ministry. ‘And I invite Russia to take the outstretched hand of partners in the Energy Charter process.’ Similar views were expressed by Edmund Stoiber, former prime minister of the Free State of Bavaria who is presently working in an honorary capacity at the European Commission. ‘Negotiations between Russia and the European Union are moving along,’ said Stoiber. ‘It’s now one of Günther Oettinger’s tasks.’ Oettinger served as prime minister of Baden-Württemberg, Bavaria’s neighbor, before becoming Europe’s energy commissioner.

Russia does seem more eager to accept the “outstretched hand” of Europe than it has been in a long time. For various reasons, good international energy relations are becoming increasingly important for Russia. The need to develop its oil and gas fields under ever more difficult geological and climatic conditions makes the country increasingly dependent on the investment and advanced technologies of foreign partners. Thus, the German oil and gas company Wintershall has joined forces with the Russian concern Gazprom in exploiting hard-to-reach deposits in the West Siberian gas field of Urengoy. Gazprom has also teamed up with the French firm Total and with Statoil from Norway in developing the Shtokman field in the Arctic waters of the Barents Sea.

Conversely, Gazprom is endeavoring to expand its value chain in Europe to include end customers, and is engaged in the exploitation of gas fields worldwide. If it wants to be successful in this, integration in an international legal energy framework could be helpful.
Then the current market situation may also affect Russian attitudes. The recent decline of oil prices and particularly gas prices have undermined the Russian position in the energy market and may be making the Russian government more amenable to international cooperation.

Global chains

The signs of a change in the Russian attitude go further than just the plans for a Global Energy Code. Yazev made it clear in Freiberg that more international networking is part of the new Russian energy strategy extending to 2030. The strategy aims to increase the share of foreign investment in the Russian energy industry to 12 percent. (He did not cite the current figure.) Another objective of the new energy strategy is for Russian companies to actively participate in foreign projects. ‘The plan is to create global production and technology chains in the supply of energy resources with the participation of Russian companies and companies from countries consuming Russian energy resources,’ said Yazev.

In order to help breathe life into the strategy and to facilitate foreign investment in raw-material extraction, the Russian government, he said, wants to amend several laws. This includes a law on foreign investment in economic enterprises which, from a Russian perspective, are strategically important in terms of national defense and state security. A presidential decree is now in the making which would strike off 240 enterprises from the list of strategically significant companies. In addition, Yazev pointed out that thirteen oil fields in East Siberia are tax-exempt at the moment. ‘It is likely that nine more oil fields will be given this privilege in the future.’ The Russian state is known to be planning a large-scale program for the production, processing and export of energy resources in East Siberia and the Far East of Russia.

Yazev also mentioned the great opportunities available to his country to lower its currently high levels of energy consumption. According to his estimates, the annual savings potential is equal to about 250–300 million tons of oil-equivalents, against a total primary energy consumption of more than 680 million tons, i.e. between 35 and 45%. A law passed in November is supposed to help tap into this potential.

‘The Russian state is known to be planning a large-scale program for the production, processing and export of energy resources in East Siberia and the Far East of Russia’
President Medvedev is backing up these efforts. In 2008 he proclaimed the goal of achieving a forty-percent reduction of energy intensity in the Russian economy by the year 2020, compared to 2007. There is surely no lack of pilot projects in Russia for efficient power plants, low-loss district-heating conduits, well-insulated buildings and consumption-based energy billing. Since the 1990s, foreign partners and joint ventures like the German-Russian energy agency Rudea have provided numerous examples of how energy consumption can be drastically cut back using modern technology. But its widespread application and the transition to market-based energy prices still need time in Russia.

Russia’s energy strategy calls not only for a considerable increase in nuclear energy and hydropower, but also for the development of renewable energy sources. ‘We plan to expand their share, currently 0.9 percent, to 4.5 percent by 2030,’ said  Boris Reutov from the Federal Agency for Science and Innovation. ‘That’s a lot for us, because in absolute numbers it means 17 to 18 gigawatts.’ In Reutov’s estimation, the biggest contribution to renewable energy can be made by harnessing energy from biomass, a resource Russia is rich in. Further potential exists for small hydroelectric power plants, geothermal energy, wind and solar energy.

German-Russian Raw Materials Forum: a ‘ very intense relationship’

The Raw Materials Forum has its roots in the 300-year-old ties between the Freiberg University of Mining and Technology and the St. Petersburg State Mining Institute, as well as in the German-Russian discussion forum ‘Petersburg Dialogue.’ The two oldest mining schools in the world agreed at the 2006 ‘Petersburg Dialogue’ in Dresden to meet regularly in the future at an independent forum in order to discuss German-Russian cooperation in raw materials. The forum’s patrons are the former executive director of the United Nations Environment Program, Klaus Töpfer, Vladimir Litvinenko, rector of the St. Petersburg State Mining Institute, and Valery A. Yazev, president of the Russian Gas Society and deputy chairman of the Russian parliament. The institutes’ first economic partners were the German gas company Verbundnetz Gas and the Russian company Gasexport. Other economic partners have been added in the meantime. Whereas the first Raw Materials Forum in 2007 was part of the ‘7th Petersburg Dialogue’ in Wiesbaden, it has since developed into an event of its own. The event is organized on the German side by the German-Russian Raw Materials Forum Society (Deutsch-Russisches Rohstoff-Forum e.V.) headquartered in Freiberg. The society also coordinates German-Russian research projects, for example, to develop the use of methane gas and implement combined heat and power stations in European Russia, to promote energy efficiency in mining, and to achieve maximum use of reservoirs.

The forum can serve as a platform for concrete economic projects too. In November 2009, for instance, an agreement was signed at a working session of the Raw Materials Forum to construct a new plant for polysilicon, solar wafers, solar cells and solar modules in the Omsk region. Two Russian and three German firms have a stake in the project in which investments of €1.6 billion are planned. A cooperation agreement in the areas of farming, petrochemistry, forestry and silicon was also reached between the Omsk region and the two mining institutes. As the rector of Freiberg University,  Bernd Meyer, noted, many other German enterprises have established functioning relations with the region as well.

A German-Russian research project at the Freiberg University of Mining shows how cooperation of this sort can develop. Construction of a pilot plant is now underway for the production of high-grade fuel out of associated gas from petroleum extraction. The necessary technology was developed by Freiberg researchers in conjunction with a Russian and a Kazakh company. Associated gas is a by-product of petroleum extraction and is burned off in large quantities around the globe. An ambitious program has since developed in Russia to put an end to this environmentally damaging practice.

Meyer reminded the participants in Freiberg that Russia is Germany’s biggest raw materials supplier. By the same token, almost twenty percent of Russia’s imports come from Germany – especially machines and motor vehicles. ‘This very intense relationship is the perfect basis for a pilot economic partnership in Europe,’ the rector said. ‘Raw materials for technologies, technologies for raw materials – you can see it from either perspective.’