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Energy union will become reality sooner or later

- Mr Huh­tan­en, can South Stream come out from the stick­ing point and is it pos­si­ble for the Com­mis­sion and the par­tic­i­pat­ing Mem­ber States in the project to find a solu­tion in the com­ing months?

- I believe that an agree­ment on the South Stream project is def­i­nite­ly pos­si­ble. It would need to see two impor­tant pre­req­ui­sites. The first being that the project meets all EU inter­nal mar­ket rules, espe­cial­ly the appli­ca­tion of the EU Third Ener­gy Pack­age, com­pe­ti­tion and pro­cure­ment pro­ce­dures, as well as envi­ron­men­tal leg­is­la­tion. The sec­ond pre­req­ui­site is that a reas­sess­ment needs to be made on a high polit­i­cal and expert lev­el on how stra­te­gic this project is for Europe and how does it fit into our Ener­gy Secu­ri­ty plans for the future. My per­son­al opin­ion is that South Stream, if built, should serve only as a project sup­ply­ing gas to Europe, noth­ing more and noth­ing less. All oth­er pos­si­ble deals should be can­celled. Con­cern­ing the time­line, I guess that a deci­sion and reas­sess­ment in the com­ing months is pos­si­ble, how­e­ver it will depend also on the actions of the future Com­mis­sion and Euro­pe­an Par­lia­ment and the respon­sive­ness of mem­ber states in Cen­tral and East­ern Europe to poten­tial con­cerns raised in Brus­sels.

- Against the back­drop of the cur­rent devel­op­ments in Ukraine should South Stream pipe­line con­struc­tion be brought to a halt? Bul­gar­ia was already crit­i­cised by the EU and the USA and sus­pend­ed work on the pipe­line.

- Europe needs Rus­sian gas, the ques­tion is do we want it, and what could be the polit­i­cal price for Europe's neigh­bour­hood? See­ing only the secu­ri­ty argu­ment, only the eco­nom­ic per­spec­tives or the polit­i­cal impli­ca­tions of it will bring noth­ing but short-sight­ed deci­sions. As I com­ment­ed, I believe the project needs a reas­sess­ment, tak­ing into account all modal­i­ties.

Indeed the cri­sis in Ukraine has trig­gered momen­tum in the pol­i­cy on ener­gy secu­ri­ty both in Europe and Rus­sia. My view is that Europe should use this momen­tum to accel­er­ate its eman­ci­pa­tion from one main sup­pli­er of gas. This can­not, of course, hap­pen over­night. Mean­while, we need to act stra­te­gi­cal­ly - ensur­ing that pro­jects offer pos­si­bil­i­ties for diver­si­fi­ca­tion in the long term and secu­ri­ty of sup­plies in the short term. Diver­si­fi­ca­tion would mean diver­si­fi­ca­tion of sup­pli­ers, sour­ces and routes. In its present form, South Stream offers only the diver­si­fi­ca­tion of routes.

The big­gest advan­tage, and at the same time the big­gest dis­ad­van­tage of this project, is that it tres­pass­es no third coun­try. There is no doubt that hav­ing a direct link with the sup­ply­ing coun­try, Rus­sia, redu­ces the dan­ger of inter­rup­tion of deliv­er­ies and increas­es ener­gy secu­ri­ty. How­e­ver what would that mean for secu­ri­ty in Europe's imme­di­ate neigh­bour­hood? I am of course talk­ing about Ukraine and the dan­ger of cir­cum­vent­ing it. I do not believe it would be cor­rect to cir­cum­vent Ukraine in a moment when the coun­try is being forced into insta­bil­i­ty. We should try to avoid the fact that gas is being used as a tool of for­eign pol­i­cy. Coun­tries in Cen­tral and East­ern Europe have a per­fect under­stand­ing of the sit­u­a­tion of Ukrain­i­ans, bet­ter than any­one else in the EU.

As to the sus­pen­sion of the project in Bul­gar­ia, I don't think that the gov­ern­ment sus­pend­ed the project only due to friend­ly rec­om­men­da­tions. Bul­gar­ia was in fact fac­ing an infringe­ment pro­ce­dure for not com­ply­ing with EU leg­is­la­tion on this project. There are also oth­er EU coun­tries with vest­ed inter­ests in this project, which at least to me, shows that it was the Bul­gar­i­an gov­ern­ment that went too far.

- How can cas­es of sup­ply dis­rup­tion be oth­er­wise avoid­ed through Ukraine trans­it routes for Bul­gar­ia, Roma­nia, Hun­ga­ry and Greece, which are most exposed to risks?

- It is true that, at least in the short term, Europe will be depend­ent on Rus­sian gas, some coun­tries more than oth­ers, as is the case with the South-East Euro­pe­an region. The solu­tion to this com­pris­es a vari­e­ty of meas­ures, some of which have already been par­ty imple­ment­ed, oth­ers are being devel­oped. A par­tic­u­lar meas­ure is the enhance­ment of already exist­ing pipe­lines so that they can deliv­er reverse flows, in case of prob­lem with deliv­er­ies. This means that we need to increase the inter­ac­tion between coun­tries exposed to the risk of dis­rup­tion and oth­er coun­tries in the EU. In the long term, the answer again boils down to diver­si­fi­ca­tion for reduc­ing risks. In the same way which Rus­sia is diver­si­fy­ing its base of cus­tom­ers, we need to diver­si­fy our base of sup­pli­ers. The pos­i­tive aspect is that we have already begun work on inter­con­nect­ors between coun­tries, on build­ing LNG ter­mi­nals, and on pro­vid­ing great­er reserve stor­age facil­i­ties which we could share in cas­es of emer­gen­cy. Thus, I believe we are already a lit­tle bit bet­ter pre­pared than in 2009 when Europe was faced with an inter­rup­tion of gas sup­plies. In addi­tion, sev­er­al mem­ber states have estab­lished trade rela­tions with oth­er sup­pli­ers, in oth­er regions which should be explored fur­ther. Spain, for exam­ple, receives all its gas deliv­er­ies from non-Rus­sian sour­ces. Undoubt­ed­ly, it is true that for some coun­tries, depend­ence on Rus­sian gas reach­es 90% and even 100%, how­e­ver it is also impor­tant to see how big is the share of gas in the entire ener­gy mix of a coun­try and what alter­na­tives are avail­a­ble. Renew­a­bles is one of these.

- In this respect how fea­si­ble is the idea of the Pol­ish Prime Min­is­ter for an Ener­gy Union?

- The idea of a Euro­pe­an Ener­gy union is some­thing that will become a real­i­ty soon­er or lat­er. And the soon­er we estab­lish a work­ing Ener­gy union, the more cost-effect­ive this will be. The pro­pos­al calls for the cre­a­tion of mech­a­nisms for com­mon­ly nego­ti­at­ing ener­gy sup­plies by EU states, which will increase our bar­gain­ing pow­er. It also speaks of effect­ive mech­a­nisms for 'gas sol­i­dar­i­ty' in the event of a cri­sis. Very real­is­ti­cal­ly, the pro­pos­al puts infra­struc­tur­al con­nec­tion and inter­con­nec­tiv­i­ty at the cen­tre of the debate. It pro­vides a good bal­ance between nation­al com­pe­ten­ces and estab­lish­ment of EU frame­work.
- In your view, can such a union help to keep the price of ener­gy com­pet­i­tive for indus­try and afford­a­ble for cit­i­zens or is it to the con­tra­ry?

- There is no doubt that more com­pe­ti­tion and choice for con­sum­ers drives pri­ces down on the inter­nal mar­ket. Speak­ing about nego­ti­at­ing com­mon pur­chas­ing pri­ces for gas, I believe that a com­mon mech­a­nism will bring more com­pet­i­tive pri­ces. Cur­rent­ly pri­ces for some Cen­tral and East­ern Euro­pe­an coun­tries, for exam­ple, are irreg­u­lar and this is to their dis­ad­van­tage. Pull­ing our efforts togeth­er will pro­duce larg­er bar­gain­ing pow­er. Aft­er all, the prin­ci­ple of econ­o­mies of scale is a lan­guage which any rea­son­a­ble sup­pli­er will under­stand. The more essen­tial and chal­leng­ing ques­tion that remains is, of course, how to achieve one voice in nego­ti­a­tions and how to avoid back­door deals?

- Europe's tar­get to com­plete its inter­nal ener­gy mar­ket by 2014 is not achieved yet. What will be the price of this delay?

- The price comes pri­ma­ri­ly on the bill of Euro­pe­an cit­i­zens - it will mean high­er and more vol­a­tile pri­ces. This is the same thing that we have seen in oth­er net­work indus­tries when they were not brought under the clear rules of the inter­nal mar­ket. Take roam­ing as an exam­ple. Not com­plet­ing the inter­nal ener­gy mar­ket means less inde­pend­ence of indi­vid­u­al coun­tries and a small­er degree of secu­ri­ty of sup­plies. For the EU econ­o­my in gen­er­al, not act­ing will mean a loss of com­pet­i­tive­ness. Euro­pe­an coun­tries could con­tin­ue deriv­ing short-term ben­e­fits indi­vid­u­al­ly by mak­ing bilat­er­al deals with big sup­pli­ers like Rus­sia, until we are struck by anoth­er ener­gy cri­sis. Or, they can push for­ward for more inte­gra­tion and find sta­ble and sus­tain­a­ble solu­tions to the EU's ener­gy needs. We have the neces­si­ty, we have the tech­no­log­i­cal capa­bil­i­ties. We need to work on the insti­tu­tion­al frame­work, the infra­struc­ture and on the polit­i­cal will in order to reap the full ben­e­fits of an inter­nal ener­gy mar­ket.

- Is launch­ing domes­tic pro­duc­tion of shale gas an alter­na­tive for Europe? Many Mem­ber States con­sid­er that the risks to nature and human health are much big­ger than any ben­e­fits.

- In accord­ance with the EU Treat­ies, each coun­try has the right to exploit and choose their own ener­gy sour­ces and sup­plies. This holds true also for shale gas. We should respect the choice of coun­tries that choose to exploit those res­erves or not. The fact is that in dif­fi­cult moments, coun­tries start to look more and more to their own resour­ces. I will not be sur­prised if some coun­tries which ini­tial­ly banned it start turn­ing their atten­tion to frack­ing again. I will also not say any­thing new by stat­ing that a prop­er envi­ron­men­tal impact sur­vey is nec­es­sa­ry before using frack­ing, as well as assess­ment of the over­all emis­sions that this tech­nol­o­gy involves.

- Some EU mem­ber coun­tries con­tin­ue to reg­u­late ener­gy pri­ces. How does this affect invest­ments in the sec­tor in the longer term?

- This is yet anoth­er sign that inte­grat­ed and inter­con­nect­ed ener­gy mar­ket is need­ed. In the long term, reg­u­lat­ing ener­gy pri­ces only harms this cause. It also harms con­sum­ers - sub­sid­is­ing the price of ener­gy means that some­one some­where is pay­ing for it or even worse, debts are being made. You also right­ly point out that this affects invest­ments and inno­va­tion in the sec­tor, as not all actors are put on a lev­el play­ing field. Fur­ther­more, incum­bents in the coun­tries are giv­en no incen­tive to explore new and more effi­cient ways for deliv­er­ing ener­gy - by invest­ing in renew­a­bles and effi­cien­cy for exam­ple. Final­ly, it is of course nec­es­sa­ry to react with meas­ures of sol­i­dar­i­ty to cer­tain con­sum­ers; how­e­ver this should not turn into gen­er­al dis­re­gard of the prin­ci­ples of com­pe­ti­tion.

- What are the prospects for LNG sup­plies from the Unit­ed States?

- One of the prob­lems we are fac­ing cur­rent­ly is how to keep unin­ter­rupt­ed sup­plies. Rus­sia has, on sev­er­al occa­sions, includ­ing in the cur­rent cri­sis in Ukraine, under­mined its image of a cor­rect and straight­for­ward sup­pli­er. I believe our trans­at­lan­tic part­ners are a part­ner that we can rely on togeth­er with oth­er sour­ces of ener­gy. Of course, the future sup­plies for LNG from the US would also depend on con­trac­tu­al con­di­tions, pri­ces, capac­i­ty etc. But in gen­er­al 'yes', I see LNG sup­plies as part of the solu­tion. Sim­i­lar to renew­a­bles it will come with its price and real­is­ti­cal­ly not before 2016-2018.