Speech at the "High Level Conference on Nabucco"

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Budapest, 14 September 2007

Primer Minister, distinguished guests, Ladies and Gentlemen:

My great thanks to the Prime Minister for his encouraging words this morning. Europe stands at the edge of a new era for energy policy, and the achievement of the Nabucco project will be part of this era.

I have been asked to look into the future. Precisely, what are the scenarios for Europe and what is the Commission's response. I intend to answer that question in the context of supply security and Nabucco in a moment. But first a few words on the broader context.

Demand for energy never ceases. In the final analysis, the only way to avoid all risks is not to use energy at all, or to be in total control of those resources that you do use.

In the modern world, either aspiration would be a dream[1], and the second could be even dangerous. Total control of resources or autarky leads to resource nationalism; the European Union, - through the European Coal and Steel Community and Euratom Treaty - was founded in total rejection of that approach.

The EU has chosen firstly to mitigate risks by diversification of all sources of energy – into new sources, whether wind, biomass or solar. Secondly, we are committed to curtail consumption, for environmental and geopolitical security reasons; I am glad to say that these twin aims explain the coherence of the European Commission's response to the changing energy markets over the past few years.

The starting point of the new strategy is a firm commitment to reduce greenhouse gas emission by 20% by 2020, or more, by 30%, if our international partners follow suit.

This is a massive challenge; not only to the EU, to make it a reality; but it also lays down the gauntlet to the international community, to deliver on an international agreement to tackle climate change. Our message is simple. We will not deal with climate change on our own. But together, we have a chance. And the way to do so, is through an integrated energy and environment strategy.

In March 2007 the European Council adopted an Action Plan to build an Energy Policy for Europe. A key element is the domestic priority of a real functioning internal market for electricity and natural gas. This market will deliver the essential security of supply for Europe by creating a liquid traded and competitive market, attracting investment in Europe and delivering long-term security of demand for external suppliers. To do this, the Commission is preparing a new legislative package to be adopted next week.

But a secure and sustainable energy market will require new investment in infrastructure. We need to work towards a European gas network and a European electricity grid, starting with greater collaboration among Transmissions Systems Operators. We also need to diversify our supply routes, both into and around the EU. This is what we are doing through our programme for Trans-European Networks for Energy and also through the nomination of coordinators for four key priority TEN electricity and gas projects, one of which is Nabucco. Investment in Liquefied Natural Gas is key to the development of an effective gas market. We have a major opportunity to diversify, in terms of supply sources, supply routes and producers, as well as creating greater market liquidity. Both gas producers and consumers stand to benefit from these developments.

Over the past years we have gone a long way to doing this. We have created the Energy Community; a group of countries allied to the EU through a shared commitment to energy security. The European Union has invited Turkey and Ukraine to join this Energy Community. When they join, we will have created a single legal and regulatory framework over the full extent of the supply lines into the European Union. In reply, we offer our assistance to overcome chronic energy dependence on external suppliers, with the implicit political restraints that such dependence brings.

However, if there is one instrument which can deliver security improvements, environmental benefits and economic advantage at the same time, this is energy efficiency. If you consider that, today, our trade balance in energy is 225 billion euros in the red, then energy savings must have a direct positive economic and security impact. Internationally too, by promoting energy efficiency in our neighbours, we raise their standard of living and we free up resources that can be better used within the EU.

International co-operation on energy security is a win-win outcome for all involved. The European Commission is giving top priority to the implementation of the Energy Efficiency Action Plan and the preparation of new rules and standards. The potential here is huge, not just in terms of reducing emissions, but equally in improving Europe's competitiveness and security of supply. And internationally, we are promoting an agreement on energy efficiency and we are encouraged by the support we have received.

Notwithstanding these measures, there are no doubts that the European Union will remain strongly dependent on imports and that will be more and more dependent in future.

I come now to one of the most important themes for energy security – geopolitics or producer-consumer dialogue. Europe accounts for around one seventh of energy consumption in the world – a large share, but falling, in relative terms. We are dependent on imports for over one half of our energy use. The role of developing countries in global markets is increasing as their energy demand rises far more quickly than ours. The provision of energy to the world's people is becoming more complex, for governments and companies alike. For the EU our challenge is to turn our economic weight into political action in the global arena.

Member States have accepted that the EU can be more effective internationally if it works together. They also recognise that the EU's concerns coincide to a large extent with national, Member State, concerns; and that national decisions have an impact on other Member States. And they also agree that the EU can help governments achieve national objectives.

This was particularly noticeable at the June European Council, which stressed the need to work in solidarity in the energy area. In other words, a crisis for one Member State is a crisis for the EU. This is why Member States have asked the Commission to develop measures for the EU to speak with a common voice in energy policy with its international partners. This sentiment has been translated into the new Reform Treaty for the European Union, in which energy security and interconnection have become basic elements of European solidarity.

To do this means moving away from the traditional perception that energy is a national security issue – it is a European security issue.

To date, the Commission has taken a lead role in developing strategic energy partnerships with the EU's traditional suppliers – Russia, OPEC, GCC, Norway and soon with Algeria. We are also developing new initiatives with alternative suppliers, in the Caspian Basin, Central Asia, North Africa and South America.

These relationships will be needed to deal with the explosive projected demand for oil and other hydrocarbons. The International Energy Agency predicts that global oil demand could increase over the coming years by 1.9% per annum. This means 33 million barrels of oil per day more moving around the world by 2030.

Record high oil price today is a good indicator for difficult times ahead for us. Particular challenge for the EU is natural gas supply.

In 10 years from 1995 to 2005, natural gas consumption in the EU countries has increased from 369 billions m3 to 510 billion m3 year. At the same time, EU own production has peaked in the year 2000 with the peaking of the proven reserves in the same year. As a result, EU produces in 2005, 212 billions m3 of natural gas. Growing consumption, decreasing production brought increase of imports from 161 billion m3 in year 1995 to 298 billion m3 in year 2005. In these years imports from Russia increased by 15%, imports from Norway and Algeria even doubled.

But in the last 10 years, there have been also remarkable changes in the global gas market: the amount of the proven reserves has increased by 20%; there are more and more countries producing natural gas; LNG technology allows to bring natural gas to the EU market even from Trinidad and Tobago and Malaysia.

We know that need for more gas in the EU will grow significantly in the years to come and we cannot assume for granted that today’s suppliers will satisfy all our tomorrow’s demand.

And greater energy security lies in more diversity. These are the reasons why Nabucco is so important. Nabucco will allow new supplies from new sources come to the growing EU energy market providing for more liquidity in it.

Gas reserves within shipping distance to the EU are distributed across Russia, the North and Barents Seas, North Africa and the Middle East and the Caspian region. It is true that the biggest single country reserves are in Russia. But the largest reserves in absolute terms are at the end of the Nabucco pipe, in the Middle East/Caspian region. And this gas in the Middle East/Caspian region is geographically close. There is no reason holding back this development.

Building this route will require that there is close co-ordination of the political, regulatory, legal and economic aspects of the Nabucco gas pipeline.

The European Union has appointed two days ago Mr Jozias Van Aartsen, a distinguished and accomplished diplomat, to facilitate this co-ordination. I look forward to him taking an active role in developing the route. I have asked him to look primarily at co-ordination in the countries which will be host to the pipeline and at the same time, not forgetting all the external aspects of energy supply. I have also asked him to evaluate over the coming months what additional and urgent political and regulatory actions are needed and to elaborate a plan for tackling these.

Ladies and gentlemen, I thank you for your attention and I hope that today's meeting will lead to the ultimate success of the Nabucco project.


[1] PM Gyurcsany called Nabucco a 'dream' earlier this year.


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