How to incentivize relations between Eurasia and the European Union

How to incentivize relations between Eurasia and the European Union

Evgeny Utkin | Journalist and expert on the Russian economy and on energy issues
With Europe's interests increasingly diverging from those of the United States, this is the wrong time to isolate Russia, particularly from an economic viewpoint. That was one of the conclusions of the Tenth Eurasian Economic Forum, held in Verona

The forum was attended by many ministers from the Eurasian Economic Commission, including energy minister Adamkul Zhunusov; former European Commission president Romano Prodi; former German chancellor Gerhard Schröder, who is now chairman of Rosneft; Rosneft CEO Igor Sechin; senior executives from Russia’s Gazprom and Novatek, Switzerland’s Glencore, CEFC China Energy, Trafigura (Singapore), leading Italian companies (Leonardo, Eni, Pirelli, Snam, Saipem, Generali, and Sace), and others from Japan, Africa, and the United States; and ambassadors, politicians and businesspeople from Eurasia. More than 1,000 companies were represented.

Business must encourage dialog

The forum was created by Antonio Fallico, president of the Associazione Conoscere Eurasia and Russia’s Banca Intesa. "We want businesses to act as diplomats," he said. "They can bring a lot of influence to bear on political decisions, at a time when politicians are not doing much to encourage trade between two regions with entirely complementary resources".
"I’m not at all satisfied with our relationships with Russia and Eurasia," said Romano Prodi. "Russia needs us, and we need them. But despite our common interests, the crisis in relations has caused trade between the EU and the Eurasian Union to fall from 8.3 percent in 2012 to 4.8 percent in 2016. The European Union needs to regain its autonomy and have a proper bilateral relationship with the United States. A lot of unilateral decisions are being taken, and these often prove self destructive. The United States is driving a wedge between Europe and Russia, and we’re being crushed by policies that we had no say in."
"The US stands to gain from exacerbating the situation and having a weak Russia," agreed Gerhard Schröder. "Europe’s interests are the exact opposite, and Germany, in particular, needs a prosperous, flourishing Russia. Europe and the United States have divergent interests in Russia. The US thinks it can isolate the country, but this is politically senseless and economically dangerous: the consequences of a political division are unpredictable. In situations like this, business must create dialog, and politicians must listen. That’s why I accepted an important job on the board of Rosneft, despite being criticized for doing so. When this kind of thing happens, it’s important to be willing to engage in dialog."
Emma Marcegaglia, in her dual capacity as president of industry federation Business Europe and oil and gas company ENI, said a lot more could be done to strengthen ties between Europe and Russia. "Businesses are by definition against sanctions, but they exist in a political context. They can push, and they can lobby, but they must adapt to the political situation."

Oil: not dead yet

"I can assure you that reports of the death of oil are highly exaggerated," said Rosneft CEO Igor Sechin. "It will remain fundamental for the next twenty to thirty years and beyond. We’re convinced that the increasing demand for hydrocarbons is sustainable, because of economic growth and rising standards of living. Over the next ten years, based on forecast growth in the global economy, particularly in the developing countries, the daily oil supply needs to keep growing by 0.7 to 0.8 million barrels each year. This growth is set to continue in the future. By 2025 to 2030, growth in demand from the petrochemical sector will overtake that of the main consumer of petroleum products: transportation."
As the world’s biggest quoted oil company, Rosneft is thinking globally, setting up partnership plans all over the world rather than going in search of quick profits. "We’ve significantly increased the scale of our joint projects over recent years," Sechin says. Our energy projects with partners in Europe, Asia and the Middle East are worth over $110 billion. But if we include trading flows, swaps and futures, the value of our joint programs with ‘Big Eurasia’ is more than $500 billion. And this process has only just begun."

Focus on gas

The Verona event also included a session devoted to gas. Novatek president Leonid Mikhelson pointed out that Eurasia consumes over two thirds of the world’s energy, and 60 percent of its gas. "Last year, Europe and Asia used 500 and 700 billion cubic meters of gas respectively. For historic reasons, large quantities are supplied to western and eastern Europe by pipeline, and only 17 percent of imports are of liquid natural gas. In the Asian market, it’s a whole different story: 90 percent of imports are LNG."
Mikhelson said that natural gas consumption had risen by 60 percent over the past twenty years, and would grow by another 40 percent over the next twenty. LNG currently accounts for around 11 percent of total consumption, but this is expected to more than double over the next twenty years. "Real growth in consumption will significantly outstrip current forecasts," he predicted.
Europe’s biggest gas company is still Gazprom. Elena Burmistrova, CEO of Gazprom Expert, said: "Russia is at the heart of Eurasia’s energy system, and holds a unique position within it." She is not worried about competition from American shale. "In my job, I don’t see any desire by Europeans to reduce their purchases. On the contrary, we’re talking about extending longterm contracts and signing new ones, including one with Croatia, which initially planned to rely on LNG and spot purchases. The proportion of LNG arriving in Europe from the United States is extremely small, but we’re seeing consignments being redirected towards the premium Asian market. And it’s difficult to compete with gas piped in from Russia."
The statistics support Burmistrova’s argument. "We’ve gradually increased the proportion of Russian gas on the European market to 34 percent, whereas not long ago it was less than 30 percent." Last year, Gazprom sold 180 billion cubic meters of gas, and Burmistrova believes the record will be broken this year. She is also confident that in a few years, gas will be piped to Europe via Turkish Stream and Nord Stream 1 and 2, and to China via Power of Siberia, but Russia has more than enough gas to meet demand from Europe and Asia.
Marco Alverà, managing director of Italian gas infrastructure company Snam, said that gas has a very promising global future. "It will grow more than oil between now and 2040, and coal consumption will fall." In Italy, demand is expected to grow by 12 percent this year thanks to an upturn in the economy and a drop in imports of French nuclear energy. From an environmental viewpoint, "we need fewer diesel cars and more gas ones, which cost hardly anything extra. We need to abandon the idea of gas as a transitional solution, and regard biogas as a forever fuel."
Russian expert Konstantin Simonov concluded, "Hydrocarbon consumption is increasing, and Russia is willing to share its resources without damaging the environment and satisfy demand from its partners. But it’s important that politicians interfere in this process as little as possible."