Friday, October 24, 2014

President of Russia

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News conference following the working meeting of the Gas Exporting Countries Forum (GECF) summit

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PRESIDENT OF RUSSIA VLADIMIR PUTIN: Good afternoon, ladies and gentlemen,

The Second Summit of the Gas Exporting Countries Forum has just ended. There was a lot on the summit’s agenda. We had a frank and trusting discussion on the current state and future prospects of gas market and the global gas sector and outlined plans to continue coordinating our common action to ensure global energy security and sustainable and predictable development of the global gas industry and big regional markets. 

The summit participants share the view that the Forum’s weight and authority are growing. It has become a full-fledged international organisation actively influencing full and stable supply of the crucial strategic resource that is natural gas. We think it is very important indeed to establish predictable and clearly understandable rules of the game on this sensitive market and guarantee that they will not change over the long term. At least, these rules should not be subject to unilateral change and should not depend on short-term considerations, including, above all, politically-motivated considerations.

Producers and consumers both need to be able to have confidence in the future and the possibility of making timely investment plans and guaranteeing returns on their investment. This will guarantee reliable energy supplies for the global economy and long-term social development.

Unfortunately, not everyone understands these seemingly obvious things. People still have illusions about simple solutions and the temptation to win advantages for themselves through unilateral steps that only look at the short-term picture and fail to take the long-term future into account. 

Some GECF countries, including Russia, have already encountered unfair regulatory decisions and restrictions that end up costing the consumers above all. The European Union’s third energy package is one such example. You know our position on this issue. 

I think we need to develop joint mechanisms that would enable us to take preventive measures to protect ourselves from steps of this sort. The GECF is a good forum for holding this kind of dialogue and working out common approaches. We have no intention of putting pressure on consumer countries. This would be counterproductive and unfair. But we want our views to be heard and our position to be taken into account.

We need to put in place the conditions for building an equal partnership between the producer and consumer countries, gas exporters and importers in this particular case, at the global and regional levels.

Of course we also discussed priority issues such as natural gas prices. I note in this respect that what is possible in the oil trading sector with its developed global market and established regulatory instruments cannot always be applied to the gas market. We think that contract gas prices should be set based on oil and petroleum product prices as a market price indicator.  

Long-term contracts make it possible to ensure a balanced distribution of risks between the gas sellers and buyers, and this makes it possible to put in place the conditions for bringing big investment into developing the sector and its infrastructure and technology, and in developing promising new deposits, including in remote areas and offshore fields.

What we propose is a simple and understandable mutually binding formula for global energy security: producer countries guarantee increased supplies of resources over the long term, and consumer countries make their contribution to global energy security by ensuring long-term demand.

We also discussed broadening the uses for gas as an energy resource, including as engine fuel, and in chemical utilization of natural gas using advanced processing technology. Our countries have already made good advances in these areas. It would be good now to look at building technology and cooperation alliances and carrying out joint research, including in areas such as ensuring high environmental standards for gas use, modern gas production and transport technology, and industrial development of new gas resource types.

Another important area of the GECF’s work is the organisation’s expert and forecasting activity for comprehensive study of the global gas market and competing energy resources. This kind of joint work is picking up the pace now and we welcome this. The next milestone on our plans is to create a global gas model that will enable the Forum’s participant countries to provide the international community with their own global gas market development forecasts.  

We concluded the summit by adopting the Moscow Declaration. I am pleased to note that we share similar positions on the gas market’s key development issues and on ensuring energy security. I am sure that together we can develop effective mechanisms for protecting gas producing countries’ interests on the basis of reasonable and understandable market approaches.   

Thank you for your attention.

QUESTION: Mr Putin, Russia was one of the originators, one of the founders of the gas summits. Were any goals set when this mechanism was established? What goals have been achieved, and which remain priorities? For example, you have talked about solidarity in the light of attempts to exert unfair pressure via the so-called ‘third energy package’. You probably raised this issue during discussions. Was there support for this idea and did you discuss it? 

VLADIMIR PUTIN: As for the European Union’s third energy package, then I just spoke about it. Russia was faced with the threat of restrictions, but other gas exporters were too; not only Russia spoke about this today. But for us the most important thing is avoiding decisions that have a retroactive effect.

It is clear what is at stake. We have invested in infrastructure, developed pipelines, and put billions and billions of dollars into these projects on the basis of existing rules. Then a decision – the third energy package – is taken, and it applies to everything that has been done previously.

But we believe that this is not a civilised way to communicate with our partners; we talk about this openly and regularly with our European friends. We hope that they will hear us, and that we will develop common approaches to such regulatory fields. The latter are very important not only for Russia, but also for consumers – especially for them.

How can producers invest billions of dollars if they do not know what will happen tomorrow? This will inhibit the energy sector’s development on a global scale. And I hope our partners will hear us and will understand this.

QUESTION: Mr Putin, how relevant is the comparison between the GECF and OPEC? And given the toughening market conditions, could it be time to turn the GECF into a cartel?

VLADIMIR PUTIN: Our aim is not to create a cartel or to become part of one. The Gas Exporting Countries Forum was created solely as an expert platform to exchange information and develop common principles and approaches.

How do OPEC’s (whose secretary general spoke at our summit today) activities differ from those of the GECF? The main difference lies in the fact that OPEC sets production quotas for member countries and therefore influences prices on international markets.

Whereas for an energy resource like gas, there is no global gas market. And therefore even if we wanted to, we would not be able to influence the price at which it is traded in the same way. There is no such market. That is the first point.

The second: we never discussed the possibility of some quota-related restrictions for countries that are members of our association, not because we don’t want them, but because this is impossible.

However, perhaps there’s something else. It would be possible to agree on the launch or suspension of certain projects once the production starts. This is possible, but such pattern of cooperation between gas exporters was not discussed.

QUESTION: Today you discussed the issue of shale gas. The so-called ‘shale revolution’ has helped the United States take first place in terms of production, in gas production in their own country; their own shale gas holds the top spot. In connection with this, Russia froze the development of its Shtokman gas field, which was originally intended for export to the United States.

Now we hear that in the next few years the United States will start to export its gas as liquefied natural gas (LNG) to Europe. How will this affect Russia’s revenues, which are currently being formed, to a large extent, by energy exports?

And if you will allow me, Mr President, one more question, a topical, political one. We hear a lot about the scandal: the fact that US agencies were bugging European embassies and offices in the United States.

VLADIMIR PUTIN: What does gas have to do with it?

QUESTION: This is the second question. In this regard, it is curious that nothing has come to light about American special services bugging Russia’s diplomatic missions. By the way, it would be interesting to know how is this work being organized in Russia, what’s the situation with tapping and bugging foreign diplomatic missions?

VLADIMIR PUTIN: Let’s start with gas.

Regarding shale gas, it’s true that the United States is actively developing gas production from shale and possibly other technologies too: using accompanying gas, gas produced from coal, and so on.

I would draw your attention to the fact that the year before last shale gas production in the US increased by about 84 percent, while last year this figure was only nine percent. This probably also means something.

Maybe – and I make no claims here – but maybe our American partners have hit a so-called glass shelf, as they say in the oil industry. And it’s unclear what will happen with this. That is the first problem.

The second is that shale gas production, the cost of its production is five times higher than that of conventional gas.

Third, Russia also has ample opportunities to develop shale gas, and to mine it in the conventional way. Judging by estimated resources our country is probably number one in the world, as you know. We have trillions [of tonnes] of reserves. We will be able to meet our own long-term demand, even if the economy grows, and that of all of our partners. So for us today this is simply not topical. If the technology improves, we would not rule out this option for ourselves.  

Can the United States enter international markets with its shale gas? Maybe yes, maybe no. And if it does, the volumes will probably be very small and global markets will not be affected. So we are not worried about this. Indeed, the only worries we have are environmental ones, because shale gas extraction is a very barbaric way of extracting mineral resources. And I consider it unacceptable to use the existing technology in European countries, including Russia, and this in spite of our huge territory. In any case, this work is not possible given the current level of technology.

The second question was about spying and tapping. The fact that allies listen in on each other is none of our business. Let them do what they want. From what I understand, this information comes from Mr [Edward] Snowden and it contains nothing about trying to listen in on Russia’s official representative offices, though I would not rule out such possibility. And we have had a wide variety of evidence pointing in this direction, but I do not want to delve into it now. This is something for experts to assess. But in general we have no reliable information about who has been spying on whom, and on what grounds.

The US special services are global in nature and operate globally. They have their own departmental interests. Lawyers have the concept of the excessive act: you ask someone to spy and they start eavesdropping; you send them to eavesdrop and they start spying. So let our colleagues work it out amongst themselves who is right, who is wrong, and how to deal with it.

QUESTION: Mr President, please tell me whether you talked about pricing issues. Why are gas prices tied to oil ones and to what extent is this justified? And did you consider the possibility of changing pricing formulas in the future?

VLADIMIR PUTIN: It is difficult to say what will happen in the future. I have already said and would like to stress again that while a commodity like oil is traded in a global market, a global market with its own instruments and huge volumes, today’s gas market is not global. Rather, it is a set of regional markets. There is one in the US, another one in Europe, and a third one in Asia. We just now talked about whether or not Gazprom slept through the so-called shale revolution. You know, if you compare with the first quarter of last year, Gazprom’s supplies to Europe increased by 10 percent. Why? Because a significant amount of LNG went to Asian countries.

As LNG trade increases, the situation in the gas market will change too, and it will globalise along the oil market’s lines. After all, today as we sign a contract for oil supplies, tankers are already waiting in the ports, and the delivery occurs straight away. This is not possible in the gas sector; it’s a different product. But once there is a large number of gas carriers that travel around the world, that stand and wait in lines, then some features of this market will resemble the oil one. And then maybe we can think about other pricing formulas. But at present tying gas prices to oil ones and those of oil products is the fairest and most market-based solution, allowing for prices to be determined on stock exchanges and by market forces. In fact, almost all other forms of energy are somehow tied to the price of oil. Why? Because everything is defined in gigacalories (Gcal) that measure the effect obtained by the combustion of one or another type of fuel. Everything is compared using a precisely defined formula, and a fair price is reached.

QUESTION: Let me continue on the topic of pricing. You have already talked about Russia’s arguments for gas prices under long-term contracts; nevertheless, European consumers are insisting on revising these prices. You yourself stated some of their arguments, namely turbulent economic conditions, new technologies and increasing competition. In these circumstances is Russia ready to make concessions to European colleagues? And, for example, are other members of today’s summit willing to support Russia’s desire to fix gas prices in long-term contracts, or are they willing to yield?

VLADIMIR PUTIN: First of all, naturally all gas exporter and producer countries are interested in linking gas prices to oil prices. Let me repeat that those who increasingly trade in LNG may have slightly different approaches. To date, linking prices to oil remains the most topical and market-based solution, so basically we all support it. I do not know which of our partners is against this, everyone is in favour.

As for the fact that the consumer insists on lowering prices, while the producer (seller) insists that they reflect economic expediency, then this is a natural process. All sellers want a higher price, and consumers want to buy things cheaper. What is so unusual about that?

But even the global economic crisis is not an excuse to avoid market practices. Why? Because you might gain something – even for the world economy – in the short-term, but then everything can backtrack to a much worse outcome. And the reason is clear: if today we underestimate the price of energy resources, including gas, then we also limit the investments the producers will make in the future, in new projects. If they don’t make them [investments] today, then tomorrow this will contribute towards limiting global economic growth. We can’t let this happen, everyone must understand this, that’s what we advocate for and that’s what we ask our partners to do.

QUESTION: Mr Putin, nevertheless do you think it would be possible for Russia to conclude some more flexible contracts governing the deliveries of pipeline gas to Europe, for example shorter contracts with more flexible prices?

VLADIMIR PUTIN: You know, this issue is always raised when the spot price is lower than the prices in long-term contracts. In the first quarter of this year, the spot price was higher than the prices set in long-term contracts, and immediately all the talk about needing to change pricing principles evaporated. Everything is possible, you just have to be aware of each other’s interests and able to negotiate. We are ready for such negotiations, but we are not ready for any unilateral decisions.

QUESTION: Do you think that Mr Snowden will fly away with one of the delegates from this meeting?

VLADIMIR PUTIN: You have to ask the delegates, I don’t know. I want to emphasise (we can never get away from this topic, it seems) that Mr Snowden is not our agent, never was, and isn’t today. Our special services have never worked with him and are not doing so now. And he no longer sees himself as a former intelligence officer, but rather as a human rights activist, and to some extent a new dissident similar to [Soviet-era dissident Andrei] Sakharov. On a different scale, of course, but he is essentially a fighter for human rights, and for democracy.

You know, our human rights organisations have spoken to this issue, and they believe it is impossible to extradite him to a country that uses the death penalty. But this is a separate issue; I think that first and foremost we have to leave it to professionals. I don’t know anything about Mr Snowden’s possible departure with a delegation.

QUESTION: I would like to continue on the Snowden topic.

You mentioned that Snowden is a free man, but along with this he has no documents ...

VLADIMIR PUTIN: I did not check.

QUESTION: ... that allow him to move freely. What are the conditions that must occur before Russia would extradite Snowden to the United States?

VLADIMIR PUTIN: Russia never gives anyone up and doesn’t plan to give anyone up. And no one has ever given us anyone. You probably know this very well. At best, we exchanged our foreign intelligence agents with those who were arrested, detained and convicted by a Russian Federation court.

With regard to Mr Snowden, let me repeat that he is not our agent, nor is he cooperating with us. I am telling you responsibly that he is not cooperating with us today; we are not working with him. He considers himself a human rights activist and in this regard, he is a free man.

If he wants to go somewhere and someone will take him, go ahead. If he wants to stay here, there is one condition: he must stop his work aimed at harming our American partners, as strange as that sounds coming from my lips. But precisely because of the fact that he considers himself a human rights activist and campaigner for human rights, he is unlikely to stop that work. So he has to choose a destination country and go there. When that will happen, unfortunately, I do not know. If I knew, I would have absolutely told you now.

Thank you.

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