This is the transcript of the message delivered by John M. Roberts, member in Energy Policy Group’s Advisory Board, during the Energy Strategy Summit, held on June 4 at the Cantacuzino Palace in Buşteni.

Thank you very much to energynomics.ro of Romania for inviting me!

I was much taken by the initial comments from Mr. [Mihnea] Constantinescu, that energy governance requires predictability, transparency, corporate rules, professionalism, the elements included in energy efficiency. Will somebody tell me something new? Where is the detail? That wasn’t strategy, that was a faint objective and one I think that’s been around for decades. We needed far more details, more than just a couple of references to hidropower and to the AGRI project, particularly when you look at the very-very uncertain economics of AGRI, given the lack of guts available for such a project from Azerbaijan for, shall we say, a decade or so to come.

But there were some very striking points – money might migrate to other areas, if it’s not used here when it becomes available; any strategy needs an emergency plan. A couple of good points and I think the answer that was given, storage, is an excellent point about emergencies. You have to think holistically about all these things, but oh Heavens, you were saying that if you invested 100 million dollars or so and you only wait a year or two to recover your investment? If you are going to have a serious panel discussion, don’t throw out light weight comments like that! Investment is a very serious matter.

National Energy Strategy is about choice

Nor was it even better when the argument was said that it might be 5 or 6 years that you could make your money back in Romania, but nowhere else. No, rates have returned and are not that good, they are much harder, they are much tougher. I thought there is another good point, three elements needed in regulation frameworks, needed the state cash-in, the economic efficiency of the projects on the way and the interest of consumers and then the killer point of all: you can never have something that is good, cheap and fast. You can only have 2 of those 3 elements. National Energy Strategy is about choice and that’s the hardest thing, because of course, what you always want is to avoid having to make those choices. And what kind of background is this taking place against?

Primary energy production will not increase in the next decade, pressure on the fiscal regime has to be balanced within centers for new resource development. How do you develop a regime that can adapt to volatile markets? Extraordinary difficult, but it’s no easy answer to all of those, but the point about money moving is the key.

I’ll give you a couple of examples: the best part of 8 years, 15 in the case of one project, 8 in the case of another, Turkmenistan is been pursuing the idea of developing a pipeline to India and looking at the idea of a pipeline across the Caspian to Azerbaijan to Europe. Failed. Doesn’t know how to put together a project because it doesn’t know how to commit the resources and it doesn’t know how to weigh up strategic security risks, notably the security position in Afghanistan. And a more specific example of missing the bus: Israel discovered major resources of natural gas in the Mediterranean, held up for two reasons: first of all they couldn’t come up with an intelligent system of how to allocate a reserve based for the future. Now they do need a reserve based for the future, no questions of that, from that perspective this is a God given gift and they can’t rely on resources, energy resources that came from any other source, so it’s a good idea to keep some back. But instead of saying how much do we need in 2014, how much in 2015, how much in 2016 and every year out to 2030 or whatever, they say we need this big sum now, even though it can’t be used.

So they closed themselves off from the investment required, through allowing an export stream early that would pay for the development of the gas that could serve the domestic market. They lost 2 years, oh yes, and in that time the gas price collapsed and the whole investment paradigme was lost. They’re going to take a bit more before they get back on track. And there was a second example from the same area: the Cypriots discovered a small little field, Aphrodite. Thought: ”Great, we can develop an energy plan for export, bring in the Israeli and Cypriot gas, fantastic, good long term idea.” But Aphrodite had only one quarter of the resources needed for an energy plant. When it was pointed out to them, that the company developing Aphrodite had no plans for development – cash/expenditure – on the field for the next year. So therefore it was prepared to put the money in immediately, for a small scale pipeline to bring the gas on shore. The Cypriot authorities said no, we want an energy plant, so instead of getting a pipeline that could have converted oil fired, expensive oil fired power plants, to gas, they got nothing, because of course they haven’t got an energy plant. And they are now aware that they won’t get one for many many years to come, if at all. They have to rethink and go back to the starting board, 3 or 4 years lost. Political will is a failure in this area, look at what Brendan Devlin said on the 5th of March, about the desire to have great big-big regional projects and not focus on interconnectors.

And lastly, where we come to, the power of Russia, not Russia’s military power, that’s an issue that also needs to be addressed, Russia’s sheer commercial power, the ability it has at the click of a finger to change a route of a major pipeline to go to Turkey instead of Bulgaria, we’re still not quite sure what the economics are, but they spent so much money that they’re building at least the first 2 strings of the Turkey stream pipeline and that may cause problems for us major or down the road. But there’s an even bigger one, we heard earlier, and I am just coming to an end.

Somebody mentioned the idea of 100 dollar oil not coming back this decade. I’m not gonna say it won’t, I’m just simply going to say, we have absolutely no idea what the price of oil is going to be, up or down, over any given period. It is no longer in any realistic sense forecastable, but one fair thing that we can look to… Has anybody given any thought of what happens if Russia adopts the policy of being the low price provider of gas to the European market? Goes against every instinctive bone in Alexey Miller’s body, it’s not Gazprom policy at all. That’s not the point! Is it Putin’s policy, is it not Gazprom’s, that perhaps Novatek or Rosneft, that are Putin’s / Russia’s pension policy and is it their objective to start having access to the Gazprom system, because if it is, they get it: Russia is in a position to flood Europe with gas and undercutting any other potential suppliers.

More direct consultation with government, and a degree of flexibility on all sides

So three rules to conclude with: 1. What Romania could do in terms of strategy? Rule one, if there is a round table, attend it! Example general Schwarzkopf, when planning the Iraq war. Before he did, when he first got the job, what did he do? He went to the U.S. Foreign Service School and immersed himself in the Middle East course for 2 months with the ordinary students. He was saying, well we could do you all this teaching privately, if I’m in a class with students, I’m getting asked the questions that I would never ever think of asking myself, I’m gonna listen and hear, so be there. 2. Specific stability, specific flexibility, a stable regulatory regime, but also constant consultations with business, because we just don’t know what the future business environment is gonna be like, globally I’m talking, in two years, let alone in 10 or 20. And lastly, create a flexible environment for both energy production and energy transit. Romania has a chance of becoming a real energy hub, but remember, an energy hub is not simply a place where energy comes in and goes out, if it’s a real genuine trading hub, it’s a market hub, it’s market conditions. And market hubs are not created by governments, all governments can do is create the environment in which a hub can grow up, so I put it to everybody here that you need to have a lot more direct consultation with government, a lot more listening to government and perhaps a degree of flexibility on all sides.

Thank you.