Your Excellency, Mr Chairman, ladies and gentlemen.

 

Good morning and thank you for the opportunity to speak at this year’s Gas Infrastructure World Caspian Conference.  Thanks also to the Government of the Republic of Azerbaijan for welcoming me on my first official visit as UK Energy Minister.

 

I am in Baku today on the second leg of my journey upstream along what has become known as the Southern Corridor – the supply route for hydrocarbons from the Caspian to Europe.  My first stop was in Ankara, where I spoke about the linking role that Turkey plays between the Caspian and the EU.  The concept of a Southern gas Corridor is not a new one, but its profile has risen in Europe in recent months alongside the profile of energy security more generally.  And, as I’m sure Commissioner Piebalgs will have said yesterday, we are all keen to move from the concept to the reality.  I am here today to set out how the UK thinks we should work together to deliver this important new route and source of gas to Europe.

 

But the UK’s interest in the Caspian is not just about the theory of European Energy Security or the politics of pipelines. British companies are lead investors in Azerbaijan and play a vital role as partners in the development of Azerbaijan’s natural resources. This is a relationship the UK is particularly proud of, and we are committed to helping it broaden and deepen. I am going to speak about three topics: Why the Southern Corridor is a key plank in the diversification of European Energy supplies and why it matters for the UK. How Government and industry must work together to make the Southern Corridor a reality; and How the energy sector must respond to meet growing consumer demand for energy as finite natural resources decline. Above all, I hope to leave you with no doubt that the UK is actively committed to diversifying both its own and EU energy supplies and that establishing the Southern Corridor is a critical tool in meeting this objective. Why the Southern Corridor is a key plank in the diversification of European energy supplies and why it matters for the UK.

 

You might wonder why the UK Energy Minister cares about pipelines bringing gas from the Caspian to Central and Eastern Europe.  The answer is not just about supporting the work of British companies in the project, but that, put simply, UK energy security is intrinsically linked to European energy security.For many years the UK has been self sufficient in hydrocarbons from our North Sea and Continental Shelf reserves. More than that, we were a net exporter of both oil and gas to Europe and continue to invest about US$5 billion per year on developing our reserves. However, those reserves are now in decline and the UK is facing a new prospect - that of import dependency. The transition from being a net exporter to net importer of energy resources brings new challenges for Government. This is particularly true for a country which traditionally takes the view – as the UK does - that there is a strategic role for Government in setting the regulatory framework, to create the climate for investment as it were, but that this is distinct from the role of industry, or the market, who are best placed to respond to consumer demands. In a globalised world, the UK believes that diversification of sources, routes and types of energy supply is the most effective way to ensure our energy security. Consequently, we have engaged in a major effort to enable and encourage the private sector to provide the infrastructure required to deliver that diversification. Domestically we have passed new legislation to facilitate the planning and construction of new energy infrastructure and, looking specifically at gas, we have prioritised increasing our LNG import capacity and pipeline links to Norway.

 

In addition to our traditional supply routes the UK now imports gas directly from places as afield as Egypt, Algeria, Qatar and Trinidad & Tobago. The disruption of gas supplies to Europe in January served to show both the vulnerability of countries that depend on any one supply route, and the speed with which governments and industry can respond in a crisis.  In the parts of Europe where the market operated effectively, gas moved west to east and south to north to try and reach those in most need.  The UK played its part in this and became, in effect, a transit state with Norwegian gas flowing through our pipes to reach the continent.    So our energy security is clearly linked to that of the rest of Europe, and we stand firmly behind the European Commission in pressing for increased transparency and interconnection within Europe and increased diversification of sources and routes of gas supply beyond Europe’s borders. It is in this context that the Southern Corridor is vital. 

 

Pipelines bringing Azeri gas and oil through Turkey and the Balkans into the heart of Europe will benefit producer, transit and consumer states alike. Of course, it is a long term project, and has its challenges, but the political, social and economic benefits of delivering the Southern Corridor are more than worth the effort. How Government and industry must work together to make the Southern Corridor a reality. As I have already said, there are challenges to creating the Southern Corridor both political and, in the current climate, financial, but they can be overcome if governments and industry work together to make it happen: yes it will be hard, but the Southern Corridor can and should be fully developed.

 

Recent history offers proof of this. The so-called ‘Contract of the Century’ - signed fifteen years ago in 1994 – is an excellent example of successful cooperation between government and industry. This has enabled Azerbaijan not only to develop its own economic base, but also to play a critical role in the development of the wider region as an energy partner of Europe and Asia. We have also witnessed the implementation of other major international pipeline projects: the BTC is shipping almost a million barrels of oil per day from Baku to Tbilisi and on to Cejhan, and gas is being piped from Baku to Erzurum in Turkey; neither of which would have become reality if the creators of the BTC and the SCP had listened to their detractors. The UK’s experience of developing our hydrocarbon resources and building the links necessary to get them to markets suggest that where there is a concerted will, there is usually a way to be found to deliver the necessary infrastructure and investment. From the licensing of offshore reserves to foreign companies and the demarcation of offshore rights with other countries; to the balance between national security and market operation: the over- riding lesson from the UK experience is that provided the political will is in place, anything is achievable.

 

 

With this is mind, the UK has, and will continue to, champion the Southern Corridor both in Europe and along the Corridor itself. I have just come from Ankara where I held meetings with government and business, and we are also pursuing programmes of active engagement with Azerbaijan, Turkmenistan and Kazakhstan. We are also closely engaged with the International companies, including British businesses, investing in the region. Companies such as BP, Shell, BG and Amec whose investment and technological expertise underpin the long term development of the region’s resources on which its future commercial success depends. It is the role of government to create and maintain the conditions that attract, protect and sustain investment, especially for long-term projects such as the Southern Corridor. Specifically governments must: Establish comprehensive and long-term energy policy setting out clearly how sovereign resources such as hydrocarbons can be exploited, and the role of state-owned and private companies in that exploitation.

 

Put in place clear and stable regulatory frameworks to implement and enforce that policy, giving investors confidence that a robust, non-discriminatory legal structure will protect their investments and partnerships.  Support open and well-functioning markets within that framework backed up by a climate of transparency that allows companies to make informed decisions about where, when and with whom to invest. Azerbaijan is well placed to be a leader in the region on transparency as one of the few nations to sign up to the Extractive Industries Transparency Initiative. Be prepared to seek innovative solutions to key challenges. The European Commission’s ‘Caspian Development Corporation’ concept is to be welcomed in this context. The devil will be in the detail, but the UK supports the initiative as another example of how, with political will, governments and international institutions can help find answers to challenges.

 

How the energy sector must respond to meet growing consumer demand for energy as finite natural resources decline. I have talked about long term strategies, and long term investment, and the importance of government and industry working together to identify and address difficult challenges. Meeting the twin challenges of increased global demand for energy in a world of finite fossil fuel resources and at the same time adapting our economies, businesses and lifestyles to a low carbon world is not a job for governments alone.  As Lord Stern said in his 2007 report on the economics of climate change – it is the companies who act now to respond to the challenges of climate change, who innovate and find new solutions to new challenges, who will succeed in the long term. Nowhere is this more true than the energy sector. Oil and gas will continue to be important for the foreseeable future, but the international energy industry has a key role to play in providing the technical expertise to deliver increased energy efficiency, making finite resources go further and to develop alternative and renewable energies to provide the low carbon power of the future. I am looking forward to learning more about the recently announced

 

State Agency on Alternative and Renewable Energy Sources to be set up here in Azerbaijan. So, there are many reasons why the Southern Corridor matters, why is it of vital importance for Europe to support our energy security, for the countries of the Corridor to maximise the benefits of your natural resources and for the companies who will deliver the pipelines to meet their customers’ needs.  It is only when we all work together that we can make this challenging project a reality. 

 

Thank you very much for your attention.

 

 

 

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