# EUR-Lex - 52013DC0638 - EN

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# 52013DC0638

**REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Implementation of the Communication on Security of Energy Supply and International Cooperation and of the Energy Council Conclusions of November 2011 /* COM/2013/0638 final */**

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REPORT FROM THE COMMISSION TO THE
EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE

Implementation of the Communication on
Security of Energy Supply and International Cooperation and of the Energy
Council Conclusions of November 2011

This report reviews the main achievements
regarding the external aspects of the EU energy policy since 2011. It was
prepared by the Commission services in cooperation with the European External
Action Service.

1.           Introduction

Secure, sustainable and competitive energy
is of fundamental importance to the EU economy, industry and citizens.
Achieving these policy objectives requires EU action internally and the
appropriate instruments to promote EU interests abroad.

To strengthen the external dimension of the
EU energy policy, the Commission adopted on 7 September 2011 a Communication on
security of supply and international cooperation: "The EU Energy Policy:
Engaging with Partners beyond Our Borders"[1].
The Communication set out for the first time a comprehensive external energy
policy and outlined 43 specific actions to be implemented. This proposal
responded to the request of the European Council on 4 February 2011 to further
improve the consistency and coherence of external action in the field of
energy, in view of its contribution to achieving EU energy policy objectives.

The external energy strategy set in 2011
has provided a significant momentum for a number of EU initiatives in this
field. The EU security of supply has been strengthened through efforts to
develop and deploy indigenous renewable energy sources, to improve energy
efficiency and to diversify external energy sources, supplies and routes and by
maintaining mutually-beneficial cooperation with Europe's existing suppliers. Recent
developments as regards the route selection for the Southern Corridor have put
the EU one step closer to establishing a direct link with a resource-rich
Caspian region. Close cooperation continued with Russia, reflecting its key
role as the EU energy supplier, and priority has also been given to the modernisation
of the Ukraine gas transmission system – the main corridor for deliveries of
Russian gas to the EU. In the context of the global developments, such as shale
gas and oil production in the US and new discoveries in the Eastern
Mediterranean and Africa, EU's diversification efforts will continue. Further
improvement of infrastructure interconnections with neighbouring countries will
be important in this context. The first EU list of projects of common interest will
include some links to non-EU countries and future consideration will be given
to interconnection capacities with third countries in support of the
establishment of a truly pan-European energy market.

Other than energy security, sustainable
energy policy, promotion of renewable energy and energy efficiency, as well as
technology research and innovation efforts have been at the heart of the EU
cooperation with most partner countries and within the international
organisations. There have been substantial developments in these fields in many
EU partner countries, and the EU has been well-positioned to share its
regulatory experience and policy approaches. These topics have been equally
important in the relations with consumer countries such as China, but have also grown in prominence in EU discussions with producer countries, including the
Southern Mediterranean countries and traditional suppliers like Saudi Arabia.

The EU has continued to promote
transparent, competitive and liquid global energy markets throughout all of its
cooperation efforts. Key principles for trade and investment, such as
non-discrimination and market access, have been and continue to be negotiated
in bilateral agreements and multilateral legal frameworks. This has been
complemented by initiatives such as the cooperation with Japan on developments in global gas markets, discussions within the EU-US Energy Council on
US LNG exports as well as efforts to enhance the industrial cooperation in the
energy field in many of the EU's dialogues. Actions contributing to improving
the EU competitiveness will remain a crucial part of the EU energy dialogues. EU
competitiveness vis-à-vis its global economic counterparts will be a major part
of the analysis on evolution of energy costs and prices currently under
preparation by the Commission at the request of the May 2013 European Council.

The Council Conclusions on the external
dimension of the EU energy policy[2],
adopted in November 2011, invited the Commission to present a report on the
implementation of the strategy by the end of 2013. The purpose of this Report
is to inform the Council and the Parliament about the progress in the
implementation of the priorities outlined in the Commission Communication and
the November 2011 Council Conclusions. This Report is also an input for the
discussion among Member States on developments in the EU external energy
policy, in line with the agreement of the European Council of May 2013 that
Member States will enhance their cooperation in support of the external
dimension of EU energy policy, given the growing linkages between internal and
external energy markets.

2.           Factors affecting EU
external energy policy priorities

When the Commission proposed the external
energy policy priorities in September 2011, the key factors in setting the EU
priorities were the growing share of emerging economies in global energy
demand, the increasing EU import dependence and the need for global action to
address climate, environmental and competitiveness concerns.

Two years on, these global developments
remain broadly valid and in some cases have become more important. The growth
in demand in emerging Asia and other parts of the world has been unrelenting,
driving the eastward shift in global energy trade flows. China and India accounted for nearly 90% of the net increase in global energy consumption in 2012[3] and by 2035 are projected to
see their respective energy demand growing by approximately 60% and 100%[4]. In view of this consumption
growth, emerging countries are starting to play a more active role in global
energy discussions and this will inevitably contribute to evolution in the
global energy governance. The geopolitical implications of these developments
and their impact on EU energy security and foreign policy interests need
further assessment.

Current projections still see the EU
relying on energy imports in the future, over 90% of total EU oil consumption
and over 70% of total EU gas consumption. A global climate agreement has not
yet been reached, but many countries are now implementing domestic action in
areas like energy efficiency and renewable energy, including energy intensity
and consumption targets in China, renewable portfolio standards in most US states, the mandatory trading system for energy efficiency obligations in India or renewable energy and energy efficiency targets in Turkey. To the extent that the
international climate change negotiations include an energy policy dimension, EU's
external energy should strive to lend support to these international negotiations
in its contacts with the main energy consumer countries.

The situation in the Middle East and North Africa continues to be volatile and this affects the energy markets. The geopolitical
situation has tempered the speed and the depth of the EU energy cooperation
with the countries in the region, while confirming that pragmatic and targeted
actions will be needed.

The Fukushima accident has heightened the
calls to ensure the highest nuclear safety standards globally, while at the
same time resulting in nuclear energy being taken off the list of low-carbon
options in some countries. It has led to increased cooperation on nuclear
safety with our existing partners and in international efforts such as in the
context of the International Atomic Energy Agency (IAEA).

Perhaps the most significant development in
the past two years has been the steep increase in unconventional oil and gas
production in North America. Competitive unconventional gas displaced coal in
the US power sector, contributing to a decrease in the country's greenhouse gas
emissions of 3.8% in 2012, approximately half as a result of this switch[5], and providing particularly the
  US energy-intensive industries (e.g. petrochemical, refining, aluminium and
steel) with a distinct competitive advantage. In Europe, coal demand grew in
2012 by 2.8% compared with an average 1.3% decline over the last decade. This
development resulted in greenhouse gas emissions increasing in some EU Member
States like Germany and the UK[6].
Differences in final gas and electricity prices in American, European and Asian
markets have led to concerns about the EU's competitiveness. Potential U.S. exports of natural gas and oil have also started to raise questions about the implications on
the U.S. foreign policy priorities and its role in global energy markets. More
than anything, these developments confirmed that energy markets are
interconnected and the EU energy policy has to take account of what is
happening outside its borders as much as it does to its internal developments.

Shale gas potential in other countries
raised new perspectives in global energy markets at the same time as new
suppliers of conventional fossil fuels are also emerging from Eastern
Mediterranean to East Africa. These new potential sources might have a growing
role in the EU’s diversification strategy in a medium-term future. Furthermore,
the implications of these developments on the energy and foreign policy
considerations of other major gas and oil exporters such as Russia, Qatar, Iraq and others will have to be further considered.

In this continued complex reality, energy
security, competitiveness and sustainability will continue to drive the EU's
external energy priorities.

3.           Coordination of the
external dimension of the EU energy policy

To improve the coherence and coordination
at the EU level on messages towards specific partner countries, a number of
follow-up actions were proposed by the Commission, including on increasing
cooperation between Member States on their intergovernmental agreements (IGAs)
with third countries. The proposal for an information exchange mechanism on
such agreements accompanied the Commission Communication in September 2011.
Following negotiations between the co-legislators, the Decision of the
Parliament and of the Council to establish the mechanism was adopted on 25
October 2012[7].

Transparency on
intergovernmental agreements

The information exchange mechanism with regard to intergovernmental
agreements (IGAs) between Member States and third countries in the field of energy
(Decision 994/2012/EU) entered into force on 17 November 2012. It foresees the
obligation for the Member States to submit their existing legally binding
agreements having an impact on the operation or the functioning of the internal
energy market or on the security of energy supply and their new agreements,
once ratified. The agreements are then shared with other Member States, taking
into account any confidentiality concerns. The mechanism also allows Member
States to inform the Commission of their on-going IGA negotiations, agree to
Commission participation in such negotiations and ask for a compatibility check
of a draft IGA.

Since the adoption of the mechanism, a secure database has been
created. The Commission has so far received 114 IGAs, analysed them for their
compatibility with the EU legislation and raised a limited number of cases with
the Member States concerned. Most IGAs have been shared in their entirety with
other Member States.

The review of the IGAs submitted so far has allowed the identification
of a few provisions where a higher risk of incompatibility with the EU
legislation exists. Before the end of 2013, the Commission will organise an
information exchange meeting with Member States on the lessons learnt from the
agreements submitted, common problems identified and possible actions to
mitigate incompatibilities.

In addition to this legislative instrument, other initiatives have
been taken to increase the exchange of information between the Member States on
issues pertinent to external energy relations. Monthly discussions take place
in the Council's Energy Working Party, where the Commission updates the Member
States on the EU activities and important meetings and where EU positions, when
these are required, are prepared. The Gas Coordination Group has facilitated
coordination of security of supply measures at the EU level and had exchanges with
supplier, consumer and transit countries, such as Russia, Ukraine, Algeria,
Switzerland, the US and Canada. As in the past, the formal meetings of the
Energy Council include an agenda point on international energy relations, which
allows information sharing and discussion at a Ministerial level. At the
meeting of the European Council in May 2013, Member States committed to enhance
their cooperation in support of the external dimension of EU energy policy and to
review developments regarding the EU's external energy policy.

The frequency of discussions on external
energy policy has also increased in other Council formations and Council
working parties and informal networks, such as the Political and Security
Committee, the informal network of the Director Generals on Global Issues of
the EU Foreign Affairs Ministries and the geographical Council Working Groups.
Notably, external energy policy was on the agenda of the Foreign Affairs
Council in July 2012 and April 2013, with EU Foreign Ministers showing a strong
interest in identifying ways of how foreign policy can support the EU energy
policy objectives.

To provide a forum where strategies and
initiatives vis-à-vis third countries could be discussed in greater detail, the
Commission established the Strategic Group for International Energy
Cooperation. The aim of this Group, which includes the participation of Member
States' Energy and Foreign Affairs Ministries and the European External Action
Service (EEAS), is to identify and discuss common priorities, which could lead
to development of joint initiatives and positions vis-à-vis third countries and
regions. The Strategic Group has met fives times since its establishment in
2012 and has discussed relations with China, Ukraine, the Southern
Mediterranean, the U.S. and the Eastern Partnership. This permitted a better
shared understanding of common priorities and next steps in energy cooperation
with these partners. However, the work of the Strategic Group could benefit
from strengthened exchange of information between Member States on their
activities in third countries, which has been limited so far.

There is already an existing practice of
regular EU coordination meetings in Brussels and sometimes locally ahead of
meetings of the governing bodies of the Energy Community, the Energy Charter
Treaty (ECT), the International Energy Agency (IEA) and the International
Renewable Energy Agency (IRENA). An EU approach is particularly necessary on
questions of strategic importance for these organisations, for example the IEA
association process and the ECT modernisation and outreach. Although no formal
EU coordination between participating EU Member States and the Commission takes
place in the context of the International Platform for Energy Efficiency
Cooperation (IPEEC), International Energy Forum (IEF), Clean Energy Ministerial
(CEM) and G8/G20, in some instances informal exchanges do take place. A more coordinated
approach would contribute to the EU playing a strong and effective role in the
global energy discussions and organisations.

All these efforts have benefited from a
close working relationship between the Commission and the EU High
Representative of the Union for Foreign Affairs and Security Policy and the
EEAS.

While the efforts described-above have
introduced a greater level of transparency on EU activities, a significant
knowledge gap still exists regarding Member States' own energy activities in
third countries. An increased use could be made of EU Delegations for reporting
and analysis and local energy counsellors' networks could also be strengthened.
Efforts to increase information sharing and to pursue common objectives on
issues of EU strategic importance would be beneficial for a successful
implementation of the EU external energy objectives.

4.           Strengthening the EU
cooperation with neighbouring countries

A key place in the EU external energy strategy has been accorded to
relations with countries in the EU's immediate neighbourhood, in line also with
objectives of the EU Neighbourhood Policy. While energy market integration and
regulatory convergence remains a shared objective with several of our
neighbours, the pace of progress in integrating the regulatory frameworks and
physical infrastructure takes time, as it depends both on the pace of internal
reforms and on the negotiation and implementation of complex legally-binding
agreements. This has required a differentiated approach.

With Switzerland, the negotiations on an electricity
agreement started in 2007 and have yet to conclude. Both sides are currently
trying to revive the process, with the aim of concluding an electricity
agreement in 2014, which is needed to continue the participation of Swiss
energy companies in the harmonised EU electricity market. In addition to issues
such as a level playing field regarding state subsidies, implementation of
transparency rules and other technical issues, institutional questions, notably
on a neutral arbitration instance for legal disputes, will be crucial for the
conclusions of the agreement.

The Energy Community, with the
accession of Ukraine and Moldova in 2011, Georgia's recent application for
membership and observership of Armenia, Norway and Turkey, has continued to be
a key instrument for extending the EU's internal market to its neighbourhood.
In the last two years, the Ministerial Council has enlarged the Energy
Community acquis to include the rules of the Third Package on the internal market
for electricity and gas, Directive 2009/28/EC on promotion of renewable energy,
Directive 2009/119/EC on oil stocks and Regulation 2008/1099/EC and Directive
2008/92/EC regarding statistics. Moreover, steps are being taken towards
adopting the Energy Efficiency Directive 2012/27/EU and the Industrial
Emissions Directive 2010/75/EU . In addition to expanding the acquis covered by
the Energy Community, the activities over the last two years have focused on
achieving tangible progress in the integration of the Contracting Parties' gas
and electricity networks through more intensive monitoring and enforcement of
the legal provisions on interconnection, third party access and cross-border
exchanges.

Active promotion of a limited number of key
investment projects that are necessary to increase cross-border flows and
security or supply and to overcome the current situation of underinvestment has
been the main focus of the infrastructure work. The list of Projects of Energy
Community Interest (PECI) should be adopted by the Ministerial Council in
October 2013 and includes projects of major regional interest and cross-border
impact. Extensive public consultation resulted in 100 proposed projects, out of
which 33 were put on the PECI list.

Finally, preparatory work has been finished
to allow for a decision on the extension of the Energy Community Treaty beyond
2016, as the Treaty was initially foreseen for a period of 10 years, and on
setting up a High Level Reflection Group to assess its functioning and possible
improvement.

The Eastern Partnership is another
framework that seeks to enhance energy security in the EU and its Eastern
partners while contributing also to the objectives of sustainable development
and competitiveness. The activity of the Eastern Partnership Platform on Energy
Security has continued through regular meetings, twice a year, complemented by
specialised workshops and site visits to energy facilities. It focuses on
information sharing with the aim of raising awareness of best practices, for
example in the fields of energy efficiency and electricity market design, in
the Eastern Partnership countries.

Bilateral cooperation was another important
route for relations with many of our neighbours. Implementation of the
Memorandum of Understanding in the field of energy continued to be an important
part of the EU-Ukraine Association Agenda, which prepares for the
Association Agreement with Deep and Comprehensive Free Trade Area.

The EU attaches great importance to
ensuring the reliability and transparency of the Ukrainian gas transmission
system and the Commission has continued its active support to the upgrading of
the gas transmission infrastructure in Ukraine and to ensuring that it remains
a key part of the pan-European energy network. Efforts have been pursued on a
trilateral solution concerning gas supplies from Russia to the EU via Ukraine. Ukraine however also has an opportunity to increase its energy security by
diversifying sources of supply and develop beyond its important traditional
role as a transit country due to its extensive pipeline network, conventional
and unconventional gas resources, and important gas storage facilities which
constitute an important asset for energy security in the region. Specific
actions were taken in order to enable reverse gas flows from the EU to Ukraine. A precondition is the development of a non-discriminatory and stable legal and
regulatory framework in line with Ukraine's Energy Community commitments.

This was the theme of a High Level
Roundtable on the evolution of the Ukrainian gas market that was convened in
May 2013 by the European Commissioner for Energy and the Minister of Fuel and
Energy of Ukraine. It was agreed that a group consisting of representatives of
the Commission and Ukrainian authorities, the Energy Community Secretariat, the
concerned EU Member States and interested companies and financial institutions
would be established to provide a forum to support the continuing process of
gas sector reforms in Ukraine.

In Moldova, through different instruments
such as Budget Support and Technical Assistance, the EU is supporting the integration
of the Moldovan Energy market into the EU energy market, both for the gas and
electricity sectors. The EU is currently supporting the construction of the
gas-interconnector between Moldova and Romania which will be able to transmit
gas in both directions. In general, the EU is supporting the ongoing reform
process taking place in the energy sector following Moldova's accession to the Energy
Community Treaty in 2011

In October 2012 the Energy Community
published its "Annual Report on the implementation of the acquis under the
Treaty establishing the Energy Community" which, for the first time,
included Ukraine and Moldova.

In the framework of the positive agenda for
the EU-Turkey relations, it was agreed to enhance energy cooperation,
focusing on long term planning, market integration and infrastructure
development, sustainable energy policy and technologies, and nuclear safety and
radiation protection. Two meetings, one on electricity and the other on gas,
have been held in February and April 2013 respectively. The next meeting will
address cooperation in energy efficiency and renewables and is currently
planned for autumn 2013. Aiming at facilitating the eventual integration of the
EU and Turkey energy markets, this cooperation can also contribute to
increasing the security of energy supply and to creating business opportunities
for both sides.

Countries in the Caspian region, with
their abundant natural resources and their strategic geographical position in
the wider EU neighbourhood, hold an important potential for diversifying Europe's energy supply and transit routes, in particular regarding gas supplies. In line
with the 2011 Declaration on the Southern Gas Corridor, the EU has continued to
work closely with the countries and the companies in the region towards the
opening of the Southern Gas Corridor. Significant progress was made in
view of the realisation of this strategic project for the EU in 2012 with the signature
of an Inter-Governmental Agreement between Turkey and Azerbaijan on the Trans-Anatolian Pipeline (TANAP) and its subsequent ratification. On 28
June 2013, the Shah Deniz II consortium announced its decision to choose the
Trans Adriatic Pipeline (TAP) as the European evacuation route for its gas in
the Southern Gas Corridor. The final investment decision is expected before the
end of 2013, with the first gas flowing to Europe by January 2019.

The EU will continue to work with Azerbaijan as well as countries in the Caspian Region on the expansion of the Corridor and
the further increase of supplies, with the aim of supplying at least 10% of
European demand in the medium term through this Corridor. The Commission is
actively supporting further integration of the markets of South East Europe in
this context.

The Commission received negotiating
directives by the Council in September 2011 to negotiate a trilateral agreement
with Turkmenistan and Azerbaijan on the construction of the Trans-Caspian
Pipeline (TCP) and discussions are on-going. The Commission has been working
closely with the EU High Representative and her Special Representative for
Central Asia in communicating the strategic importance of the TCP to the
countries in the region, including Russia. The Commission, in cooperation with
the World Bank, has launched an Environmental Scoping Study on the TCP to
address concerns expressed by littoral countries of the Caspian Sea regarding
potential environmental consequences of such as a pipeline. This study is
expected to be completed early 2014.

The energy dialogue with Russia has remained intensive and energy relations are regularly discussed at the
highest levels, including the EU-Russia Summits. Constructive exchanges led to
the adoption of the EU-Russia Roadmap 2050 in March 2013.

Since early 2012, constructive negotiating
sessions have been regularly taking place between the EU and Russia on the electricity agreement to improve the coordination between the
synchronised power systems of the Baltic States, the Russian Federation and Belarus and to allow the Baltic States to implement the internal market rules for electricity. These
negotiations should be finalised in the near future.

The EU-Russia Early Warning Mechanism in
the field of energy, which provides for joint actions aimed at overcoming an
emergency situation, mitigating its consequences and preventing such situations
in the future, was updated in February 2011.

Discussions with Russia are also taking
place in relation to the implementation of the Second and the Third Packages[8] in the EU and the Energy
Community, such as unbundling in Lithuania, the OPAL exemption, etc...
Pragmatic solutions are being considered, as has been the case for the Yamal
pipeline in Poland.

There is uncertainty about the long-term
legal framework for relations between the EU and Russia: while the need for
legal clarity is manifested by the growing number of energy-related cases
between the EU and Russia, the positions of the two sides concerning the energy
chapter of a new overall legal framework, the New Agreement, still vary
significantly.

EU-Russia Roadmap 2050

Over the course of 2011 and 2012, the European Commission and the
Russian government have cooperated on the EU-Russia Energy Roadmap until 2050
in order to establish a long-term cooperation perspective and to achieve a
tolerable level of uncertainty in their energy relations. The Roadmap for the
EU-Russia Energy Cooperation until 2050 was signed by Energy Commissioner
Oettinger and Energy Minister Novak in March 2013.

The adopted Roadmap represents the strong common interests and
benefits underpinning the EU-Russia energy relations. It sets the strategic
target of creating a common Energy Space by 2050, with a functioning integrated
network infrastructure, with open, transparent, efficient and competitive
markets, making the necessary contribution to ensuring energy security and
reaching the sustainable development goals of the EU and Russia.

The Roadmap is a forward looking, living document, covering a large
range of issues central to energy relations between the EU and Russia. In particular, it addresses cooperation on energy efficiency, as well as in the
electricity, gas, oil and renewables sectors. In each of these areas, the
Roadmap makes specific recommendations for a series of steps to enhance
EU-Russia energy cooperation over the coming decades.

The recommendations and concrete actions proposed by the Roadmap
will be monitored – and revised – in the framework of the EU-Russia Energy
Dialogue and recommendations established will be taken into account in the
respective work programmes of all the Thematic Groups under the EU-Russia
Energy Dialogue. This will allow for a thorough monitoring of the
implementation in all the areas of bilateral energy cooperation.

The EU has been fully engaged in the
transformation process in the Southern Mediterranean, as outlined in the
March 2011 Joint Communication[9]
"A Partnership for democracy and shared prosperity," in mobilising
significant additional resources, offering increased trade and market
opportunities and stepping up its engagement with civil society. Creating a regional
EU-Mediterranean Energy Partnership, initially focused on electricity and
renewable energy, was among the key proposals of the 2011 external energy
strategy. With the countries in the region facing a very difficult political
context and internal challenges, a multilateral regional energy regulatory framework
remains a longer term objective.

Progress nonetheless has taken place on
various fronts. Important budget support programmes aiming at energy sector
reforms and twinning programmes are implemented in several countries of the
region. The negotiations have started with Morocco on a Deep and Comprehensive
Free Trade Agreement (DCFTA) that includes a substantial energy chapter, with
two negotiating rounds so far in 2013. Signature of a Memorandum of
Understanding on energy with Algeria in July 2013 should boost cooperation with
this key supplier country. EU support is provided to projects in power
generation and transmission through various financing instruments and in close
cooperation with the international financial institutions.

A Mediterranean Energy Ministerial Council,
the first of such meetings since 2007, is scheduled to take place in Brussels in December 2013. The Council could provide an opportunity to endorse the
Mediterranean Solar Plan and discuss the project of establishing a
“Mediterranean energy community”.

The discoveries of natural gas in the Levant Basin offshore Israel and Cyprus in 2009 and 2011 respectively have opened new
perspectives to the Eastern Mediterranean region and could possibly allow some countries
in the region to turn from net importers of gas to gas exporters. The EU is
following the current developments regarding the ongoing exploration activities
in the East Mediterranean basin. Close cooperation between the EU and
the countries in the region will be key in order to make the most of the
region's gas potential. Moreover, the choice of routes, the means of transporting
and the selling price will be determinant to potential EU gas imports from this
region. In this sense, on top of the options already being assessed, such as an
LNG terminal in Cyprus and a pipeline from offshore Cyprus to Greece via Crete,
all potential routes should be considered and assessed from an energy security
point of view.

An energy dialogue with Israel has been established to promote cooperation on issues related to EU gas market
access, gas pricing and infrastructures, but also on cooperation in research,
promotion of renewable energy development, deployment of smart grids and demand
response management. As Lebanon will start explorations soon, the EU is set to
play an important role in providing technical support and capacity building. The
EU will also have a role in regional cooperation to safeguard the highest
levels of off-shore hydrocarbon exploration and environmental safety.

Improved interconnections with neighbouring
countries continues to be an important EU objective. The first list of projects
of common interest will be adopted in autumn 2013, as a part of the
implementation of the recently adopted Guidelines for trans-European energy
infrastructures[10].
This list is expected to include some projects to establish links to non-EU
countries. Future consideration will also be given to improving infrastructure
interconnections with third countries and developing a truly pan-European
market.

Moreover the EU supports a wide range of
investments in the energy sector: through the Neighbourhood Investment Facility
(NIF) the Commission has already contributed € 150 million to finance
investment grants or technical assistance in the ENP region in this sector,
enabling European Financing Institutions loans for app. € 2 billion EUR. It
also provides technical assistance and promotes regional energy cooperation
through several programmes such as INOGATE[11]
and the Covenant of Mayors[12].

5.           Deepening energy
partnerships with suppliers and consumers

Developments over the last two years on global energy markets demonstrated
that the EU should continue to promote transparent, competitive and liquid
global energy markets in its relations with energy suppliers. The EU should
also stay open and flexible to cooperation with emerging new suppliers that are
interested in accessing the EU market.

With respect to cooperation with energy suppliers, the EU's
efforts continued to be concentrated on relations with traditional suppliers,
particularly with Russia. EU relations with Norway achieved a new
milestone in 2012, as exports of natural gas from Norway to the EU have risen
to levels comparable with Russian natural gas exports. Beyond its role as an
energy supplier, Norway, linked to the EU through the European Economic Area
(EEA), has continued to be a special partner for the EU. Continued positive
cooperation has been promoted through the annual EU-Norway Ministerial
meetings, complemented by specialised meetings such as the EU-Norway conference
on the role of gas which took place in March 2013. It is important that the EEA
and the European Free Trade Association States, including Norway, transpose and apply the Third Energy Package as soon as possible.

Political-level outreach to suppliers in the Middle East has
increased in the last two years through direct informal talks with countries
like Saudi Arabia and Qatar and the Energy Commissioner’s participation in high
level events like EU-OPEC Ministerial meetings and the International
Energy Forum Ministerial. While the backbone of EU relations with energy
suppliers are contractual relationships between commercial operators, building
trust at the political level and targeted cooperation in areas of particular
interest for our partners could facilitate commercial relations. Examples of
recent working-level activities include the joint EU-OPEC roundtable on the
safety of the offshore oil and gas industry, which was held in November 2012,
and cooperation on energy efficiency with the League of Arab States and
individual countries like Saudi Arabia.

Energy producers in Africa, for example
 Nigeria and Angola are already important suppliers, including to the EU. With
new oil and gas discoveries on the continent, its importance in energy supply
and for the EU energy security is likely to grow. The EU will continue
monitoring these developments and appropriately taking them into account in its
cooperation efforts.

More concrete progress could be seen in the development of
cooperation with consumer countries, especially that with China. Energy is now among the top issues in the EU-China relationship, raised to
this level by the successful EU-China High Level Meeting on Energy that took
place in May 2012 and which brought together key policy-makers on the Chinese
side with the Energy Ministers of the EU Member States and the European Commission[13]. Energy security is a new area
for cooperation agreed at the High Level Meeting, opening a possibility for
strategic discussions with our Chinese counterparts with the aim to ensure
safe, stable, secure and sustainable global energy markets. The EU-China
Urbanisation Partnership was also launched at the High Level Meeting. While its
scope is broader, issues related to energy supply, efficiency and planning play
an important part. Energy cooperation with China is also supported by the
EU-China Innovation Cooperation Dialogue.

The priorities of the new Chinese
government fit well with the EU defined priorities for energy cooperation with China. This has resulted, at the working level, in an exponential stream of activities,
including on electricity regulation, gas market development, long-term
planning, global energy governance, and on nuclear safety and a possible
Euratom agreement further to the enforced bilateral agreement for R&D
Cooperation in the Peaceful Uses of Nuclear Energy. Energy cooperation with China will be an important element of the document outlining priorities for the EU-China
Strategic Partnership, to be adopted at the next EU-China Summit.

EU-China Urbanisation Partnership

Launched in May 2012 by then-Vice Premier Li Keqiang and the Commission
President Barroso, the EU-China Urbanisation Partnership is an open political
platform for the European and Chinese stakeholders to cooperate and share
experiences in addressing economic, social and environmental challenges of
urbanisation. With the level of urbanisation in China expected to rapidly
increase from today's level of 50% and three quarters of European population
living in an urban context, both partners are striving to develop innovate
approaches to urbanisation.

The Partnership is the first instrument of this kind. It spans
numerous sectors such as sustainable urban planning, energy supply and demand
management, mobility, green buildings and urban governance. It also involves a
variety of stakeholders including local authorities, enterprises,
non-governmental organisations, think tanks and industry associations.

The Partnership is implemented through an annual Urbanisation Forum,
which includes a number of thematic sub-fora and an Exhibition on Sustainable
Urbanisation. It also encompasses private and local initiatives. The
Partnership is intended to build on existing cooperation activities and to
foster new ones, realising synergies where possible.

With the U.S., cooperation continued
through the annual meetings of the EU-US Energy Council and its three working
groups on energy security, energy technologies and energy policy. Regular
discussions addressed subjects like global oil and gas markets, developments in
the EU's neighbourhood including the Southern Gas Corridor, energy efficiency,
carbon capture and storage, smart grids, offshore and nuclear safety. Priority
areas tackled through the research cooperation also included smart grids and
storage, as well as hydrogen and fuel cells technologies, materials for energy
and nuclear fusion. Concrete initiatives to enhance lab-to-lab cooperation
between the Joint Programmes for the European Research Alliances, the JRC and
respective U.S. energy programmes, labs and agencies have also been undertaken,
with major issues like reciprocity still remaining to be tackled..

However, with the sharp increases in the US unconventional oil and gas production, a new dynamic is emerging in the EU-US energy
relations with the focus also on bilateral trade issues and industrial
competitiveness. The recently launched negotiations on the Transatlantic Trade
and Investment Partnership could play an important role in setting common rules
concerning trade and investment in energy and raw materials. These could
subsequently contribute to the development of global rules and standards.

Following the March 2011 triple disaster,
leaders from the EU and Japan called for enhanced energy cooperation.
Cooperation is currently underway on electricity market reform as Japan prepares legal proposals in this field and on gas markets, with a view of sharing
analysis on recent developments and discussing ways governments could support
the transition towards a more liquid and flexible global gas market. First
contacts have been taken to establish regular exchanges on nuclear safety, and
research cooperation is steadily increasing in reactor safety and emergency
management, as Japan re-evaluates its energy strategy and related research
priorities..

A Joint Declaration on enhanced cooperation
on energy with India was adopted at the EU-India Summit in February
2012, focusing on clean coal production and utilisation, energy efficiency in
products and buildings, smart grids and renewable energy. Activities have
started in most of these areas and the EU-India Energy Panel meets annually to
supervise cooperation and exchange views. Energy is also one of the thematic
priorities of the Indo-European partnership launched in 2012.

In the context of the EU-Brazil
energy cooperation, in place since 2007, a good understanding has been reached
at the energy policy dialogue meeting in 2013 to expand exchanges on
sustainable energy and to jointly develop the conditions for transparent
marketing of biofuels. Active joint research in sustainable biofuels has been
established and should be scaled up in the coming years.

On the multilateral side, the EU has
continued to support the Energy Charter as an important framework for
legally binding rules for energy trade, transit and investment. The EU has been
a vocal supporter of the Energy Charter policy of consolidation, outreach and
expansion, approved in July 2012, as well as its intentions to modernise the
1991 Energy Charter Declaration.

The EU has already negotiated comprehensive energy specific rules in
a number of Free Trade Agreements. Energy specific negotiations are
finalised with Ukraine, Moldova, Georgia and Armenia; are on-going with the US, Russia and Morocco; and will start with Azerbaijan and probably Mexico. Energy issues are also
important in a horizontal manner in trade negotiations with Canada and Kazakhstan and concerning green technology with ASEAN countries.

As noted earlier, the Fukushima nuclear
accident has led to EU calls to promote the highest level of nuclear safety
and security globally through both bilateral and multilateral frameworks. EU
neighbouring countries were invited to participate in the EU stress tests and
the peer review process, with Switzerland, Ukraine and Croatia, before its EU accession, fully participating. Other neighbouring countries (e.g. Turkey, Belarus and Armenia) agreed to work on the basis of the same methodology but within
different timetables, while Russia carried out its own assessments. Further to
these reviews, assistance to certain countries from the Instrument for Nuclear
Safety Cooperation is planned.

Necessary steps are also being taken to reflect nuclear safety in
the Euratom bilateral agreements, such as the on-going revision of the
agreement with Canada and the new agreement with South Africa, preliminary
exchanges with Russia and in future possible discussions with China and South Korea.

In the multilateral context, the EU actively participates in the
International Atomic Energy Agency (IAEA) efforts, with the Euratom providing
its input and experience in the preparation of proposals for the next 6th
Review Meeting of the Convention on Nuclear Safety, scheduled for March-April
2014. Bilateral cooperation between the EU and the IAEA has been enhanced with
the establishment of a new cooperation mechanism in January 2013, bringing
together senior officials for discussions relating to nuclear technologies,
including the safety and security of nuclear energy production and research
activities.

With a new legal framework being established in the EU on offshore
safety, the topic has been incorporated into bilateral cooperation with
relevant countries, such as the U.S. and Norway as well as with OPEC, and in
the context of the EU participation in international frameworks, such as G20.

6.           Supporting developing
countries

Supporting developing countries’ efforts to eradicate poverty is the
primary objective of the EU development policy and a priority for EU external
action in support of EU's interests for a stable and prosperous world. The EU
has already done much to help reduce poverty and in particular to support the
achievement of the Millennium Development Goals. The EU has allocated a
financial contribution of at least 2.5 billion euros over the last 6 years to
international cooperation in the field of non-nuclear energy in order to
address the challenges of energy poverty and sustainable growth. Lack of access
to sustainable energy services is a serious impediment to social and economic
development.           Without sustainable energy it is difficult to ensure
sufficient access to clean water, good education and basic health care.
Increased energy access has a considerable impact on productivity and returns
at each stage in the agricultural value chain, from production, post-harvest
processing and storage, to marketing.

In order to address these issues, the Agenda for Change[14] states that the EU should
offer technology and expertise as well as development funding, and should focus
on three main challenges: price volatility and energy security; climate change,
including access to low carbon technologies; and access to secure, affordable,
clean and sustainable energy services.

Because of its complementarity with these guidelines, the Commission
is supporting the objectives of the Sustainable Energy for All initiative of
the United Nations Secretary-General Ban Ki-moon. This initiative aims to
deliver universal access to energy by 2030 along with doubling the rate of
energy efficiency and the use of renewable energy.

The EU is contributing towards these objectives with its own EU
Sustainable Energy for All initiative. This initiative is spearheaded by
Commission President Barroso and aims at helping developing countries to
provide energy access to 500 million people by 2030.

In order to reach this goal, the Commission has mobilised for the
period 2012-2013 more than €500 million for immediately scaling-up support for
sustainable energy in developing countries. Together with the Member States,
these efforts will be deepened over the coming years. Particular attention will
be brought to those partner countries that have chosen energy as a focal sector
for the cooperation with the EU under the next Multi-Annual Financial
Framework.

At the international level, the Commission is also bringing forward
the objectives of the Agenda for Change by supporting access to sustainable
energy services as a specific target in the context of the follow-up of the
Millennium Development Goals.

EU Sustainable Energy for All

In order to reach the target set by Commission President Barroso of
helping developing countries to provide energy access to 500 million people,
for 2012-2013 the Commission allocated:

-          €400
million to energy related actions in sub-Saharan Africa through blending. This
should help leverage concrete investments of €4-8 billion.

-          €65
million to a Technical Assistance Facility dedicated at helping developing
countries to elaborate and implement reform programs so that private investment
can be attracted.

-          Nearly
€100 million are being made available for improving access to modern and
sustainable energy services to the poor in remote and rural areas.

7.           Conclusion

The Commission Communication on security of supply and international
cooperation and the Energy Council Conclusions of November 2011 have provided
an important impetus for EU action in this field. The past two years have seen
an intensification of activities, including political agreements to enhance
energy cooperation with a number of the EU's partners as well as the launch of
negotiations on a number of energy-specific and cross-sectoral agreements.
Success has not been uniform across all areas and with all partners, but the
positive trends observed call for continued EU attention and efforts.

The strategy and the priorities chosen two years ago are
fundamentally still valid. Nonetheless, flexibility and pragmatism in EU's
external energy relations should be retained in order to adjust to the rapid
changes underway in global energy markets as well as political and economic
developments, if and when such adjustment is needed. The EU regulatory
framework on the internal energy market, energy efficiency, renewable energy,
environment, competition and others remain important references for many of the
EU's partners. Sharing the EU's experience on energy policy development, its
successes and challenges, provides an opportunity for positive engagement and
building trust with many of our partners.

Continued successful implementation of
external energy priorities will require a close working relationship between
the Commission and the High Representative and EEAS, making optimal use of
their instruments and resources, including the EU Delegations. Sustained
efforts to increase coordination with and between the EU Member States will
also be needed. EU external energy activities do not and should not aim to
replace bilateral cooperation established by Member States, but rather at
complementing them, where there is a real EU added value. Nonetheless, it is
necessary to ensure that the EU speaks with a single voice when addressing its
partners. Ultimately, a coordinated approach will allow for an effective
promotion of the EU strategic interests and increase the EU's collective weight
and negotiating power vis-à-vis its partners.

[1]               COM(2011)539.

[2]               Conclusions of the TTE Council of November 24, 2011
on Communication on Security of Energy Supply and International Cooperation –
"The EU Energy Policy: Engaging with partners beyond our borders"
(17615/11).

[3]               BP Statistical Review of World Energy 2012, http://www.bp.com/en/global/corporate/about-bp/statistical-review-of-world-energy-2013.html.

[4]               World Energy Outlook 2012, International Energy
Agency.

[5]               "Redrawing the Energy-Climate Map," World
Energy Outlook Special Report, International Energy Agency, June 2013.

[6]               "Redrawing the Energy-Climate Map," World
Energy Outlook Special Report, International Energy Agency, June 2013.

[7]               Decision No 994/2012/EU, OJEU L 299/13 27.10.2012.

[8]               http://ec.europa.eu/energy/gas_electricity/legislation/legislation_en.htm

[9]               COM(2011)200 final.

[10]             Regulation (EU) No 347/2013, OJEU L 115/39 25.4.2013.

[11]             http://www.inogate.org

[12]             http://www.covenantofmayors.eu

[13]             Three declarations were agreed at the EU-China High
Level Meeting on Energy in May 2012, including the EC-China Joint Declaration
on Enhanced Cooperation on Electricity Markets, the EU-China Declaration on
Energy Security and the Joint declaration on the EU-China Partnership on
Urbanisation.

[14]             COM(2011) 637 final.