Communication from the Commission to the Council and the European Parliament on the development of energy policy for the Enlarged European Union, its neighbours and partner countries
Date: 2003-05-13
Institutions: European Commission
Subjects: electrical energy, energy grid, energy industry, energy policy, enlargement of the Union, gas pipeline, natural gas, single market

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 26.5.2003
COM(2003) 262 final/2

CORRIGENDUM
Des erreurs factuelles au point
1.5 en FR et DE, aux points
1.5 et 7.3.2. dans l’EN.et à la table
des matières en FR et EN.
Conserne uniquement ces trois versions.

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE
EUROPEAN PARLIAMENT

ON THE DEVELOPMENT OF ENERGY POLICY FOR THE ENLARGED
EUROPEAN UNION, ITS NEIGHBOURS AND PARTNER COUNTRIES

TABLE OF CONTENTS

Introduction .................................................................................................................. 4

Creation of a European Internal Electricity and Gas Market ....................................... 5

Environment and Energy.............................................................................................. 5

Security of supply and the development of new infrastructure.................................... 6

Nuclear issues............................................................................................................... 6

Focusing and integrating the European Research Area in the field of energy............. 7

Co-operation Mechanisms............................................................................................ 7

The European Union-Russia Energy Dialogue ............................................................ 8

The Euro-Mediterranean Energy Forum ...................................................................... 9

South-East Europe...................................................................................................... 10

Areas of Heightened EU Interest ............................................................................... 11

The Northern Dimension............................................................................................ 11

Caspian Basin............................................................................................................. 12

Co-operation with other important Partners............................................................... 13

Creating a wider European Integrated Electricity and Gas Market based on
common rules and principles...................................................................................... 13

Progress in achieving the European Union’s Internal Market ................................... 13

Requirements for creating a wider market ................................................................. 14

1.

1.1.

1.2.

1.3.

1.4.

1.5.

2.

2.1.

2.2.

2.3.

3.

3.1.

3.2.

3.3.

4.

4.1.

4.2.

4.2.1.

Level playing field ..................................................................................................... 14

4.2.2.

Equivalent environmental and safety standards ......................................................... 14

4.3.

Making progress in creating a wider market .............................................................. 15

4.3.1. Russia ......................................................................................................................... 15

4.3.2.

South-East Europe...................................................................................................... 16

4.3.3.

The Euro-Mediterranean Partnership ......................................................................... 17

4.3.4. Other important partners ............................................................................................ 17

5.

5.1.

5.2.

5.3.

6.

Infrastructure necessary for the creation of a fully integrated electricity market. ..... 18

EU-Russia................................................................................................................... 19

South East Europe ...................................................................................................... 21

Euro-Mediterranean Partnership ................................................................................ 21

Harmonisation and Technical interoperability of electricity and gas networks......... 22

2

7.

Security of supply and the development of new gas and oil infrastructure ............... 23

7.1.

Physical Security of Supply in Networks................................................................... 23

7.1.1.

Pipeline Safety............................................................................................................ 23

7.1.2. Geographic Certainty and Safety ............................................................................... 24

7.2.

7.3.

Strategic and Commercial Security of Supply ........................................................... 24

Gas.............................................................................................................................. 24

7.3.1. Russia ......................................................................................................................... 25

7.3.2.

Euro-Mediterranean ................................................................................................... 26

7.3.3.

South-East Europe...................................................................................................... 26

7.3.4. Caspian Basin............................................................................................................. 26

7.3.5. Other important partners ............................................................................................ 27

7.4.

Oil............................................................................................................................... 27

7.4.1. Russia ......................................................................................................................... 27

7.4.2.

The Mediterranean Region......................................................................................... 28

7.4.3.

The Black Sea............................................................................................................. 28

7.5.

Investing into the modernisation of energy systems and energy saving .................... 29

8.

9.

Revision and restructuring of Community support mechanisms in the Energy
Sector.......................................................................................................................... 29

Conclusion and concrete actions ................................................................................ 31

Annexes .................................................................................................................................... 33

Annex I – EU-Mediterranean proposed electricity projects..................................................... 33

Annex II –Proposed gas priority projects................................................................................. 35

3

1. 

INTRODUCTION

As  President  Prodi  has  outlined1  and  the  Commission  has  set  out  in  its
Communication on a Wider Europe2, the European Union has to act as a force
for stability and sustainable development in the European  continent. Extending
the  benefits  of  the  Internal  Market  is  part  of  that  projection  of  stability  to  the
ring of countries that surround the Union. This is a central role for the Union.

Neighbouring  countries  to  the  European  Union  of  today  and  tomorrow  play  a
vital  role  in  the  Union’s  energy  policy.  They  supply  a  major  part  of  the
European Union’s requirements of natural gas and, increasingly, oil; a role that
will grow significantly in the future. They and our partners ensure the transit of
primary  energy  to  the  EU.  These  countries  will  progressively  become  full,
important and equal players in the European Union’s internal gas and electricity
markets.

This  Communication  is  focused  on  energy  relations  of  the  enlarged  European
Union  with  its  neighbours  and  most  important  geographical  partners  in  this
sector. Although inspired by the recent Communication on a Wider Europe, its
geographical scope is slightly different as it includes also South-East Europe –
as an example of what might be envisaged on the regulation of the markets - and
the  Caspian  Basin  where  appropriate.  These  two  areas  are  of  particular
importance  for  the  completeness  of  the  Internal  Energy  Market  and  for  the
security of energy supplies of the European Union.3

The objectives of the policy set out in this Communication are to:

– 

– 

– 

– 

Enhance the security of energy supplies of the European continent,

Strengthen the Internal Energy Market of the enlarged European Union,

Support the modernisation of energy systems in our partner countries,

And facilitate the realisation of major new energy infrastructure projects.

Together with the neighbouring countries and our partners, the European Union
can  face  the  challenges  of  growing  external  energy  dependence,  the  need  to
address infrastructure issues on a regional level, to diversify  sources of  energy

1

2

3

Romano Prodi President of the European Commission A Wider Europe - A Proximity Policy as
the key to stability "Peace, Security and Stability; International Dialogue and the Role of the EU"
Sixth ECSA-World Conference. Jean Monnet Project. Brussels, 5-6 December 2002
Wider Europe - Neighbourhood: A New Framework for Relations with our Eastern and Southern
Neighbours, Brussels, 11.3.2003 - COM(2003) 104 final
The Commission intends to put  forward  a  further  communication  at  the  end  of  2003  examining
infrastructure  issues  with  respect  to  accession  countries.  As  such,  the  Commission  does  not
address these issues taking as a base here of the enlarged European Union and the relations it will
have  with  its  neighbours  and  partners.  In  this  later  communication  the  issues  of  increasing  the
geographic  scope  of  the  European  Research  Area  –  in  which  energy  strongly  features  -  will  be
addressed.

4

                                                
geographically and technologically and to broaden the basis for energy trade in
the European continent and its adjoining continents.

1.1. 

Creation of a European Internal Electricity and Gas Market

The  structural  reforms  leading  to  the  creation  of  an  internal  European  Union
electricity  and  gas  market  are  being  mirrored  by  developments  in  almost  all
neighbouring  countries.  As  stated  by  the  Commission  in  its  Communication
“Completing  the  Internal  Market4”,  in  this  context  the  objective  should  be  the
progressive  creation  of  an  integrated  European  internal  market,  not  a  market
simply  limited  to  European  Union  Member  States.    Providing  that  a  level
playing field exists, in terms of market opening, fair competition, environmental
protection and safety, including nuclear safety, there are many good reasons for
actively  pursuing  such  developments.  A  wider  European  internal  market,
properly implemented, will lead to increased competition and lower prices, will
permit increased environmental protection  over  a  wider area, and  will enhance
security  of  supply  throughout  Europe.  The  Commission  does  not  suggest  the
entire  and  wholesale  exportation  of  all  standards  and  regulatory  frameworks
pertinent  to  the  energy  sector.  What  we  seek  to  do  is  to  have  substantively
similar  levels  of  market  access  and  adoption  of  equivalent    standards  that
directly affect the populations of the European Union (especially in the nuclear
sector). In recent years, the Commission, has actively pursued this objective of
widening the internal market with concrete results. This needs to be maintained
and  expanded.  This  Communication  outlines  a  strategy  for  achieving  this
primary goal.

The  achievement  of  the  primary    goal  requires  not  only  the  adoption  of  some
common  rules  and  standards  in  the  energy  sector  but  also  additional
infrastructure  as  necessary.  Without  adequate  levels  of  interconnection  of
electricity and gas networks of the different countries, a real competitive market,
characterised by high levels of security of supply, cannot develop. In 2001, the
Commission  adopted  a  Communication  on  European  Energy  Infrastructure5
outlining a series of actions to ensure the construction of missing links and the
reinforcement of congested ones necessary to ensure the effective development
of  the  European  Union  internal  market.  This  was  endorsed  by  the  European
Union Heads of State and Government at  Barcelona in  2002, and thereby they
endorsed  notably  a  target  of  a  minimum  electricity  interconnection  level
between each European Union country and its neighbours of 10 % of domestic
consumption. This Communication examines the measures necessary to extend
this target and the infrastructure goals to neighbouring countries.

1.2. 

Environment and Energy

However, the Commission will need to develop policy for demand management
and  energy  efficiency  in  its  neighbours  and  partners.    Such  a  step  will  be
necessary  in  the  long  term  to  assure  our  energy  security.  Our  common
to  combating  climate  change  and  other  energy-related
commitment 

4

5

COM(2001)125, 13.3.2001
COM(2001)775, 20.12.2001

5

                                                
the  energy  systems 

environmental  problems  also  leads  us  to  attaching  a  high  priority  to  the
in  our  neighbouring  countries.
modernisation  of 
Modernising  investments,  new  energy  generation,  and  renewables  have  to  be
combined  with  better  metering,  transport  measures  and  energy  pricing  to
provide  the  right  incentives  for  energy  efficiency,  for  which  there  exists  a
significant potential in our Neighbours and Partners.

1.3. 

Security of supply and the development of new infrastructure

As highlighted in the Commission’s Green Paper on Security of Energy Supply,
the  European  Union  already  imports  almost  two-thirds  of  its  fossil  fuel
requirements  (oil,  gas  and  coal).  These  fuels  represent  80  %  of  the  European
Union’s  energy  consumption.  On  the  basis  of  present  trends,  by  2020  this  is
expected to increase to 90 % of the European Union’s oil consumption, and 70
% of gas consumption.

With respect to electricity, the volume of exchanges between the EU/Accession
countries  and  neighbouring  countries  remains  fairly  small,  with  only  some
6.4TWh  exported  and  13TWh  imported  in  2001.  This  compares  with  the
possible  32TWh  per  year  foreseen  in  a  1999  TACIS  study  should  the  Russian
network  be  synchronously  connected  with  the  network  operated  by  the  Union
for Co-ordination of Transmission of Electricity. With respect to links across the
Mediterranean,  it  should  be  noted  that  a  standard  600MW  cable  is  capable  of
transporting roughly 4TWh of electricity per year.

With  respect  to  gas,  this  gives  rise  to  major  challenges  regarding  security  of
supply. This expected increase will have to come from new gas developments,
located  geographically  further  away  from  the  European  Union,  and  often
extracted in increasingly difficult conditions. To  meet  the  future  demand  of an
enlarged European Union, with import requirements expected to reach 400 bcm
by 2020, investments totalling many billions of Euro will need to be made both
in terms of exploration of new gas fields and, more importantly, new pipelines,
in  the  coming  few  years.  It  is  forecast  that  existing  capacity  of  330  bcm  will
need to be increased by nearly 200 bcm. In order for these investments to take
place,  it  is  vital  to  ensure  that  the  European  Union  plays  an  active  role  to
facilitate  and  encourage 
the
Commission’s role in this respect, proposing additional measures.

them.  This  Communication 

re-examines 

With  respect  to  oil,  the  principal  issue  to  be  addressed  concerns  security  of
supply, and in particular maritime safety.

1.4. 

Nuclear issues

Nuclear  electricity  inevitably  forms  a  major  part  of  any  energy  policy  of  the
European Union in its relations with neighbouring countries. The position of the
European  Commission  with  regard  to  policy  within  the  European  Union  is  set
out below.

On  30  January  2003  the  Commission  adopted  two  proposals  for  Directives
concerning  on the  one hand  the  definition  of  the  basic  obligations  and  general
principle  on  the  safety  of  nuclear  installations  and  on  the  other  hand  the

6

management of spent nuclear fuel and of radioactive waste. Both proposals are
based  on  Chapter  3  of  the  title  II  of  the  Euratom  Treaty  concerning  health
protection.

These issues and this approach form the basis of the Community’s policy in this
area with neighbouring countries. In this context the Commission considers that
the principles included in these draft directives will be the basis for discussion
with third countries and in particular with Russia.

In  addition,  it's  important  that  the  Council  adopts  as  soon  as  possible  the
decision authorising the Commission to negotiate a Euratom agreement with the
Russian  Federation  on  trade  in  nuclear  materials,  as  proposed  by  the
Commission Communication in its Communication on Nuclear safety in Europe
of 6.11.2002 (COM(2002) 605).

This internal position will form the basis of discussions with third countries on
nuclear  generated  electricity  trade  as  part  of  the  requirements  for  creating  a
wider market (see below 4.2).

1.5. 

Focusing and integrating the European Research Area in the field of energy

The  Sixth  Research  and  Technological  Development  Framework  Programme
(FP6)  (2002-2006)  is  open  to  the  Acceding  and  Candidate  Countries  on    the
same conditions as those pertaining for the Member States.

Neighbouring  countries  are  also  strongly  encouraged  to  participate  in  FP  6
activities: Scientific and technical  agreements  as well as  ad-hoc partenariats in
the  framework  of  the  co-operation  or  association  agreements  have  been
developed  with  Eastern,  Northern  and  Southern  border  countries  (Russia,
Ukraine, Iceland, Liechtenstein, Norway, Switzerland and our 12 Mediterranean
partners).  An  action  plan  for  energy  research  is  currently  being  implemented
with Russia. It includes the organisation of expert meetings on priority areas and
of  information  campaigns  designed  to  promote  Russian  involvement  in  FP  6
activities.  Similar  mechanisms  could  be  implemented  with  Mediterranean
partners.

With more than two billions euro dedicated to energy (nuclear and non-nuclear),
FP6  helps  researchers,  industries  and  universities  from  EU  ,  Accession  States
and Neighbouring Countries, thereby contributing to establishing the European
Research Area, in line with the Lisbon Strategy.

Within this framework, the Commission would like to see the use of funding for
investigating the prospects for developing the hydrogen economy. This fuel has
the potential to contribute to Europe's key policy objectives, namely security of
energy  supply  and  sustainable  development.  Hydrogen  can  also  contribute  to
achieving other policy targets, such us air quality and industrial competitiveness.

2. 

CO-OPERATION MECHANISMS

In  pursuing  these  objectives,  the  Community  has  in  recent  years  established
three  important  instruments,  the  European  Union-Russia  energy  dialogue,  the

7

Euro-Mediterranean Energy Forum, and the South-East Europe Regional Energy
Market [SEE-REM].

2.1. 

The European Union-Russia Energy Dialogue

Russia  is  already  the  largest  single  energy  partner  of  the  European  Union.  In
2001,  over  19%  of  total  net  European  Union  oil  imports  and  over  40%  of
European  Union  gas  imports  came  from  Russia.  Furthermore  Russia  was  the
largest  supplier  of  uranium  to  the  European  Union  and  provided  also  a
significant proportion of the uranium enrichment requirements. During the same
year energy exports accounted, in value, for nearly 50% of total Russian exports
to the European Union. For the European Union, it is important to maintain and
enhance Russia’s role as a supplier of gas and oil and to strengthen Russia as a
secure  and  reliable  supplier  through  technology  transfers  and  investments  to
upgrade Russia’s energy infrastructure. However, both the European Union and
Russia have also recognised the importance of giving a new political impetus to
this relationship by working together towards a strategic European Union-Russia
energy partnership,  given  the importance  of ensuring adequate  energy supplies
and  appropriate  prices  for  economic  development  across  the  whole  of  the
European  continent,  and  the  long-term  nature  of  investments  in  energy
production and transport.

Therefore,  recognising  this  mutual  dependence  in  the  energy  sector,  there  was
agreement  at  the  October  2000  European  Union-Russia  Summit  in  Paris  to
institute an energy dialogue on a regular basis between the European Union and
Russia to enable progress to be made in the definition and arrangements for an
European Union-Russia Energy Partnership. As noted in the Joint Declaration6,
“This will provide an opportunity to raise all the questions of common interest
relating  to  the  sector,  including  the  introduction  of  co-operation  on  energy
saving,  rationalisation  of  production  and  transport  infrastructures,  European
investment  possibilities,  and  relations  between  producer  and  consumer
countries”.

Environmental  concerns within Russia  will  continue  to  form  an  axis  of  debate
and the Commission will continue to press for progress in this area.  The role of
the  Kyoto  Protocol  in  bringing  down  carbon  dioxide  emissions  in  Russia  will
continue to be addressed.

In  the  three  years  of  its  existence,  the  Energy  Dialogue  has  assisted  in
developing  trust  and  a  better  understanding  of  our  policy  objectives  in  the
energy field, and significant progress has been made on a number of the issues
identified,  paving  the  way  for  a  long  term  institutionalised  partnership.  These
include:

6

Joint Declaration by the President of the European Council, Mr J. CHIRAC, with the assistance of
the Secretary-General of the Council/High Representative for the Common Foreign and Security
Policy  of  the  EU,  Mr  J.  SOLANA,  by  the  President  of  the  Commission  of  the  European
Communities, Mr R. PRODI, and by  the  President  of  the  Russian  Federation,  Mr  V.V.  PUTIN.
Paris, 30 October 2000. (Ref: Press Release 405 – Nr: 12779/00 http://ue.eu.int/newsroom/).

8

                                                
– 

– 

– 

– 

– 

– 

The  identification  of  energy  infrastructure  projects  of  common
interest;

A non-commercial risk guarantee fund;

The  central  role  of  long  term  gas  supply  contracts  in  securing  the
conditions 
facilitating
investments;

Internal  Energy  Market  by 

the 

for 

The legal framework in Russia;

The trade in nuclear materials; and

Clean coal projects.

In addition, it has been agreed to work on pilot energy efficiency programmes in
the  regions  of  Astrakhan,  Archangelsk  and  Kaliningrad,  and  work  is  now
underway  with  the  Russian  authorities  to  produce  specifications  for  technical
assistance  projects  to  be  financed  under  TACIS  programme  2003.  In  addition,
with  the  main  provisions  of  Russia’s  “Energy  Strategy  until  the  year  2020”
document  projecting  a  75%  increase  in  coal  production7  and  for  an  increasing
role  for  coal  in  electricity  generation8,  it  is  important  to  encourage  the  use  of
modern, efficient and cleaner coal combustion technologies. For this reason, and
to order to promote the most efficient EU Clean Coal Technologies, Russia has
been considered a priority in both the 2001 and 2002 call for proposals9 under
the CARNOT  programme10  related  to  the  promotion  of  the  clean  and  efficient
use  of  solid  fuels.  Three  projects  are  currently  underway  related  to  Russia.
However, the combination of low energy prices in Russia and an undemanding
Kyoto  target  for  the  first  commitment  period  (2008-2012)  means  that  energy
efficiency  and  energy  savings  have  not  been  given  a  high  priority  in  the
implementation of the overall Russian energy policy.

2.2. 

The Euro-Mediterranean Energy Forum

In  the  framework  of  the  Barcelona  Process,  initiated  in  1995  between  the
European  Union  and  the  12  Mediterranean  Partners11,  the  Euro-Mediterranean
Energy Forum was established in 1997. The purpose of the Forum covers both
the  objectives  of  reinforcing  political  dialogue  between  the  Mediterranean

7 From a 258 million tonnes in 2000 to between 340 and 430 million tonnes in 2020.
8 The Strategy calls for coal-fired electricity generation to increase from 17% of total generation in 2000

to 29% by 2020, which could double coal consumption in the power sector.

9 Call for proposals for 2001.

Published in the Official Journal of the European Communities, C 270 of 25.9.2001, page 8.
Call for proposals for 2002.
Published in the Official Journal of the European Communities, C 64 of 13.3.2002, page 11.

10 Council Decision 1999/24/EC of 14.12.1998.

Published in the Official Journal of the European Communities, L 7 of 13.1.1999, page 28.

11The  12  Mediterranean  Partners  are:  Algeria,  Cyprus,  Egypt,  Israel,  Jordan,  Lebanon,  Malta,  Morocco,
Palestinian Authority, Syria, Tunisia and Turkey. Libya did not accept the conditions and principles of
the partnership and, together with Mauritania, has the status of observer.

9

                                                
Partners  and,  at  the  more  technical  level,  promoting  projects  and  measures  of
common interest.

A  first  Action  Plan,  covering  the  period  1998-2002  and  approved  during  the
Euro-Mediterranean  Ministerial  Conference  held  in  Brussels  in  May  1998,  set
several priorities and initiatives. Among those, the creation from 2000 of three
ad-hoc  working  groups,  on  the  topics  of  Energy  Policy,  Interconnections  and
Economic Analysis, was foreseen.

The three main objectives around which the actions and priorities should focus
in  the  energy  sector  are  identified  in  the  Action  Plan  1998-2002  as  the
following:

– 

– 

– 

security  of  supply,  through  the  development  and  diversification  of
energy sources and a close international co-operation;

competitiveness of the energy industry, in view of the free-trade area
planned by 2010 and through enhanced industrial production;

protection  of 
the  environment,  by  securing  safe  and  clean
production, transport and use of energy, and by encouraging energy
efficiency and renewables.

The  final  purpose  of  the  three  ad-hoc  groups  is  to  provide  the  necessary
objective  criteria  to  reach  consensus  on  priority  actions  of  common  interest  in
the  region.  The  so-called  Trans-Euro-Mediterranean  Networks,  to  ensure  gas
and  electricity  interconnections  South-South  and  South-North  in  the  region,
have been identified as a clear priority .

2.3. 

South-East Europe

The  Commission  brought  forward  proposals  for  the  creation  of  a  regional
electricity  market  in  South  East  Europe  (SEE)  in  March  2002.  In  time,  a
regional  energy  market  is  envisaged.  By  November  2002,  a  Memorandum  of
Understanding was signed at the Athens Ministerial by all the  countries12 with
the  Commission  and  the  Stability  Pact13  acting  as  sponsors.  The  Commission
also  agreed  a  common  strategy  paper  with  all  international  donors  active  on  a
regional  basis14.The  Athens  Memorandum  set  up  the  following  organs,
collectively called the ‘Athens Process’:

12

13

14

The  present  signatories  are  Albania,  Bosnia  and  Herzegovina,  Federal  Republic  of  Yugoslavia,
Bulgaria, FYR of Macedonia, Greece, Turkey, Croatia, Romania and Kosovo (signatory pursuant
to  UN  Resolution  1244).  Observers  include  Moldova,  Slovenia,  Austria,  Hungary,  and  Italy.
Sponsors are the European Commission and the Stability Pact.
The Stability Pact for South East Europe is an institution set up to create the political conditions
for effective international assistance to the region by co-ordinating donors and presenting plans to
the countries of the region; it is headed by Dr. Erhard Busek.
These donors are: the EIB, the EBRD, the World Bank, USA, Canada, Italy, Greece, Switzerland,
the Czech Republic and Germany. Since then, the IEA has joined. The UK is associated through
the work of the EBRD.

10

                                                
– 

– 

A  Ministerial  meeting  to  give  political  guidance  to  the  Athens
Process, which meets at least once a year; and

A  Permanent  High  Level  Group,  that  meets,  so  far,  every  quarter,
and  that  takes  executive  decisions  on  work  programmes  and
implementation strategies; the PHLG is where  the  key mechanisms
operate, 
the
benchmarking report.

the  peer-review  mechanism  and 

these  being 

In  addition,  the  Athens  Memorandum  incorporated  the  ‘Athens  Forum’  that
replicates the Madrid and Florence Forums in the EU. The Athens Forum brings
together market actors to discuss necessary reform. The Forum is composed of
the Permanent High Level Group, the regulators group (the Council of European
Energy  Regulation  has  set  up  a  sub-group  for  South-East  Europe),  the
Transmission  System  Operators  group  (a  sub-group  of 
the  European
Transmission  System  Operators  Association),  Union  for  Co-ordination  of
Transmission  of  Electricity  industry  representatives  on  an  ad-hoc  basis,  the
Commission, and international donors to the region.

At the same time as presenting the electricity plan, the Commission announced
that a similar gas plan would be presented in the future. The countries agreed to
this approach at the Athens Ministerial in November 2002. The gas plan will be
launched  in mid-2003.  It will be similar in organs  to  the  Athens  Process,  with
the aim of fusing the two processes by the end of 2003.

Such  a  political  process  to  create  an  integrated  regional  market  will  require
increased legal certainty and intensified  energy  relations  between the  countries
themselves  and  then  with  the  European  Union  as  a  whole.  This  would  give  a
concrete  basis  to  extend  the  benefits  of  the  Internal  Energy  Market  of  the
European  Union.  The  Commission  intends  to  sponsor  the  necessary  work  for
this process.

3. 

AREAS OF HEIGHTENED EU INTEREST

3.1. 

The Northern Dimension

The  Northern  Dimension  pays  much  importance  to  energy  issues,  principally
from 
the  points  of  view  of  security  of  supply,  competitiveness  and
environmental  protection.  This  is  reflected  in  the  first  Northern  Dimension
Action  Plan,  covering  the  2000-2003  period.  In  the  context  of  the  Northern
Dimension,  the  Energy  Ministers  of  the  Baltic  Sea  Region  and  the  European
Commission decided at their October 1999 conference in Helsinki to create the
Baltic  Sea  Region  Energy  Co-operation  (BASREC)  and  a  group  of  Senior
Energy Officials was established to steer the activities, which include electricity
and  gas  markets.  The  activities  of  BASREC  have  been  most  important  for
energy-related  initiatives  in  the  first  Northern  Dimension  Action  Plan,  which
also encouraged the closure of unsafe nuclear plants, the promotion of a nuclear
safety culture, and the improvement of waste management.

11

Energy issues will play a prominent role also in the second Northern Dimension
Action Plan (2004-2006), to be adopted this year. Moreover, the signature of the
agreement on a Multilateral Nuclear Environmental Programme in the Russian
Federation  (MNEPR)  and  the  implementation  of  nuclear  projects  financed  by
the Northern Dimension Environmental Partnership (NDEP) Support Fund will
contribute  to  the  improvement  of  nuclear  safety  in  the  Northern  Dimension
region, and particularly in Northwest Russia.

3.2. 

Caspian Basin

As  highlighted  in  the  Commission’s  Green  Paper  in  the  Security  of  Energy
Supply, the European Union has a specific interest in the extensive oil and gas
reserves of the Caspian Basin which will, in the future, contribute to security of
supply in Europe. Caspian oil production, currently some 1.4 million barrels per
day,  could  reach  4  million  barrels  per  day  by  2010.  Natural  gas  production  in
2001 was 65 bcm and could increase to 170 bcm per year by 2010. Kazakhstan
is forecast to produce 70 million tonnes of oil15 and 34 bcm gas in 2006, while
Azerbaijan is forecast to produce more than 8 bcm of natural gas by 2006. Iran
is  the  second  largest  OPEC  oil  producer  and  holds  the  world’s  second  largest
gas reserves after Russia.

The  key  will  be  to  facilitate  the  transportation  of  Caspian  resources  towards
Europe, be it via transit through Russia or through other transport routes. Indeed,
secure  and safe export routes for Caspian  oil and gas will be important  for the
EU’s  security  of  energy  supply  as  well  as  crucial  for  the  development
(economic, but also social and political) of the Caspian region. In this context,
the  transportation  of  natural  gas  from  the  Caspian  Basin  through  Iran  and
Turkey will also have to be considered.

Discussions  on  energy  co-operation  have  started  in  the  framework  of  the
Partnership  and  Co-operation  Agreements  with  Azerbaijan  and  with
Kazakhstan, in addition to energy related technical assistance performed under
TACIS. Apart from focusing on energy questions proper, these discussions deal
with such issues as the countries business climates, with a view to optimise of
the countries’ economic development, as  well  as the already  very  considerable
EU commercial interests in the Caspian Basin.

Investment in the Caspian Basin’s mineral resources is still in a relatively early
stage, in which investments are quickly increasing, the countries are developing
their legislative framework for foreign investment and the various international
players  are  developing  and  fine-tuning  their  strategies.  Apart  from  already
established  players  such  as  companies  from  the  EU,  the  US  and  Russia  it  is
noteworthy  that  recently  China  has  markedly  stepped  up  its  efforts  to  benefit
from Caspian resources in the future.

15

1.4 million bbl/d

12

                                                
3.3. 

Co-operation with other important Partners

The  Ukraine is the  most important  transit  country  for  Russian  gas  to  Western
Europe,  with  between  80%  and  90%  of  Russian  gas  exports  moving  over
Ukrainian  territory.  Ukraine’s  main  transit  network  consists  of  around  14,000
km of pipelines with a theoretical output capacity of 170 bcm per  year. With a
capacity of 30 bcm, Ukraine has the second largest natural gas storage capacity
in Europe after Russia.

A major challenge is the need to guarantee the overall performance, safety and
security  of  the  Ukrainian  network.  This  is  one  of  the  main  objectives  of  the
enhanced  EU-Ukraine  energy  co-operation  since  2001.  European  Union
relations  to  Ukraine  in  the  hydrocarbon  sector  are  drawn  by  two  major
objectives: the promotion of reforms in the sector and the improvement of safety
and security of the network.

4. 

CREATING A WIDER EUROPEAN INTEGRATED ELECTRICITY AND GAS MARKET
BASED ON COMMON RULES AND PRINCIPLES

4.1. 

Progress in achieving the European Union’s Internal Market

The  European  Union  is  in  the  process  of  rapidly  completing  the  internal
electricity  and  gas  markets.  This  will  lead  to  increasingly  competitive  prices,
high standards of public service, and the maintenance and increase of standards
of  security  of  supply.  Recent  developments  in  reaching  this  goal  include  the
following:

– 

– 

the  Council  on 

Adoption  of  a  common  position  by 
the
Commission’s  proposed  revision  of  the  Directives  on  the  internal
market  for  electricity  and  gas.  The  European  Parliament  has
suggested  amendments to the Common position.  But  at  present  the
common  position  –  if  left  unchanged  -  will  lead  to  all  non-
households being free to purchase their gas and electricity from any
company  established  within  the  European  Union  during  2004.  All
customers,  including  households,  will  be  free  to  choose  their
supplier by 2007. The Directive will also require legal unbundling of
transmission  and  distribution  activities  from  generation  and  sales,
and will introduce regulated third party access for transmission and
distribution, and common standards of effective regulation. Finally,
the  revision  provides  measures  to  ensure  high  public  service  and
environmental standards.

Adoption of a common position  by the Council of a Regulation  on
cross-border  trade  in  electricity.  The  European  Parliament  has
suggested  amendments  to  the  Common  position.  But  at  present  it
will  provide  common  basic  rules  on  electricity  transmission  tariff
structures, as well as a robust mechanism for developing harmonised
cross-border tarification methodologies and congestion management
mechanisms. This Regulation builds on progress already achieved in
the European Electricity Regulation Forum (“The Florence Forum”),

13

which has now agreed the introduction of a  cross-border electricity
transmission  tarification  mechanism  that  permits  access  to  the
European  Union  network  for  a  tariff  of  only  0,5  €/Mwh.  It  is
expected  that  under  the  Regulation  it  will  be  possible  to  entirely
eliminate this tariff, so that the national transmission tariffs give the
right to access to the entire European Union grid.

– 

– 

Proposal  by  the  Commission  of  a  draft  Directive  concerning
measures to safeguard security of natural gas supply. Once adopted,
this Directive will ensure the maintenance of common high security
of  supply  policies  and  standards  regarding  gas  supply  in  each
Member  State,  and  establish  appropriate  mechanisms  for  dealing
with  potential  problems  in  particular  with  respect  to  long-term  gas
supply  contracts  and  any  potential  long-term  disruption  of  gas
supplies to the EU.

Progressive  implementation,  by  European  Union  gas  transmission
companies,  of  “Guidelines  of  Good  Practice”  regarding 
the
operation  of  the  gas  transmission  network  under  principles  of  non-
discrimination and in a manner likely to ensure effective third party
access to the gas transmission grid.

4.2. 

Requirements for creating a wider market

As  mentioned  above,  there  are  strong  reasons  for  extending  the  internal
electricity and gas markets outside the borders of the EU. However, in order to
do so, it is important that the following requirements are met:

4.2.1.  Level playing field

Market access is an important concept underlying the internal electricity and gas
market  and  thus  the  creation  of  a  level  playing  field.  Equal  market  access  can
only  occur  if  all  markets  are  open  to  fair  competition  to  an  equivalent  extent.
This  does  not  necessarily  require  that  all  participants  adopt  identical  rules  in
every respect. The manner in which markets are opened to mutual competition
must  be  substantively  equivalent.  Notwithstanding  this,  wherever  possible,
standardised  or  common  rules  should  be  adopted,  as  this  will  increase  the
efficient functioning of the resulting wider internal market.16

4.2.2.  Equivalent environmental and safety standards

High  environmental  standards  accompany  the  creation  of  the  internal  energy
market.  The respect of high environmental and safety standards, including those
with  respect  to  nuclear  safety,  is  a  central  part  of  the  internal  market.  The
Commission’s  proposals  opening  markets  to  competition  have  systematically
been  accompanied  by  proposals  to  ensure  high  environmental  standards  in

16 
internal energy market’  COM (2001) 125 final, point 2.9.1.

For  details  of  this  policy  see  Commission  Communication  ‘Completing  the

14

                                                
electricity  production17.  The  respect  of  such  standards  is  not  only  essential  in
environmental and safety terms, they also imply costs on electricity generators.
An  equivalent  level  of  protection  is  therefore  necessary  to  maintain  a  level
playing  field.  Furthermore,  the  generation  of  electricity  from  environmentally
unsustainable  thermal  plants  or  unsafe  nuclear  installations  in  countries
neighbouring  the  European  Union  can  potentially  have  direct  health  and
environmental effects within the Community.

4.3.  Making progress in creating a wider market

Within  this  framework,  the  Commission  considers  that,  in  line  with  the
Commission’s  proximity policy,  the inclusion of  neighbouring  countries  to  the
European Union within the internal gas and electricity market should be actively
pursued.  The  process  of  inclusion  of  such  countries  goes  considerably  beyond
simple questions of open trade between the European Union and its neighbours
under more general international trade obligations. It involves the active creation
of a real integrated market, free of any barriers. To achieve this,  the following
measures have been taken, or are in preparation with neighbouring countries:

4.3.1.  Russia

Given the enormous potential of the Russian electricity market, it is necessary to
set  a  clear  objective  of  Russia  to  play  a  major  role  in  the  Internal  electricity
market  and,  in  parallel,  for  European  Union  electricity  undertakings  to  play  a
major  role  on  the  Russian  electricity  market.  However,  the  above-mentioned
requirements  for  creating  a  fully  integrated  wider  electricity  market  represent
important  challenges  in  this  respect.  It  is  therefore  necessary  to  begin  the
process that will permit any such barriers to be overcome. The Commission and
the  Russian  Government,  together  with  RAO-UES,  Eurelectric  and  the  Union
for Co-ordination of Transmission of Electricity18, have already opened in-depth
discussions  to  identify  clearly  the  action  that  is  necessary  by  both  parties  to
progressively  reach  equivalent  levels  of  market  opening,  fair  market  access,
environmental protection  and  safety  standards.  A  first  detailed  discussion  took
place  in  Brussels  on  25th  March  2003.  A  second  is  scheduled  for  Moscow  in
May. By the end of 2003 it is intended to have established a clear factual picture
of  the  actions  necessary  to  proceed.  In  this  context,  expert  discussions  on  the
necessary nuclear safety levels, including those of the first generation reactors,
need to be started as soon as possible.

17

18

Generation  of  electricity  is  subject  to,  amongst  others,  Large  Combustion  Plant  Directive
(2001/80/EC), Integrated Pollution Prevention and Control Directive (1996/61/EC), Directive on
Renewable  electricity  (2001/77/EC).  The  European  Commission  has  made  a  proposal  for  a
directive  on  Combined  Heat  and  Power  (COM(2002)415).  High  nuclear  safety  standards  are
maintained through [the Euratom Treaty].
Developing contacts between the European and Russian electricity industries in the framework of
the Energy Dialogue have already led to the signature of a Protocol in Warsaw on 20 March 2002
between  the  Commonwealth  of  Independent  States  Electric  Power  Council  (CIS  EPC)  and  the
Union of the Electricity Industry (EURELECTRIC). This committed the signatories inter alia to
encourage the active development of the dialogue between involved network associations in order
to identify the best solutions and necessary measures to promote interconnection development.

15

                                                
the  Commission 

The Commission therefore proposes to prepare, together with the representatives
of the European Union and Russian electricity  industry,  a  factual  report  of  the
situation  in  both  the  European  Union  and  Russian  electricity  markets  in  2004
within the framework of the EU-Russia energy dialogue. Following this, it is the
intention  of 
the  options  for  seeking  a
comprehensive  agreement  with  Russia  that  would  lead  to  a  progressive
interconnection  and  integration  of  the  Russian  electricity  network  with  that  in
continental Europe. It is evident that a practical and realistic approach is needed
to  examine  and  deal  with  this  challenging  list  of  preconditions;  an  incentive-
driven step by step approach that establishes commitments by all concerned with
clear deadlines.

to  examine 

A long-term vision, established within the framework of a common EU-Russia
economic area, would envisage a regulatory system for gas in Russia, which is
not  only  compatible  to  that  of  the  European  Union,  but  based  on  the  same
principles  and  mechanisms.  Any  regulatory  system  would  have  to  protect  the
specific  needs  of  the  Russian  Federation.  A  common  regulatory  space,  to
accompany the common economic space, would tremendously increase business
opportunities  for  all  participants  in  the  European  and  Russian  gas  market  and
lead to secure and efficient gas supplies in both markets. It is the Commission’s
intention to accelerate discussion of these issues, so that a common way forward
can be designed for step-by-step market integration and balanced market inter-
penetration,  as  is  the  case  with  other  external  gas  suppliers  to  the  European
Union.

4.3.2. 

South-East Europe

In November 2002, at the Ministerial Meeting of the Athens Forum process, the
member  countries  of  the  South-East  Europe  electricity  market  signed  a
Memorandum of Understanding committing them to implement parallel rules to
the  Community  provisions  creating  an  internal  electricity  market  in  the  area.
The  date  set  for  the  implementation  of  these  rules  is  2005.  For  example,  the
Memorandum, in addition to making provisions for market opening in terms of
enabling customers to freely choose their supplier, provides for the following:

– 

– 

– 

– 

– 

to set up a regulator and a transmission system operator;

to implement tariff reform plans;

to  implement  all  necessary  technical  standards,  such  as  grid  codes,
accounting  systems  and  information  exchange  for  the  operation  of
the grid;

to implement effective third party access to infrastructure; and

to adopt competition legislation comparable to that in the EU.

Work is now progressing  in  the  context  of  the  various  meetings  of  the  Athens
process to turn these commitments into concrete action. This is taking place in
close  collaboration  with  international  donors  that  are  supporting  this  process,
and the Stability Pact.

16

With  respect  to  gas,  as  mentioned  above,  the  Commission  has  already
announced  its  intention  to  bring  forward  proposals  to  commence  a  parallel
process  to  the  Athens  electricity  process,  based  on  the  acquis  communautaire
but tailored to regional necessities, leading to a regional South-East Europe gas
market and its integration into the European Union market. The countries of the
region  have in  principle welcomed this,  and  the  Commission  during  2003  will
table concrete proposals.

4.3.3.  The Euro-Mediterranean Partnership

The  final  meeting  of  the  Ad  Hoc  Energy  Working  Groups  took  place  on  19th-
20th  February  2003,  during  which  the  creation  of  an  open  and  competitive
electricity and gas market was discussed.  In particular, agreement  was  reached
on  the  principle  of  promoting  a  regional  electricity  and  gas  market,  with  the
objective of its progressive integration into the European Union internal market.
The fourth EUROMED Energy  Forum which was held in Brussels on April  2,
2003, confirmed this objective.

The  Commission considers that  for technical and  geographic  reasons,  it  would
be appropriate to take a step-by-step process towards this goal. As a first step, a
regional  market,  based  on  the  rules  governing  the  European  Union  internal
market  and  the  institutions  of  the  South-East  Europe  market,  should  be  set  up
regarding  the  Maghreb  area,  including  Morocco,  Algeria  and  Tunisia,  and
possibly  Libya depending on its further involvement in the  Barcelona  Process.
To this end, rapid progress should now be made towards an agreement and then
signature  of  a  Memorandum  of  Understanding  by  the  countries  concerned,
providing  –  as  with  South-East  Europe  –  concrete  commitments  to  move
progressively towards the adoption of the common rules and standards outlined
above.  The  two  forthcoming  Euro-Mediterranean  Conferences  of  Energy
Ministers  planned  this  year  under  the  Greek  and  Italian  Presidencies  (Athens,
20-21  May  2003  and  Rome,  1-2  December  2003)  could  provide  a  unique
opportunity to discuss and sign such a Memorandum of Understanding.

On the basis of the results achieved, the process could then be extended to cover
the other countries of the Barcelona process.

4.3.4.  Other important partners

to  commence  work  on 

Building  on  progress  achieved  in  integrating  the  European  Union  and  Russian
markets,  it  will  be  possible 
integrating  other
neighbouring  countries,  notably  Ukraine  and  Belarus  in  this  process.  Concrete
steps  have  already  been  taken  in  electricity  by  supplying  Bialystok  (Poland)
from  Belarus  and  Zamosc  (Poland)  from  Ukraine  in  radial  operation  and  in
synchronising  the  so-called  Burshtyn  island  in  Ukraine  to  the  Union  for  Co-
ordination  of  Transmission  of  Electricity  network  through  Hungary  and
Slovakia. The planned creation of a management consortium for  the Ukrainian
gas  transit  system  with  participation  of  Ukrainian,  Russian  and  EU  companies
should also contribute to better integrate this system with the internal gas market
of the European Union.

17

Both  Kazakhstan  and  Azerbaijan  have  expressed  their  interest  in  intensified
energy  co-operation  in  the  framework  of  their  Partnership  and  Co-operation
Agreements  with  the European  Union. Expert  discussions  are  being  conducted
to  define  prospects  and  conditions  for  an  increased  participation  of  these
countries in the European Union’s internal gas market.

5. 

INFRASTRUCTURE  NECESSARY  FOR  THE  CREATION  OF  A  FULLY  INTEGRATED
ELECTRICITY MARKET.

In  order  for  the  wider  European  electricity  and  gas  market  to  function
effectively  it  is  not  sufficient  that  common  rules  and  standards  apply;  it  is
equally  necessary  that  adequate  infrastructure  exists  linking  the  Member
countries.  It  is  in  this  context  that  the  Commission  adopted  in  2001  a
Communication on European Energy Infrastructure19. A further Communication
is envisaged by the Commission during 2003 on this issue, building on progress
achieved  following  the  2001  Communication,  and  in  particular  addressing  the
position of Accession countries.

In the 2001 Communication, a number of measures were put forward, including
a  10%  interconnection  target20  (calculated  as  being  10%  of  a  Member  State’s
installed  generation  capacity)  and  the  priority  for  Trans  European  Network
Funding  to  certain  projects  identified  as  being  as  Priority  Projects  of  Pan-
European  Interest.  This  Communication  was  welcomed  by  the  Barcelona
Council,  which  in  particular  endorsed  the  10  %  target.  The  Commission  also
proposed  an  increase  in  the  existing  10%  ceiling  on  contribution  to  the
development stage of a project to 20% for Priority projects. This remains under
discussion at the Council.

A similar approach that is cognisant of particular circumstances is required with
respect  to  neighbouring  countries  if  they  are  progressively  to  become  fully
integrated  into  the  internal  market.  Given  the  objective  of  moving  towards  a
truly European gas and electricity market, it is necessary to further integrate the
neighbouring  countries,  together  with  the  accession  and  candidate  countries,
fully  into  the  framework  of  the  Trans-European  Networks  mechanism.  Many
projects connecting the Community with neighbouring countries already qualify
for Trans-European Network Funding. However, it is necessary, in the light of
the speed with which the creation of a wider European electricity and gas market
is being realised, to re-assess the projects presently qualifying. In addition, it is
appropriate  to  re-examine  the  manner  in  which  other  Community  support
programmes are active in this area.

Given  the current state of  the projects that are necessary to make  effective  the
wider internal energy market, the lists of projects that is included in Annexes I
& II are indicative and purely for informational purposes: the estimated costs of
undertaking  these  projects  and  the  simple  listing  of  these  projects  does  not
engage  the  Commission  or  the  Union  in  this  matter.  In  no  way  can  this

19
20 

COM(2001)775, 20.12.2001
Commission Communication COM (2001) 775 final point 3.1

18

                                                
publication affect the work on the new financial perspectives being undertaken
by the Commission.

Trans-European Network Funding and the other programmes referred to above
is important not only for the financial contribution to projects necessary for the
completion of European electricity market, but also in terms of a clear statement
of  Community  recognition  of  the  importance  of  the  project  in  question.  This
recognition  has  been  a  significant  factor  when  moving  towards  the  concrete
implementation of  projects and their  financing.  Such  support,  however,  cannot
and  should  not  endeavour  to  replace  private  funding  of  gas  and  electricity
networks.  The  construction  and  maintenance  of  infrastructure  remains  the  task
of  industry.  However,  Community  programmes  have  played  a  vital  role  in  the
past  by  acting  as  a  catalyst  or  support  mechanism  for  projects  of  Community
and wider interest. This role for the Community institutions remains important,
and needs to be further focussed in the light of evolving energy objectives.

together  with 

the
In  addition,  other  Community  support  programmes, 
Community’s regional funds programme within EU Member States ,will need to
continue to play a major role, and will need to be more closely co-ordinated at
the planning stage to meet the rapidly developing and changing needs regarding
the  support  of  infrastructure  development  in  neighbouring  countries.  Energy
links can often not be funded by only one programme as the link will cross the
artificial borders imposed by funding programmes (for example in the Balkans,
the  Western  Balkans  and  Eastern  Balkans  have  different  funding  mechanisms
applied to them).

At  present  the  volumes  of  electricity  exchanges  between  the  EU/Accession
countries  and  neighbouring  countries  remains  rather  small,  in  the  year  2001
6,4TWh  were  exported  and  13TWh  were  imported  (excluding  Norway,
Switzerland and former Yugoslavian countries, production in the EU/Accession
countries  in  2001  was  about  3000TWh).  To  illustrate  the  potential  to  increase
the capacity, the high scenario in the TACIS study finalised in 1999 ended up to
an  exchange  potential  of  32TWh/year  in  case  of  synchronisation  of  the  Union
for  Co-ordination  of  Transmission  of  Electricity  and  Russian  networks.
Regarding  the  links  over  Mediterranean,  a  standard  600MW  undersea  cable  is
capable of transporting roughly 4TWh of electricity per year.

Considerable work has already been undertaken in identifying the infrastructure
projects  meriting  Community  political  and,  if  necessary  and  appropriate,
financial  support  as  indispensable  to  develop  a  wider  European  electricity  and
gas market providing effective levels of competition and security of supply. The
following  indicative  list  of  projects  will  continue  to  evolve.  As  an  example,  it
could  be  noted  that  the  Commission  is  currently  preparing  the  2nd  Northern
Dimension Action Plan, which will include a number of energy-related projects

5.1. 

EU-Russia

At  present,  the  Russian  electricity  grid  is  only  connected  to  a  minor  extent  to
European Union countries, the sole direct connection being to Finland. Among
the  Accession  countries,  the  Baltic  states  are  in  the  same  synchronous  area  as
Russia and they are currently dependent on the Russian system for the operation

19

of  the  network.  They  are  considering  operating 
their  electricity  grids
synchronously to the grids of Finland and Poland in the medium term. Thus, an
increase of the interconnection between the continental European grid operated
under  the  Union  for  Co-ordination  of  Transmission  of  Electricity  system  and
Russia,  to  ensure  that  once  issues  regarding  market  access,  environmental
protection and nuclear safety are resolved, trade can take place freely, should be
viewed as a priority.

The Russian electricity system is synchronously connected to that of the Newly
Independent States, including Ukraine. Thus, effective connection with Russia,
and agreement on the trade, environmental and safety related issues mentioned
above, would provide a sound basis for pursuing a similar approach with Newly
Independent States, and notably the Ukraine and Belarus.

Two  options  exist,  non-synchronous  connection,  which  permits  a  greater  level
of control over flows, and a synchronous connection. The latter type gives rise
to a greater level of difficulty in terms of harmonisation of safety standards than
the  former.  This  is  an  important  issue,  because  a  clear  pre-condition  to  full
interconnection between the  European  Union  electricity  networks  and  those  of
the  neighbouring  countries  is  the  determination  that  this  would  in  no  way
compromise the safety and reliability of both networks and electricity systems.
Synchronous  connection  has  been  strongly  advocated  by  the  Russian  side,  at
technical  and  political  levels.  Whilst  the  Commission  accepts  that  there  are
advantages to such an interconnection, it is clear that prior to any synchronous
connection  between  the  UCTE  and  RAO-UES  systems,  a  number  of  technical
issues need to be addressed as well as the relevant commercial ones.

At present, the Union for Co-ordination of Transmission of Electricity, the body
responsible  for  co-ordinating  and  setting  standards  for  the  operation  of  the
continental European grid, has been working on this issue in close collaboration
with  its  counterparts  in  Russia  and  the  Newly  Independent  States.  A  pre-
feasibility  study  on  the  technical  aspects  of  interconnecting  the  networks  is
currently underway and will be completed shortly. It is then the intention of the
Commission to work together with the Union for Co-ordination of Transmission
of  Electricity  and  the  non-nuclear  Russian  electricity  company  RAO  UES  to
define, during 2003, the terms of reference for a full feasibility study to examine
the technical aspects related to interconnecting the networks. This would include
an  examination  of  the  prospects  for  trade  in  electricity,  and  the  actual  and
potential  bottlenecks  in  interconnection  and  the  technical  issues  related  to  any
incompatibility of the Russian electricity system with that of continental Europe.

Once the study is completed, it would  then be possible  to assess  the  prospects
and  the  level  of  investment  necessary,  although  evidently  the  funding  of  these
investments should primarily be a matter for the private sector.

The Commission considers that it is important that rapid progress is now made
to clarify the preferable option of interconnection. Interconnection, provided that
it can be achieved on the basis of high safety and security levels, and that it is
accompanied  by  clear  agreement  on  substantively  equivalent  levels  of  market
opening, environmental protection and nuclear safety, is in the clear interests of
Russia  and  the  European  Union  alike.  Such  a  development  would  provide  an

20

important  additional  source  of  competition  for  the  internal  market  and,  under
right conditions, increase security of supply.

The  Commission  therefore  believes  that  an  interconnection  project  should  be
declared a Priority  Project of European  Interest, and that it  might benefit from
possible  support  funding  under  the  Trans-European  Network  mechanism.
Clearly  as  mentioned  above 
increased
interconnector  capacity  between  the  UCTE  and  RAO  UES  systems  will  be
subject  to  finding  solutions  to  the  commercial  and  environmental  issues
discussed  above.  In  this  context,  a  step-by-step  approach  could  be  envisaged
where  progress  on  the  harmonisation  of  standards  and  practices  of  trade,
environmental  protection  and  nuclear  safety  are  matched  by  an  increasingly
powerful interconnection (subject to point 4.2.)

the  eventual  construction  of 

5.2. 

South East Europe

In order to complete the reconnection of the electricity system of the countries
of  the  region  and  these  countries  with  the  EU,  a  number  of  strategic
interconnections  have  been  identified  in  the  context  of  the  Athens  Forum
process. These are:

– 

– 

– 

– 

the  reconnection  of  the  Ernestinovo  and  Mostar  lines  in  Croatia  /
Serbia / Bosnia and Herzegovina;

the  completion  of  the  Western  North-South  Connection  through
Elbasan in Albania;

the strengthening of the Greece – Bulgaria links; and

the  strengthening  of  the  Greece-Italy  and  the  Greece-Turkey  links
(Ipiros – Puglia and Philippi-Hamidabad).

The Commission therefore believes that these interconnection projects should be
declared a Priority Project of European Interest, and that it should benefit from
possible support funding under the Trans-European Network Mechanism [TEN].
With  respect to gas, the  lines  necessary  for  the  completion  of  the  regional  gas
market are presently under examination in the context of the proposed creation
of the regional market itself. Any such lines necessary will be considered in the
context of future revisions of the TEN guidelines.

5.3. 

Euro-Mediterranean Partnership

The  Mediterranean  Electricity  ring  will  link  all  the  countries  of  the  Euro-Med
process. This ring is not yet completed. This ring needs to be complemented and
strengthened by  direct  links  between  a  number  of  Med-Ring  countries  and  the
EU.  It  is  important  to  make  rapid  progress  on  a  number  of  links  that  will
complete  the  ring,  and  a  number  of  lines  that  will  provide  effective  levels  of
connection  between  the  ring  and  the  EU.  Regarding  the  latter,  the  following
links  are  the  most  important,  and  have  been  identified  in  the  Ad  Hoc  Energy
Groups and the EUROMED Energy Forum:

– 

reinforcement of the capacity between Morocco and Spain;

21

– 

– 

– 

reinforcement of the capacity between Greece and Turkey;

interconnection between Algeria and Spain; and

interconnection between Italy and Tunisia.

The  Mediterranean  Electricity  Ring  should  be  viewed  as  Priority  Projects  of
European  Interest,  and  should  be  eligible  for  support  under  the  TENs
programme  and  MEDA,  together  with  a  number  of  projects  necessary  for  the
completion of the Mediterranean Ring set out in annex 1 to this Communication.

6. 

HARMONISATION  AND  TECHNICAL  INTEROPERABILITY  OF  ELECTRICITY  AND
GAS NETWORKS

In order to create a fully functioning market it is also necessary to promote the
development, where necessary, of common technical and commercial standards
regarding electricity and gas networks, and common trading rules and systems.
Within  the  European  Union  primarily  the  European  Gas  and  Electricity
Regulation  Fora  (The  “Florence”  and  “Madrid”  Fora  have  addressed  these
issues.

With respect to technical standards for electricity, input into the Florence Forum
is  provided  by  the  Union  for  Co-ordination  of  Transmission  of  Electricity
together  with  Nordel21  and  other  network  associations,  in  close  collaboration
with  the  Commission,  the  Council  of  European  Energy  Regulation,  the
European  Transmission  System  Operators  Association  and  other  relevant
stakeholders. First drafts of guidelines in the form of a Union for Co-ordination
of  Transmission  of  Electricity  operational  handbook  have  been  prepared  and
presented to the stakeholders. With respect to gas, this is now addressed by an
entirely  new  industry  grouping,  “EAZEE-Gas”.  This  association  is  now
beginning concrete work on standardisation issues.

Commercial  issues  have  been  dealt  with  in  the  Florence  and  Madrid  Fora
through  informal  agreement  between  the  electricity/gas  industries,  the  national
regulatory  authorities,  Member  States,  consumer  groups  and  the  Commission.
This  has  resulted,  in  particular,  in  an  agreement  on  a  cross-border  tariffs
mechanism for electricity, eliminating national import, export and transit tariffs
in favour of a single EU-wide charge of 0,5 € Mw/h, an agreement on guidelines
for congestion management in electricity, an agreement on Guidelines for Good
Practice for the operation of the gas transmission networks.

With respect to electricity, the progress made in the Florence Forum has enabled
a Regulation on cross-border trade on Electricity to be proposed, on  which the
Council has reached a common position. The Guidelines for Good Practice for
gas are presently under revision.

It is important that, as neighbouring  countries become progressively integrated
into  the  internal  electricity  and  gas  markets,  they  fully  participate  in  these

21

Nordel is an association for electricity co-operation in the Nordic countries.

22

                                                
mechanisms  and  implement  the  resultant  agreements.  The  Accession  countries
already participated in the Fora in 2002, as well as representatives from Russia
in  the  context  of  the  EU-Russia  energy  dialogue.  At  present,  careful  attention
will need to be given to ensuring that the South-East Europe Electricity market,
the  Euro-Med  market,  and  other  neighbouring  countries,  and  in  particular
Russia,  are  kept  fully  informed  of  developments  in  the  Madrid  and  Florence
Fora  and  vice  versa,  and  are  given  full  opportunity  to  provide  input  into  the
process.  As  developments  progress,  and  as  these  countries  implement  rules
compatible with those governing the internal market, they should become – like
the accession countries have now become – full participants in these Fora.

7. 

SECURITY  OF  SUPPLY  AND  THE  DEVELOPMENT  OF  NEW  GAS  AND  OIL
INFRASTRUCTURE

In seeking to use networks for the transport of hydrocarbons, the Commission is
aware  of  two  elements  of  security  of  supply.    The  first  is  physical  security  of
supply and the second is strategic and commercial.  The first necessitates that we
maintain safe and  effective networks and the second that we have  the  necessary
pipeline infrastructure to satisfy our domestic consumption needs.

7.1. 

Physical Security of Supply in Networks

7.1.1.  Pipeline Safety

Pipelines  are  generally  recognised  as  a  safe  way  to  transport  dangerous
substances  in  comparison  with  other  modes  of  transport.  A  greater  use  of
pipelines  is  developing  within  the  European  Union  and  European  pipeline
networks are growing rapidly. Historically, there has also been a good pipeline
safety  record  within  Member  States,  and  most  of  the  pipeline  accidents  have
been outside the European Union.

However, it has been recognised that pipeline accidents have occurred in Europe
and  world-wide,  which  indicate  their  ‘major-accident  hazard’  potential.  Both,
the Council and the European Parliament have expressed the view that pipelines
should  be  included  within  the  scope  of  Community  legislation  dealing  with
major-accident  hazards.  This  is  consistent  with  the  so-called  ‘precautionary
principle’ on which Community environmental policy is based.

An analysis of existing legislation within the European Union22 has shown that
there is a large variation in the degree to which Member States cover the control
of  major-accident  hazards  arising  from  pipelines.  There  are  important  gaps
related  to  the  types  of  substances  covered,  major-accident  prevention  policies
and  safety  management  systems,  prevention  of  third-party  damage,  emergency
planning,  information  to  the  public,  land  use  planning,  and,  last  but  not  least,
reporting requirements for major pipeline accidents.

22

Regulatory benchmark for the control of major accident hazards involving pipelines, JRC (1999)

23

                                                
A review of such accidents involving oil, gas and other dangerous substances23
has shown that  the  existence  of  legislation  on  the  control  of  pipelines  in  other
industrialised parts of the world, such as the United States, contributes to better
knowledge about major  accidents and their consequences. However,  even with
the  limited information  sources  available  for  Europe,  it  could  be  demonstrated
that major pipeline accidents have happened in the past and that there is a major-
accident  potential  for  the  future,  particularly  taking  into  account  the  fact  that
European pipeline  networks are  growing  rapidly  and  the  existing  networks  are
ageing.

The  Commission  considers  that  the  most  important  elements  to  be  introduced
and  harmonised  at  Community  level  are  requirements  relating  to  safety
management systems, control of external interference, information to the public,
emergency planning, systems of inspection and accident reporting.

7.1.2.  Geographic Certainty and Safety

The  Commission  would  like  to  see  greater  use  of  precise  mapping  techniques
and  monitoring  programmes  for  hydrocarbon  networks  and  also  monitoring
programmes  for  hydrocarbon  shipments  in  general.    The  first  of  these  would
allow precise identification of where a problem may exist and the second would
allow  immediate  redress  of  the  situation.    Details  of  these  proposals  will  be
made within the scope of the Galileo programme.

Galileo offers significant opportunities for enhancing the security and safety of
networks, and of maritime transport of energy projects. Thus, in developing this
project,  close  collaboration  with  the  neighbouring  countries    and  partners  is
necessary.  In  particular,  it  is  important  to  involve  these  countries  in  the
promotion of the use of Galileo  in its  future  concrete  use in  the  energy sector,
notably  regarding  the  construction  and  maintenance  of  gas  and  oil  pipelines,
high tension electricity lines, the monitoring of oil tankers and the management
of  natural  resources.  In  this  respect,  the  establishment  of  an  EU-Russia
Observation  System  is  foreseen  in  the  context  of  the  EU-Russia  Energy
Dialogue.    Such  a  system  could  also  be  established  in  the  Mediterranean  and
South  East  Europe  with  a  view  to  being  networked  into  the  European
Observatory for oil and gas supply. A study on a similar project for the Caspian
Basin is planned as well.

7.2. 

Strategic and Commercial Security of Supply

7.3. 

Gas

With respect to security of supply, the main issue for Europe concerns ensuring
that  appropriate  market  conditions,  and  where  necessary  incentives,  exist  to
ensure the construction of new gas production capacity and pipelines to supply
the  increasing  European  gas  requirements.  As  already  mentioned,  European

23

EUR Report 18122 EN, Review of Transmission Pipeline Accidents involving Hazardous Substances,
Papadakis, G.A. (1999), ISIS, Joint Research Centre EC, Ispra 1999

24

                                                
Union gas consumption is expected to increase considerably in coming decades,
whereas  internal  European  Union  production  will  decline.  The  neighbouring
countries  to the  European  Union  are,  and  will  continue  to  be,  its  principal  gas
suppliers.  As  shown  in  table  1  annexed,  the  gas  import  requirements  for  2020
will be around 400 bcm and it is forecast that the existing capacity of 330 bcm
will need to be increased by nearly  200  bcm.  In this respect, it is  important to
distinguish  between  electricity  and  gas  imports  into  the  European  Union  from
neighbouring countries. Even after a real European electricity market is created,
exchange  of  electricity  with  the  neighbouring  countries  is  most  unlikely  to
exceed 5% of European Union consumption due to physical constraints such as
losses  of  electricity  when  transported  over  long  distance.  With  respect  to  gas,
however, by 2020, imports into the European Union are expected to cover more
than 60% of European Union demand.

The development of the new supply sources, and construction of the pipelines to
bring  it  to  the  EU,  will  require  the  investment  of  many  billions  of  Euro.  To
permit the financing of these investments, the Community must demonstrate its
commitment  to  these  projects.  Such  investments  are  often  characterised  by
significant  levels  of  commercial,  and  in  some  cases,  political  risk.  The  EU-
Russian  energy dialogue  may  provide  an  important  mechanism  in  this  respect,
and  could  serve  as  a  model  for  establishing  an  effective  and  responsive
mechanism for addressing such issues.

The Union’ support to such projects can be established in a number of different
concrete ways, the most important of which is:

– 

– 

participating  in  the  financing  of  the  projects  notably  through  the
European Investment Bank; and

the  participation,  albeit  to  a  limited  extent,  in  the  financing  of  the
projects  for  catalytic  purposes, 
through  Community  support
programmes,  including  the  Trans-European  Networks  (TEN).  Such
contribution  is  important  not  only  for  the  financial  contribution  in
question, which is limited compared to the overall cost of the project
in question, but also because of the fact that the support underlines
the Community’s political backing to the  project  in  question which
makes  it  more  easy  for  private  financial  support  to  be  secured.
However,  as  already  mentioned  above,  such  support  cannot  and
should  not  endeavour  to  replace  the  private  funding  of  gas  and
electricity networks. Community  financial support plays the  role of
catalyst and facilitator through these programmes, not investor.

The following projects can be identified as being the most important that should
attract  Community  political  and  possibly  financial  support  through  appropriate
and tailored programmes in the coming years to meet the objectives of ensuring
security of supply of adequate and diverse supplies of gas:

7.3.1.  Russia

– 

The  Northern  Trans-European  gas  pipeline  project  (approximately
1,295  kilometres  long,  this  would  transport  Russian  gas  from  the

25

Russian  coast  north  of  St.  Petersburg  under  the  Baltic  Sea  to
northern  Germany  and  then  onwards  via  the  Netherlands  to  the
United  Kingdom.  It  would  have  a  capacity  of  between  20  and  30
billi-on cubic metres a  year, with the main future source of the gas
for  this pipeline foreseen  to be the new  Shtokman  field,  which lies
some 650 kilometres north-east of Murmansk in the Barents Sea).

– 

A second  Yamal-Europe gas pipeline network through  Belarus  and
Poland to run parallel to the first. It would have a similar capacity24;

7.3.2.  Euro-Mediterranean

– 

– 

– 

– 

– 

– 

Links  between  France  and  Spain  to  Algeria  creating  a  second
“Medgaz”;

Links  between  Algeria  to  Italy  and  France  through  Sardinia  and
possibly Corsica;

An EU - Arab gas link in five parts (Egypt-Jordan; Syria; Lebanon;
Cyprus  and  Turkey),  necessitating  an  agreement  between  the
participating parties;

Supply to the enlarged European Union and, in particular the Baltic
region, of LNG from Egypt and Algeria;

A  Turkey-Greece-Italy  interconnection  drawing  in  the  countries  of
South East Europe directly or indirectly, which would in time bring
the  resources  of  the  Caspian  region  and  Iran  to  the  enlarged  EU
market and the Balkans; and

Gas  interconnector  between  Libya  and  Egypt  to  complete  the
Mediterranean ring.

7.3.3. 

South-East Europe

– 

– 

Turkey - Bulgaria - Romania - Hungary - Austria gas pipeline;

Greece,  Former  Yugoslav  Republic  of  Macedonia,  Serbia,  Bosnia,
Croatia and Slovenia gas pipeline

7.3.4.  Caspian Basin

– 

– 

– 

Azerbaijan – Georgia – Turkey gas pipeline (see 10.4.2);

Kazakhstan – Russia (- Ukraine) gas pipeline;

Iran – Turkey gas pipeline

24

In this context, Belarus an important transit country for Russian gas deliveries to Europe, with the
country’s  natural  gas  transportation  monopoly  Beltransgaz  managing  a  total  of  more  than  2000
kilometres of natural gas pipelines.

26

                                                
7.3.5.  Other important partners

– 

Increase  the  overall  performance,  safety  and  security  of  the
Ukrainian gas transit network.

7.4. 

Oil

The  accidents  of  the  Erika  and  the  Prestige,  and  the  significant  environmental
damage  caused  by  the  resulting  oil  spills,  has  highlighted  the  necessity  for
concerted  action  between  the  European  Union  and  neighbouring  countries  to
ensure  the  highest  possible  safety  standards  for  the  maritime  transportation  of
oil.

Given the increasing density of the maritime traffic in the waters around the EU,
it  is  of  utmost  importance  to  give  a  higher  priority  to  considering,  where
economically  and  technically  feasible,  the  alternative  of  transporting  oil  by
pipelines.  This  is  considerably  safer  and  more  environmentally  friendly.  A
number  of  pipelines  already  link  the  European  Union  with  Russia  and  it  is
important  to  ensure  that  not  only  are  these  fully  utilised,  but  also  that  new
pipeline  infrastructure  are  considered  instead  of  new  maritime-based  projects.
Other pipelines could ensure that the resources from Saudi Arabia (transiting via
Egypt), Iraq (via Turkey), the Caspian Basin, Algeria and Libya could reach the
European Union market.

7.4.1.  Russia

Russia is one of the world’s major oil producers and the second most important
exporter after Saudi Arabia. Of the 124.4 million tonnes of exports handled by
the Russian monopoly pipeline operator Transneft in 2000, 70.5 million tonnes
or 57% went through major marine terminals.

The  oil terminal at Primorsk  in the  Gulf  of  Finland,  which  was  opened  in  late
2001, is foreseen to have a  capacity to export 30 million tonnes in 2003. With
the area ice-bound for some six months of the year, being at the narrow end of
the  enclosed  Baltic  Sea  and  in  an  environmentally  sensitive  area,  the
repercussions of a possible oil spill underline the importance of ensuring  close
co-operation between the enlarged European Union and the Russian authorities
to ensure the highest safety standards for the maritime transportation of oil.

With  the  significant  oil  and  gas  reserves  in  Russia’s  Arctic  region,  increasing
consideration is being given to maritime transport along the western part of the
North  Sea  Route  which  could  provide  an  alternative  route  for  exports  from
Russia  direct  to  international  markets.  However,  the  particularly  fragile  and
challenging  environment  highlights  the  necessity  of  ensuring  very  high  safety
and environmental standards, and an in-depth knowledge and understanding of
the  climatic  conditions.  In  this  context,  the  Commission  is  co-funding  an
important research and development project.25

25

ARCOP  (Arctic  Operational  Platform).  This  three  year  project,  launched  in  December  2002,  is
partly  financed  by  the  Commission  under  the  Fifth  Framework  Programme  for  Research  and

27

                                                
7.4.2.  The Mediterranean Region

In 2001, the total maritime trade (imports and exports) in oil and oil products in
the  Mediterranean  between  the  European  Union  and  it  twelve  Mediterranean
partners  totalled  some  63  million  tonnes26.  However,  if  all  the  oil  and  oil
products  imported  into  the  Euro-Mediterranean  area  are  included,  this  total
increases to 395 million tonnes, which is transported in some 800 tankers27. This
is  particularly  intensive  traffic  for  an  enclosed  sea,  which  is  environmentally
highly  fragile,  with  no  point  in  the  Mediterranean  being  more  than  400
kilometres from the coast. With the surface waters taking a least 100 years to be
exchanged,  the  repercussions  of  an  Erika  or  Prestige  type  accident  would  be
catastrophic.

7.4.3.  The Black Sea

The  maritime  transportation  of  oil  in  the  enclosed  Black  Sea  has  increased
steadily with the opening up of the resources of the Caspian Sea basin following
the break-up of the Soviet Union. New infrastructures linking the Caspian Sea to
the Black Sea have been built, such as the pipeline linking the Tengiz oil field in
Kazakhstan with the  Russian  terminal  at  Novorossysk  and  the  pipeline  linking
the  Chiarg  oilfield  in  Azerbaijan  to  Soupsa  in  Georgia.  Transporting  this  oil
across the Black Sea to the Roumanian port of Constanza or the Bulgarian port
of  Burgas  or  to  the  international  markets  through  the  Bosphorus  has  led  to  a
major  increase  in the maritime  traffic.  Figures  for 2002 indicate that  a  total  of
122  million  tonnes  of  oil  passed  in  both  directions  through  the  Bosphorus  in
7400  tankers.  To  this  should  be  added  the  new  oil  terminal  at  Odessa  in  the
Ukraine,  which  is  part  of  a  strategy  to  diversify  energy  supplies  to  permit  oil
from  the  Caspian  to  reach  Central  Europe  and  the  Baltic.  The  Commission
therefore believes it is important to prioritise co-operation with the neighbouring
countries to enhance the safety and security of the maritime transportation of oil
in  the  context  of  the  recent  Commission  proposals  in  response  to  the  Prestige
accident. This could be done by:

– 

– 

Upgrading and enhancing the whole Druzhba pipeline, in particular
across  northern  Europe  as  an  alternative  to  increasing  maritime  oil
transportation in the Baltic Sea.

Extending  the  Odessa-Brody  pipeline28  to  Plock  to  link  into  either
the  Druzhba  northern  route  or  the  existing  line  to  the  Polish  Baltic
Sea port of Gdansk.

26

27

28

Development,  and  involves  a  consortium  of  21  organisations  from  Finland,  Germany,  the
Netherlands, UK, Italy, Norway and Russia.
EUROSTAT. Medstat programme.
Study by BEICIP in the framework of the MEDA project “Support to the  Ad-hoc  groups of the
Euro-Mediterranean Energy Forum”.
This pipeline was opened in August 2001 with an initial capacity of 180,000 barrels per day. This
is eventually planned to increase to 560,000 barrels per day.

28

                                                                                                                                                
– 

– 

Building  a  Constanta-Trieste  pipeline,  linking  Romanian  port  of
Constanta  across  to  Trieste  and  supplying  oil  to  the  countries
transited29.

Building  a  Burgas-Alexandropoulis  pipeline,  linking  the  Bulgarian
Black  Sea  port  of  Burgas  with  the  Greek  Mediterranean  port  of
Alexandropoulis.  Construction  of  this  pipeline  would  reduce  the
increasing pressure of maritime oil transport through the Bosphorus.

7.5. 

Investing into the modernisation of energy systems and energy saving

The efficiency of the energy systems of our partner countries addressed in this
Communication  could  be  improved  significantly  by  investing  into  modern
power  generation  and  pipeline  infrastructure  as  well  as  better  energy  metering
and a reform of energy pricing.

Investments into energy saving more broadly would free up resources that could
be  exported  in  the  interest  of  both  our  neighbouring  countries  and  the  EU.
Therefore,  co-operation  in  the  fields  of  energy  efficiency  and  energy  saving
should  be  given  even  higher  priority  than  is  presently  the  case  under  the  EU-
Russia Energy Dialogue and the Euro-Mediterranean Partnership.

This  priority  is  also called  for  in  the  light  of  our  shared  commitment  with  our
neighbouring  countries  to  combat  climate  change.  This  includes  for  example
creating favourable conditions for renewables in the context of creating a wider
integrated electricity market ensuring the fair access of renewables to the grid as
well as appropriate incentives for their development.

Specific  instruments  in  the  form  of  Joint  Implementation  and  the  Clean
Development Mechanism are set up under the Kyoto Protocol that will support
investments  into  modern  energy  infrastructure  while  reducing  greenhouse  gas
emissions.  Such  an  approach  is  on  the  point  of  implementation  in  South  East
Europe.  One should recall too that the Commission has supported the concept
of a “coalition of the willing” following the Johannesburg Summit.

8. 

REVISION  AND  RESTRUCTURING  OF  COMMUNITY  SUPPORT  MECHANISMS  IN
THE ENERGY SECTOR

In  the  light  of  the  above,  it  would  be  required  to  undertake  a  revision  of  the
Trans European Networks guidelines to update the list of projects qualifying for
funding under this programme. This will also represent an opportunity to revise
the guidelines to take account of the need to fully integrate accession countries
into the internal electricity and gas markets as quickly as possible.

29

A  number  of  alternatives  routes  are  under  consideration:  a  possible  northern  route  could  transit
southern Hungary and Slovenia  while a southern route could transit Serbia, the  Croatian port of
Omisalj and Slovenia to the Italian oil terminal at Trieste. From here, the pipeline would be linked
to  the  Trans  Alpine  Pipeline  which  could  then  carry  the  oil  further  into  markets  in  Austria,
Germany and the Czech Republic.

29

                                                
In addition, it is appropriate to revise the types of support that can be envisaged
by the TEN programme, which are presently limited to:

– 

– 

– 

– 

– 

co-financing of studies related to projects;

subsidies  of  the  interest  on  loans  granted  by  the  European  Investment
Bank or other public or private financial bodies;

contributions  towards  fees  for  guarantees  for  loans  from  the  European
Investment Fund or other financial institutions;

direct grants to investments in duly justified cases;

risk-capital  participation  for  investment  funds  or  comparable  financial
undertakings.

The construction of new gas and oil pipelines to supply the Community’s future
needs will necessarily  originate  from,  or  will  transit,  areas  where  political  risk
insurance  is  a  precondition  for  attracting  finance.  Such  insurance  can  be
expensive. The participation of the Community in such costs for projects clearly
in  the  European  Union’s  interest,  can  be  a  real  catalyst  and  incentive  to  the
development  of  these  networks.  It  is  therefore  appropriate  to  revise  the  TEN
guidelines to also permit participation in the costs of such insurance.

Finally,  this  Communication  has  highlighted  the  need  for  a  coherent,  focussed
approach  to  Community  support  to  infrastructure  in  the  energy  sector,  and  the
importance  of  co-ordination  between  the  TEN-E  policy  and  programme,
European  Union  assistance  programmes,  as  well  as  infrastructure  activities  of
international financial institutions such as the European Investment Bank [EIB]
and the European Bank for Reconstruction and Development [EBRD].

The  energy  sector  has  played  a  substantial  role  in  national  and  regional
Community co-operation programmes. In its recent Communication on “Wider
Europe:  Neighbourhood”  the  European  Commission  has  proposed  that  the
Community should enhance its assistance and better tailor it to the needs arising
from  proximity,  for  example  through  a  new  ‘neighbourhood  instrument’
currently  under  consideration.  The  Communication  also  notes  the  key  role
which  international  financial  institutions  will  play,  and  refers  to  a  possible
extension of the external lending mandate of the European Investment Bank.

In  this  context,  due  attention  needs  to  be  paid  to  the  investment  climate,  in
particular the framework of regulation, legislation and the rule of law, in which
EU  companies  operate.  The  European  Commission  will  use  the  possibilities
offered by the existing agreements with the partner countries to complement the
measures  described  above  by  an  intense  political  dialogue  on  these  questions
and will seek to  make  greater  use of the  Commission’s  Delegations  as well  as
Member States’ Embassies on the ground.

30

9. 

CONCLUSION AND CONCRETE ACTIONS

The  growing  importance  of  the  neighbouring  countries  for  the  proper
functioning  of  the  European  Union  energy  markets  is  evident.  They  are  our
major partners in terms of the supply of gas and, increasingly, oil. This role will
continue  to  increase  in  the  future.  Given  the  objective  of  creating  an  area  of
shared prosperity and stability in and around Europe, and taking account of the
European  Union’s  energy  needs  in  the  future,  and  in  particular  its  increasing
dependency  on  imports  from  these  countries,  an  active  approach,  in  terms  of
ensuring  real  and  effective  dialogue  and  thus  developing  a  real  energy
partnership, 
important.  This
communication has highlighted the following concrete areas of action that need
to be addressed by the EU:

relevant  and 

is  becoming 

increasingly 

The progressive creation of a real European electricity and gas market, including
potentially  more  than  35  countries  with  a  population  exceeding  600  million,
should  be  a  clear  medium-term  objective  of  the  European  Union.  This  market
should  be  established  on  the  basis  of  common  standards  regarding  market
opening, environmental protection and safety.

This  European  market  will  necessarily  be  established  on  a  step-by-step  basis.
With  accession,  the  market  will  already  include  25  EU  Members  countries  by
2005.  The  member  countries  of  the  South-East  Europe  electricity  market  have
already  formally  committed  themselves  to  adopting  the  Community  acquis  in
this area for electricity, and discussions are progressing towards the adoption of
similar commitments regarding gas.

Similarly, concrete discussions regarding the creation of an Euro-Med electricity
and  gas  market  are  progressing,  and,  as  a  first  stage,  it  is  expected  that  the
Maghreb  countries  can  agree  upon  agreement  on  a  clear  timetable  for  the
adoption of appropriate rules in 2003.

Regarding  Russia,  concrete  discussions  have  now  commenced  to  identify  the
issues  that  need  to  be  addressed  regarding  substantive  equivalence  of  market
opening,  environmental  protection  and  safety.  These  now  need  to  progress,
together  with  feasibility  studies  on  the  interconnection  between  the  Union  for
Co-ordination  of  Transmission  of  Electricity  and  NIS  networks.  The  objective
should  be  the  conclusion  of  a  formal  agreement  between  the  European  Union
and Russia on these issues, opening the way for fair and free trade in electricity.
With  respect  to  gas,  Russia  already  plays  a  major  role  in  the  European  Union
gas  market.  The  European  Union-Russia  energy  dialogue  has  proven  to  be  an
important  and  effective  tool  in  identifying  and  eliminating  any  difficulties
arising in this respect.

Finally,  the  close  involvement  of  neighbouring  countries  in  developments
regarding the technical harmonisation and interoperability of gas and electricity
networks,  addressed  inter  alia  through  the  Florence  and  Madrid  Regulatory
Fora, will be pursued. This should progressively lead to the full participation of
neighbouring countries in these Fora.

31

The construction of the new infrastructure necessary to permit such an enlarged
European market to function effectively and to ensure the future supply of gas to
the  European  Union  requires  close  collaboration  between  the  Community  and
supply countries, as well as those involved as transit regions. The commitment,
in  financial  and  political  terms  of  the  European  Union  to  new  development,
reinforcing and diversifying Community gas supplies in vital in this respect. The
Commission proposes the following concrete action:

– 

– 

– 

The  revision  of  the  Trans  European  Networks  mechanism  to  allow  for
this  Communication  (without
eligibility  of  projects 
guaranteeing  any  award  of  funds  and  maintaining  the  principle  that  the
private sector is the primary investment community).

identified 

in 

The  idea  within  the  context  of  the  revision  of  the  Trans-European
Networks  mechanisms  to  permit  participation  in  the  cost  of  coverage  of
political risk insurance.

A mechanism for the better co-ordination of existing and new Community
instruments for supporting the development of energy infrastructure inside
and  outside  the  enlarged  European  Union,  and  the  creation  of  a  new
general  and  overall  energy  infrastructure  financing  instrument,  which
would work by building on existing funding mechanisms and by filling in
gaps. The aim here is to ensure that any infrastructure that crosses multiple
funding  jurisdictions  is  not  hampered  by  failures  of  co-ordination  or  a
critical absence of funds.

– 

A greater use of Galileo for security, safety management and construction
purposes.

The  adoption  of  these  measures,  and  a  continued  intensification  of  dialogue
between  the  European  Union  and  its  neighbours  and  partners  will  permit  the
development  of  a  real  energy  community  in  the  wider  European  area.  Such  a
development  will  promote  shared  prosperity,  stability  and  sustainable
development.

32

ANNEXES

Note:

Given  the current state of  the projects that are necessary to make  effective  the
wider internal energy market, the lists of projects included in Annexes I & II are
indicative  and  purely  for  informational  purposes:  the  estimated  costs  of
undertaking  these  projects  and  the  simple  listing  of  these  projects  does  not
engage  the  Commission  or  the  Union  in  this  matter.  In  no  way  can  this
publication affect the work on the new financial perspectives being undertaken
by the Commission.

ANNEX I – EU-MEDITERRANEAN PROPOSED ELECTRICITY PROJECTS.

Electricity Projects to be declared Priority Projects of European Interest or Pan-European
Interest (as applicable)

In  order  to  ensure  the  full  interconnection  between  the  European  Union  and  its
neighbouring countries the following projects merit Community support30:

1.1.  Morocco - Spain

The  project  will  reinforce  the  interconnection  between  the  Moroccan  power  grid
(Mellousa s/s) and the Spanish power grid (Puerto de la Cruz s/s) by a second AC link
passing through the Straight of Gibraltar.

The project is in the engineering and design phase, the interconnection being expected to
be  in  operation  by  2005.  The  total  cost  of  the  project  is  estimated  to  be  120  M€.  The
Morocco investment amounts to 58 M€ (ONE 18,7%, BEI 38,7%, BAD 26,6% and AFD
16%).

1.2.  Morocco - Algeria

The  addition  of  a  400  kV  line  between  Morocco  (Bourdim  s/s)  and  Algeria  (Hassi
Ameur) is foreseen for 2003 with reinforcement of the internal connections (from East to
West)  at 400 kV  by 2005.  This  infrastructure  will  promote  the  market  and  commercial
relations among these two countries and will permit transit of Algerian new production.
Estimated cost 40 million €

1.3. 

Algeria – Tunisia

Tunisia is presently interconnected with Algeria through 4 lines (one at 225 kV, one  at
150  kV  and  two  at  90  kV).  The  fifth  interconnection,  which  is  under  construction,  is
rated at 400 kV but will be temporally operated at 225 kV (by 2002). The link is rated for
1720 Amp. Internal reinforcements are foreseen in Algeria so as to arrive to the closure
of the 400 kV ring from West to East. Estimated cost 13 million€

30

See Annex X for futher details of the projects in question.

33

                                                
1.4. 

Algeria – Spain

The study of a HVDC connection from Algeria (Terga s/s) to Spain (Litoral de Almeria
s/s) through submarine cable (connection of  about  200  km)  is  on  a  prefeasibility  stage.
Such a cable is particularly relevant as the construction of 2000 MW of new generation is
planned  in  Algeria,  1200  MW  of  which  for  export.  The  cable  is  envisaged  to  have  a
capacity  500  kV  with  a  first  phase  of  1000  MW  to  be  commissioned  by  2005  and  a
second phase to be commissioned by 2010. Estimated cost 700 million€

1.5. 

Algeria – Italy

The  project  of  a  potential  interconnection  link  between  Algeria  (Skikda  s/s)  and  Italy
(Cagliari Sud s/s) is on a pre-feasibility stage. An agreement has been signed between the
two  countries  for  allowing  the  respective  grid  operators,  GNERC  and  SONELGAZ  to
carry out a feasibility study. The cable is envisaged to have a capacity of 400-500 kV and
could be in operation by 2010. Estimated cost 535 million €

1.6. 

Tunisia - Libya

The  electric  interconnection  of  Tunisia  and  Libya  is  beneficial  for  the  electric  power
systems not only of the two countries directly involved, but also of other countries in the
region,  as  it  will  allow  for  the  transfer  of  electricity  between  Eastern  and  Western
Mediterranean  countries.  A  reinforcement  of  the  existing  interconnection  is  presently
under study. Estimated cost 40 million €

1.7. 

Tunisia - Italy

This potential project for the interconnection of the Tunisian and the Italy electric grids
would be rated for 400 or 500 kV and would be in operation by 2010. Estimated cost 500
million €

1.8. 

Libya - Egypt

The existing interconnection between the electric grids of  Libya  and  Egypt  needs to be
significantly reinforced. The project is under study, considering a link of 162 km, which
could be in operation by 2010 with an expected transfer capacity of 500 MW. Estimated
cost 77 million €

1.9. 

Egypt – Jordan

The existing 400 kV interconnection between Egypt and Jordan through submarine cable,
with a current transfer capability of 300 MW, needs to be reinforced, probably doubling
the present interconnection capacity. The new link rated for 400 kV could be in operation
by 2008. Estimated cost 110 million €

1.10. 

Jordan - Syria

A second stage of the Jordan - Syria interconnection is expected to be commissioned by
2010. The feasibility study was carried out in 1992 and updated in 1995 for the  Egypt-
Iran-Jordan-Syria-Turkey (EIJST) interconnection. The total cost of the project amounts
to 1,8 MUS$ . estimated cost 33 million €

34

1.11. 

Lebanon – Syria

The  two  countries,  already  interconnected  at  the  230  kV  level,  will  be  linked  with  a
double circuit 400 kV OHL. This new line, to be commissioned during 2003, will help in
relieving the energy deficit of Lebanon. Estimated cost 11 million €.

1.12. 

Syria - Turkey

The connection between the Syrian and Turkish electric grids has been delayed since the
end  of  1997,  with  the  completion  of  the  Turkish  part  of  an  interconnector.  When
completed, the countries will be connected by a single 400 kV. The commissioning of the
link requires the completion of the line in Syria. Estimated cost 50 million €

1.13. 

Turkey – Greece

The  study  on  “Feasibility  and  Evaluation  of  the  Electricity  interconnection  Greece  -
Turkey”,  partially  financed  by  TEN  program  has  been  completed.  Based  on  the  very
promising  results  of  this  study,  a  Memorandum  of  Understanding  was  signed  on  28th
March  2002  in  Ankara,  for  construction  of  Babaeski  -  Filippi  400  kV  tie  line  between
Greece and Turkey which is to be completed before the end of 2006. Estimated cost 54
million €.

ANNEX II –PROPOSED GAS PRIORITY PROJECTS

10.1

NG1 Gas pipelines from North Russia (Shtokman)

The Northern Trans-European gas pipeline project would transport Russian gas
from the Russian coast north of St. Petersburg under the Baltic Sea to northern
Germany  and  then  onwards  via  the  Netherlands  to  the  United  Kingdom.  The
stretch under the Baltic would be approximately 1,295 kilometres long and have
a  capacity  of  between  20  and  30  billion  cubic  metres  a  year.  The  main  future
source  of  the  gas  for  this  pipeline  is  foreseen  to  be  the  new  Shtokman  field,
which lies some 650 kilometres north-east of Murmansk in the Barents Sea and
which  would  require,  in  addition  to  the  infrastructure  to  exploit  the  gas,  the
construction  of  a  555  kilometre  pipeline  to  the  Russian  coast  and  a  1,359
kilometre pipeline overland down to the Baltic coast.

10.2

NG2 Gas pipelines from North Russia (Yamal)

The original Yamal pipeline project was designed to bring gas from the planned
new  fields  on  the  Yamal  peninsula  in  Northern  Siberia  to  serve  the  Russian
market and also, via Belarus and Poland, to the EU market. While the link to the
Yamal  fields  is  now  unlikely  over  the  medium  term,  the  first  of  the  two
pipelines  planned  across  Poland  has  now  been  constructed  and  is  operational,
although it is currently only carrying about 20 billion cubic metres, compared to
its full capacity of over 30 Billion cubic metres. The second pipeline, to be laid
parallel  to  the  first  and  with  a  similar  capacity,  is  the  project  of  immediate
interest  and  would  give  a  total  capacity  for  the  two  lines  of  65.7  billion  cubic
metres.

10.3 NG3 Gas pipelines from Algeria

35

Almeria

Beni Saf

Hassi R’mel

10.3.1

MEDGAZ pipeline: Algeria to Spain (NG3a)

Link :

Algeria to Spain

Gas source:

Capacity:

Average flow

Estimated  cost  offshore  and
onshore section

Hassi R’mel field

26 Million m3/d

8.0 Bcm

1.1 billion €

Pipeline Route

Length

Diameter

H R’Mel –Beni Saf

Beni Saf –Almeria

Km

547

Onshore

200

Offshore

inches

48”

24”

Compres
s.

MWatts

17

46

Project Status

o  Agreement: September 2000, between SONATRACH and CEPSA (Spain)
o 

Letters of Intent: November 2002, each company to buy 1 Bcm (total 7 Bcm)

36

C .d .P e s c a ia

O lb ia

E l K a la

C N

10.3.2

Algeria-Sardinia-Italy pipeline (NG3b)

Link :

Algeria to Italy

Gas source:

Capacity:

Average flow

Estimated  cost  pipeline
and compression

Hassi R’mel field

26 Million m3/d

8.0 Bcm

2.0 billion €

Pipeline Route

Length

Diameter

Compress.

H R’Mel –El Kala

El Kala –Cagliari

Cagliari –Olbia

Olbia –Casteglion

Km

640

310

300

280

inches

MWatts

48”

24”

42”

22”

14

60

49

37

Project Status

o  Agreement:  Joint  Venture  signed  December  2002,  between  SONATRACH,  ENEL  and

WINTERSHALL

o 

Project in very preliminary phase

38

Sicily

Import from Algeria

Pipeline
To Malta

Gela

10.3.3

Link :

Gas source:

Capacity:

Sicily-Malta Gas Pipeline

Sicily to Malta

Italian Network

2.31 Million m3/d (0.84 Bcm)

Average flow

0.6 Bcm

Investment

Pipeline:

87 Million US$

Pipeline Route

Length

Diameter

Km

inches

136 -153

Offshore

16”

Compres
s.

MWatts

Project Status

o  MOU signed in January 2002 between ENEMALTA and ENI

o  Feasibility study completed

o 

Power  generation  to  represent  95%  of  expected  gas  consumption,  with  onshore  lines  to

connect the Delimara and Marsa power plants

39

BULGARIA

Komotini

Border

Instabul

Kizilcaterzi

Degirmencik

Karacabey

10.4

NG4 Gas pipelines from the Caspian Sea

10.4.1 Turkey-Greece Interconnector

Turkey -Greece

Project Status

Turkey 
Azerb.)

(Russia, 

Iran,

Link :

Gas source:

Capacity:

o  Memorandum  of  cooperation  submitted 

January 30th 2001

to  EU

o  Desk study completed by DEPA /BOTAS August 7th

2001

o  MOU by DEPA and BOTAS signed March 28th 2002

o  Starting expected in 2005 with 0.5 Bcm.

Average flow

0.5 Bcm

Estimated  cost  pipeline
an compression

260 million €

Pipeline Route

Length

Diameter

Karacabey –Degirmencik

Degirmencik 
Kizilcaterzi

–

Kizilcaterzi –Ipsala

Ipsala –Komotini

Km

115

 17

68

85

inches

42”

42”

42”

42”

40

n gas

SEA OF AZOV

Russian gas

C K     S E A

Blue Stream

Tbilisi

Ankara

Erzurum

Yerevan

Kirsehir

Erzincan

Kayseri

Azeri
gas

C
A
S
P
I
A
N

Baku

S
E
A
Turkmen
gas

Iranian
gas

Tehran

Nicosia

Beirut

Damascus

Iraqi
gas

Baghdad

Jerusalem

Amman

o

P

 10.4.2 Baku-Tbilissi-Ezurum Pipeline

Link :

Gas source:

Capacity:

Average flow

Azerbaidjan to Turkey

Shah Deniz field

22 Bcm

7.6 Bcm committed

Estimated  Cost  pipeline  an
compression

875 million €

Pipeline Route

Length

Diameter

Baku- Georgia border

Georgia border- Turkey

Turkish border –Erzurum

Km

455

245

225

925

inches

48”

48”

48”

41

 
 
 
 
 
 
 
 
 
 
 
Project Status

o  Gas  Sales  Purchase  Agreement  signed  in  March  2001  between  BOTAS  and  SOCAR  (State  Oil

Company of Azerbaidjan)

o  This Agreement was to start deliveries at 2 Bcm/year and reach a plateau of 7.6 Bcm (incl. 1 Bcm for

Georgia), but delayed to 2006.

o  The pipeline at Erzurum will be connected to the “Eastern Anatolya main line” going to Ankara.

o  This project could be extended to import gas  from  Turkmenistan  according  to  Agreement  of  October

29th 1998 related to “Trans-Caspian” project (SPA signed on May 21st 1999).

42

E

A

Scopje

Tirane

Brindisi

Otranto

Perdika

B L A C K  

komotini

Kirklareli

Istanbul

Eregli

LNG

Izmit

Sofiya

Thessaloniki

Karacabey

Karacabey

Bursa

Can

Izmir

Izmir

Ankara

Eskisehir

A E G E A N   S E A

Athens

LNGLNG

LNG

10.4.3 Pipeline Turkey-Greece-Italy.

South Eastern European Gas Interconnection

Turkey to Italy through Greece

Pipeline (base 48”):

Azerbaidjan, other

22 Bcm

7.6 Bcm committed

Link :

Gas source:

Capacity:

Average flow

Estimated cost

6 billion€

Pipeline Route

Baku –Tbilisi –Erzurum

Erzurum –Ankara

Ankara –Karacabey

Length Km

1,062

857

378

Karacabey- Komotini

Komotini -Karperi

Karperi -Trikala

Trikala -Stavrolimenas

Stavrolimenas -Otranto

Length Km

285

217

92

280

224

Sub-total

2,297

Total

3,398

Project Status

o  Pre-feasibility study stage. The total project includes 4 sections:

o  BTE pipeline: from Baku to Erzurum

o  Turkish section: from Erzurum to Karacabey

o  Turkey –Greece Interconnector: from Karacabey to Komotini (ITG)

o  Greek section: from Komotini to Trikala

o  Greece -Italy Interconnector;: from Trikala to Otranto

o  For  the  section  Greece  to  Italy,  MOU  signed  between  DEPA  and  EDISON  Gas  to  study

interconnections of Greek and Italian networks (from Trikala).

43

10.4.4

Pipeline Turkey-Austria (through Bulgaria-Romania-Hungary).

It is the geographic location of Bulgaria, Romania and Hungary--between major producers of
energy in Russia and the Caspian Sea region and major consumers of energy in Turkey and
Europe--that  gives  South  Eastern  Europe  its  importance  as  a  transit  point  for  Russian  and
Caspian natural gas supplies.

Link :

Gas source:

Capacity:

Estimated Cost

Pipeline Route

Turkey to Austria through Bulgaria, Romania, Hungary

Azerbaidjan, other

20 Bcm

6 billion €

Length Km

Length Km

Baku –Tbilisi –Erzurum

1,062

Istanbul –Austria border

1,330

(Baumgarten)

Erzurum –Ankara

Ankara –Istanbul

Sub-total

Project Status

857

380

2,300

Total

3,630

o  Pre-feasibility study stage

o  Companies  involved:  OMV  Erdgas  (Austria),  MOL  (Hungary),  Transgaz  (Romania),  Bulgagas

(Bulgaria), BOTAS (Turkey).

10.4.5

Pipeline Greece-Austria (through Balkan countries).

Potential future routing of Eastern gas pipeline is along the axis Turkey-Greece-West Balkan
ridge  countries  (FYROM,  Albania,  Yugoslavia,  Bosnia/Herzegovina,  Croatia,  Slovenia)  to
Austria. DEPA, BOTAS and OMV have agreed to carry out a prefeasibility study which shall
start in 2003. No estimated cost available yet

10.4.6

Gas supplies from Iran.

With  almost  unlimited  natural  gas  production  potential,  Iran  is  looking  to  export  large
volumes of gas. Besides Turkey, potential customers for Iranian gas exports include: Greece,
Italy,  Balkans  countries,  Bulgaria  and  Ukraine.  Exports  could  be  either  via  pipeline  or  by
LNG tanker, with possible LNG export terminals at Asaluyeh or Kish Island. Iran reportedly
is  developing  three  LNG  plants.  Liquefaction  Plant  Cost  around  1.0  billion  €  an  tanker's
development around 350 million €. (for an average flow of 5 bcm)

Exports of Iranian natural gas to Turkey were at about 105 Bcf in 2002, rising to 350 Bcf per
year by 2007.

Greee and Iran signed an agreement in March 2002 which calls for extending the natural gas
pipeline  from  Iran  to  Turkey  into  Greece.  The  line  would  connect  Ankara  to  Komotini  in
northern  Greece.  After  that,  gas  could  be  transported  to  Europe  via  Bulgaria  or  via  an
undersea pipeline to Italy, where gas demand -- especially for electric power generation -- is
expected to grow rapidly in coming years.

In December 1997, Turkmenistan launched the $190-million  Korpezhe-Kurt  Kui pipeline to
Iran.  The  124-mile  pipeline,  which  had  an  initial  capacity  of  141  Bcf,  will  have  a  peak

44

capacity  of  282  Bcf  of  natural  gas  per  year.  In  2000,  Iran  imported  106  Bcf  from
Turkmenistan via the pipeline, with that figure increasing to 154 Bcf in 2001.

All  those  interconnections  will  allow  in  the  near  future  imports  of  gas  from  the  Caspian
region to the enlarged European Union.

10.5.1

Interconnections from Iraq.

Iraq contains 110 trillion cubic feet (Tcf) of proven natural gas reserves, along with roughly
150 Tcf in probable reserves. Since most of Iraq's natural gas is associated with oil, progress
on increasing the country's oil output will directly affect the gas sector as well.

Main sources of associated natural gas are the Kirkuk, Ain Zalah, Butma, and Bai Hassan oil
fields in northern Iraq, as well as the North and South Rumaila and Zubair fields in the south.

Iraq's  only non-associated  natural  gas production is from the al-Anfal  field  (200  Mmcf/d  of
output)  in  northern  Iraq.  Al-Anfal  production,  which  began  in  May  1990,  is  piped  to  the
Jambur  gas  processing  station  near  the  Kirkuk  field,  located  20  miles  away.  Al-Anfal's  gas
resources  are  estimated  at  4.5  Tcf,  of  which  1.8  Tcf  is  proven.  In  November  2001,  a  large
non-associated natural gas field was discovered in the Akas region of western Iraq, near the
border with Syria, and containing an estimated 2.1 Tcf of natural gas reserves.

Besides  al-Anfal,  Iraq  has  four  large  non-associated  natural  gas  fields  (Chemchamal,  Jaria
Pika,  Khashm  al  Ahmar,  Mansuriya)  located  in  Kirkuk  and  Diyala  provinces.  In  February
2000, Iraq's Oil Ministry named Agip and Gaz de France as leaders on a project to develop
these fields, which have total recoverable reserves of more than 10 Tcf.

Currently,  Iraq  has  a  major  natural  gas  pipeline  with  the  capacity  to  supply  around  240
MMcf/d  to  Baghdad  from  the  West  Qurna  field.  The  48-inch  line  was  commissioned  in
November  1988,  with  phases  II  and  III  of  the  project  never  completed  due  to  war  and
sanctions.  The  last  two  phases  of  the  pipeline  project  were  meant  to  supply  Turkey.  Iraq's
Northern Gas System, which came online in 1983, was damaged during the Gulf War as well
as by the Kurdish rebellion of March 1991.

10.6

NG6 - Gas supplies from Libya.

Potential exists for a large increase in Libyan gas exports to Europe.

A joint venture between Eni and NOC on the Western Libyan Gas Project (WLGP) aimed at
developing and exporting large volumes of natural gas to Italy, is moving ahead. Overall, the
WLGP calls for Libya to export 8 billion cubic meters (280 Bcf) per year of natural gas from
a  processing  facility  at  Melitah  to  Italy  and  France  over  24  years,  beginning  in  2004,  via  a
370-mile  underwater  pipeline  (called  "Green  Stream")  under  the  Mediterranean 
to
southeastern Sicily and the Italian mainland.

To date, Italy's Edison Gas has committed to taking around half (140 Bcf) of this gas, and to
use it mainly for power generation in Italy.  Besides  Edison,  Italy's  Energia Gas  and  Gaz de
France  have  each  committed  to  taking  around  70  Bcf  of  Libyan  gas.  As  part  of  the  overall
WLGP, Agip-ENI is set to develop huge Libyan gas reserves in offshore Block NC-41 in the
Gulf of Gabes, as well as in the Wafa onshore gas (and oil) field on the Algerian border.

Feasibility  studies  have  been  completed  on  Wafa  and  NC-41,  and  gas  is  expected  to  begin
flowing  by  mid-2004.  The  project  also  is  expected  to  produce  condensates  estimated  at
around 70,000 bbl/d oil equivalent.

45

Agip-ENI also has promoted linking the reserves of both Egypt and Libya to Italy by pipeline.
An  agreement  in  principle  to  link  Egypt  and  Libya's  natural  gas  grids  was  reached  in  June
1997, following a visit to Libya.

Yet  another  proposal  is  to  build  a  nearly  900-mile  pipeline  from  North  Africa  to  southern
Europe. Such a pipeline could transport natural gas from Egypt, Libya, Tunisia and Algeria,
via  Morocco  and  into  Spain  (a  pipeline  between  Morocco  and  Spain  already  exists).  Also,
Tunisia and Libya agreed in May 1997 to set up a joint venture which will build a natural gas
pipeline  from  the  Mellita  area  in  Libya  to  the  southern  Tunisian  city  and  industrial  zone  of
Gabes. In late 1998, Tunisia and Libya signed an agreement for around 70 Bcf of gas per year
to be delivered from Libyan gas fields to Cap Bon, Tunisia beginning in 2003.

No estimated cost available yet.

46

10.7

NG7 – East Mediterranean Gas Ring

Turkey
Turkey

Syria  
Syria  

Cyprus
Cyprus

Hems

Banias    

Mediterranean 
Sea          

Tripoli
Lebanon
Beirut    

El-Rehab

Damascus 

Ariesh

Amman    

Jordan 
Jordan 

Sinai   
Sinai   

Taba 

Akaba       

PortSaied

EGYPT 
EGYPT 

CAIRO

10.7.1 Arab gas pipeline from Egypt (NG7b)

Project description

Link :

Egypt to Mashreq countries

Gas source:

Egypt fields Nile Delta

Capacity:

10 Bcm

Phase 1

Phase 2

Phase 3

Phase 4

Phase 5

Phase 6

Total
estimated cost

Pipeline
Route

Phase 1

Phase 2

Phase 3

Phase 4

Phase 5

Egypt to Jordan

Port Said- El Arish -Aqaba

Jordan

Aqaba –Amman -Rehab

Jordan to Syria

El Rehab –Damascus -Homs

Syria to Lebanon Damas -Zahrani

Syria to Cyprus

Banias -Cape Greco

Syria to Turkey

1.6 billion €

Length

Diameter

Km

441

370

450

195

266

inches

30”

30”

30”

30”

16”

47

Phase 6

380

Project Status

o  Phase  1  completed:Port  Said  –El  Arish  line  (Sinai  line)  completed  in  March  2000,  El  Arish  Aqaba

completed end 2003

o  Phase 2 Aqaba –Amman –Rehab ready to start construction and completion expected by early 2005

o  Agreement signed in August 2002 between Energy Ministers of Egypt, Jordan, Syria, and Lebanon to

monitor phases 3 and 4 to Lebanon and Syria.

48

Pipeline from Syria

LNG from Egypt

10.7.2

LNG import to Cyprus

Link

Egypt to Cyprus

Gas source:

Liquefaction plant Damietta

Destination

Cyprus Vasilikos terminal

Distance

300 miles

Import flow:

0.7 (2009) to 1.7 Bcm (2021)

Tanker size

135,000 m3

Pipeline 
terminal cost

+

160 million €

Status

o  Feasibility completed January 2003, decision of Government to proceed with the LNG option.

o 

Import expected to start only in 2009 with gas to be used only for power generation

49

Fos

ELNG

Cartagena

SEGAS

Idku

Link

Gas source:

Destination

Distance

Capacity:

10.7.3

Egypt LNG project – ELNG (Egpc-Egas)

Egypt to France

West Delta Marine Concession

Liquefaction Plant (Idku)

France: Fos terminal

Tankers

1,530 miles

3.6 million tons

Average flow

4.90 BCm

Estimated 
cost
liquifaction  plant  and
tankers for first train

1, 25 billion €

Status

o  Agreement  signed  April  9th  2001  between  EGPC,  BG  Group  and  EDISON  for  implementation  of  an

integrated LNG export project from WDDM tract (based on new provisions in PSC contract).

o  For Train 1 (3.6 million tons), starting expected 3Q 2005, with deliveries to France (Fos)

o  For Train 2: EPC , starting expected mid 2006. Marketing to Europe (Italy) and USA.

50

 
Table 1: Gas balance: [A table indicating the volumes potentially available for export to the
EU  from  the  different  regions  could  be  useful,  in  parallel  to  the  table  on  new  capacity
planned.]

natural gas imports and import capacities

2001

pipeline imports from

in bcm

existing capacity

spare capacity

 - Russia

 - Algeria

 - Norway

LNG imports

total

180

39

75

43

337

71,5

9,2

24,2

8,3

113,2

108,5

29,8

50,8

34,7

223,8

2020

import requirements and new capacity

import requirements existing capacity in 

2001

planned new capacity 
by 2020

EU 25

404

337

192

New capacity planned

Russia
 - Baltic line (Northern European)
 - Yamal II

Norway
 - new UK line

Algeria
 - Medgaz
 - expansion GME
 - Galsi line

Caspian region*
 - Turkey-Greece-Balcan
(Caspian basin + Iran)

Libya
 - Green Stream

LNG import terminals

total new capacity planned

 * preliminary estimate

2020

in bcm
30

30

24

16
5
8

10  

30

39

192

51

 
 
 
 
Table 2: Oil imports

Country of Origin

EU-15

B

DK

D

EL

E

F

IRL

I

L

NL

A

P

FIN

S

Imports of Crude oil  (1000t)

France
Netherlands
Germany
Italy
United Kingdom
Irland
Denmark
Greece
Belgium
Luxembourg
Norway*
Sweden
Finland
Portugal
Spain
Turkey
ex USSR**
Romania
Algeria
Lybia
Egypt
Nigeria
Gabon
USA
Mexico
Venezuela
Equator
Iraq
Iran
Saudi-Arabia
Kuwait
Qatar
United Arab Emirates
Oman
Indonesia
World
INTRA-EU

-
193
-
225
47.581
-
9.454
-
-
-
108121*
-
-
-
-
-
102686**
118
19.095
43.163
3.525
25.721
1.643
-
9.291
9.023
-
20.126
31.412
57.496
7.990
-
354
-
-
549.477
60.709

-
66
-
-
6.107
-
-
-
-
-
8.135
-
-
-
-
-
5.088
-
142
6
-
238
-
-
-
1.323
-
1.035
2.895
5.821
87
-
50
-
-
31.941
6.656

-
-
-
-
-
-
-
-
-
-
2.937
-
-
-
-
-
95
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3.042
-

-
105
-
98
15.323
-
1.050
-
-
-
20.969
-
-
-
-
-
35.821
-
3.958
10.029
29
3.013
-
-
-
1.670
-
21
256
4.016
109
-
-
-
-
105.171
16.639

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5.742
-
-
1.211
-
-
-
-
-
-
-
1.303
5.382
5.268
-
-
-
-
-
18.906
-

-
-
-
127
1.829
-
-
-
-
-
420
-
-
-
-
-
6.067
-
1.571
7.205
137
8.676
186
-
7.735
2.608
-
2.568
4.098
6.291
-
-
-
-
-
56.792
1.956

-
-
-
-
11.347
-
1.226
-
-
-
19.371
-
-
-
-
-
10.106
-
4.266
2.988
67
5.260
1.314
-
37
-
-
5.366
3.631
11.345
1.110
-
255
-
-
86.242
12.573

-
-
-
-
322
-
-
-
-
-
2.862
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3.353
491

-
-
-
-
343
-
-
-
-
-
2.927
-
-
-
-
-
19.501
-
2.765
20.284
2.868
1.752
-
-
87
139
-
3.925
10.443
8.933
653
-
-
-
-
82.829
343

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

-
-
-
-
10.783
-
1.462
-
-
-
10.782
-
-
-
-
-
7.203
-
4.666
25
-
1.387
-
-
-
459
-
4.718
1.157
10.539
6.031
-
-
-
-
60.810
12.280

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1.888
118
520
1.336
-
1.390
-
-
-
-
-
917
-
641
-
-
49
-
-
7.940
-

-
-
-
-
479
-
-
-
-
-
799
-
-
-
-
-
1.268
-
319
79
292
3.637
143
-
944
852
-
273
469
1.965
-
-
-
-
-
12.617
563

-
-
-
-
1.048
-
2.188
-
-
-
1.804
-
-
-
-
-
5.870
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10.951
3.247

-
-
-
-
-
-
2.397
-
-
-
9.143
-
-
-
-
-
1.130
-
-
-
-
252
-
-
-
835
-
-
3.081
1.146
-
-
-
-
-
19.891
4.277

* of which 11.7 million tonnes imported by pipeline at EU-15 level
** of which 24.7 million tonnes imported by pipeline at EU-15 level

Source : Eurostat

Table 3: Oil Refining Capacity

Oil Refining Capacity in the European Union

2001 - Million 
tonnes per 
year

Atmospheric 
Distillation

Vacuum 
Distillation

Reforming Hydrocracking

Catalytic 
Cracking

Visbreaking 
and/or Thermal 
Cracking

Coking

 Austria

 Belgium

 Denmark

 Finland

 France

 Germany

 Greece

 Ireland

 Italy

 Netherlands

 Portugal

 Spain

 Sweden

 United Kingdom

European Union

10,3

37,9

9,2

12,5

98,5

112,9

20,4

3,5

115,5

59,6

14,4

65,7

19,2

88,8

668,4

Source: National Administrations

3,5

16,2

1,6

5,8

42,2

45,3

4,6

-

41,2

23,3

4,3

21,6

6,6

40,2

256,2

1,4

5,1

1,7

2,2

12,1

17,0

2,4

0,5

13,5

7,4

2,2

7,8

3,5

12,9

89,6

-

-

0,3

1,1

0,9

8,0

2,2

-

16,4

8,5

0,4

-

-

2,1

39,8

1,4

5,9

-

3,0

19,7

17,8

3,9

-

15,3

5,3

1,7

8,6

1,8

24,6

108,8

1,0

4,4

3,6

2,0

8,7

11,9

2,9

-

21,7

5,7

1,4

8,5

3,5

5,5

80,7

-

-

-

-

-

5,9

-

-

2,6

2,2

-

2,3

-

3,9

16,9

52

Table 4. Electricity production in the EU, in the accession and neighbouring countries in 2000

Country

Electricity

Production/TWh (2000)

2598

403,2

119

23,6

24,7

69,6

38,9

6,9

8

19,4

14,2

3,3

835,6

19,7

163,6

EU

12 Accession countries

Turkey

Algeria

Belarus

Egypt

Israel

Jordan

Lebanon

Libya

Morocco

Moldova

Russia

Syrie

Ukraine

53

Table  5.  Net  exchange  of  electricity  in  2001  between  the  EU/Accession  countries  and
neighbouring countries (without Norway, Switzerland and former Yugoslavian countries)

Interconnector

TWh Direction

Spain - Morocco

Poland/Slovakia/Hungary-
Ukraine

Poland - Belarus

Finland - Russia

Estonia - Russia

Latvia - Russia

Lithuania - Belarus

Lithuania - Russia

Romania - Moldova

Romania - Ukraine

1,6 Exports

2,5 Imports

0,7 Imports

7,7 Imports

1,7 Imports

0,4 Imports

1,8 Exports

3 Exports

? ?

? ?

54