Chairman: Professor Helm, we are very glad that you are with us today. As you can see, we will be taking a note of your evidence and there will be a transcript which will be sent to you for you to be able to make corrections. We are also very grateful for the written evidence which you have sent us, which colleagues have found extremely valuable and interesting in preparing for this morning’s meeting. You may want to make a general remark yourself but I would be grateful if, apart from that, you could address the question as to what are the prospects for Russian oil and gas production in the short to medium term, let us say the ten to 20 years period.
Professor Helm: My Lord Chairman, thank you for inviting me. Let us go straight to your questions because the questions I have been sent will probably cover most of the things I want to say. Let me try and be as helpful as possible. There is a great temptation to draw a projection forward for output of oil and gas from Russia and then stack that up against likely demands for oil and particularly gas in Europe and then say, “A does not equal B, therefore we have a problem”. The reason I say that is we do not really know what will happen to oil and gas production, particularly gas production, through the period of the next ten or 20 years. Some things we can be fairly certain about and some things are political and economic issues which the country and its leadership will address. On the facts, we know about current production roughly, we know about potential future production, what the reserves might look like, and we know quite a lot about what will be required to get from A to B. Whether they go from A to B is in the realm of uncertainty. In those factual domains, we know that production, particularly in gas, is heavily concentrated on large and now somewhat declining fields and we know that production is fairly stagnant and at risk of even some declines. In terms of future potential, we know that the reserves and resources, again particularly in gas, are vast and we know that further out in the future the Arctic reserves are likely to be very great and as a by-product of global warming these resources are going to be increasingly accessible by sea which transforms their economic prospects. Not particularly bright prospects in the short run but lots in the long-term. The uncertainties are really very important. There are uncertainties about the pipelines to markets and the LNG facilities - the Baltic pipeline is an example which is late and heavily controversial - but in gas you need those pipelines. There are uncertainties about the investment process and how it will be conducted, how efficiently it will be carried out and so on. There is a great deal of uncertainty about the oil and gas price. It is fashionable and conventional now to assume the oil price is going to go up and up from $100 in the way it was fashionable at the end of the 1990s to assume it was going to go down and down from £10. The oil price is now falling and were the oil price to go down to $30 or $40, the investment programme in Russia and the expansion of output of gas and oil will be radically difficult. That is perfectly possible but I am not predicting that. Finally, it is just political objectives. What is the depletion policy? Do the Russians really want to deplete their resources as fast as they possibly can to service whatever we demand in Europe, as in the UK we depleted the North Sea as fast as we possibly could to meet UK demands? Probably not. The question is very much an open one and European strategy and UK strategy ought to take it as an open rather than factual position.
Lord Crickhowell: I would like to follow up on some of those points. I read with great interest your papers at about the same time as I read David Howell and Carol Nakhle’s book which both addressed the whole question of energy security and the link with climate change and so on in a very similar way. Some of us were in Moscow recently and had a very useful meeting with some of the people working in the oil and gas industry and I want to think particularly about gas. The message we were getting there, and you touched upon the declining fields and so on, was the problem that Gazprom is going to have in actually meeting some of the requirements to provide gas to its own people, let alone export. You have got an oil industry dominated by the private sector, insofar as Gazprom allows them, that is producing the oil, but Gazprom face a shortage of engineers ahead, huge technical problems, huge costs in getting out into this new area where the reserves are and it was spelt out rather vividly to us by the BP representative. Would you elaborate a little on how you see Gazprom, which is not the world’s most efficient organisation, even if it wants to, and you touched on whether it wants to deplete quickly, but assuming it wants to play a major role and continue to have gas as the major contributor to its economy, doing it without actually doing deals for the technical expertise and investment with the oil companies in the West? Could you elaborate on Gazprom’s abilities?
Professor Helm: I would like to break that down into a series of bits, if you like. The first thing to understand is what is Gazprom’s strategy, what are its objectives and what are its interests. Gazprom is a monopoly and from Russia’s point of view if you wish to extract the maximum economic rents for your natural resources then being a monopoly is not a silly thing to do. That is the first point. All these arguments advanced by the EU and others saying, “You should break yourself up. It would be much better if you were a liberalised competitive gas structure domestically”, from Russia’s point of view it is not clear that is a good idea. The second thing to say is that Gazprom as part and parcel of the political structure in a authoritarian semi-capitalist society has pursued a policy which is common to virtually all resource rich countries around the world now, which is the argument that the state either directly or indirectly through the likes of Gazprom should own the oil and gas. That is what has been so painful for the likes of the BPs, Shells and others. From Russia’s point of view there is nothing insane about that either, that is an extremely rational thing to do. Western companies have been forced into accepting that in the future major oil companies, and this is true around the world because 80-90 per cent of oil and gas has now been nationalised, so Russia is not an exception here, are reduced to a role, doing the producing and maybe the marketing and some of the selling, but they are no longer owning assets. When people look at Shell and BP and say, “How many barrels has it got?” this is not really a relevant question. In Russia the clearest example is the Shtokman field where the Russians have moved to a position of essentially saying that companies like Total and the Norwegians can provide technical expertise, but that is it. This has really major implications for these companies. These companies do not like that. This is a reversal of their historical role throughout the 20th century. Of course, it is in their interests to claim that because Gazprom is a state-run company it is incompetent and, therefore, lacks the skills and they will discover shortly that it is all very disastrous and they will beg the BPs and the Shells and everyone else to come back and help them out. I think that is terribly naïve. It is true that Gazprom is riddled with inefficiencies and it is true that it lacks certain core skills, but that is true around the world, it is not just a Russian Gazprom type problem. It is also true that Gazprom has certain advantages. It is fashionable to think that resources are best developed in liberalised unbundled competitive structures. Well, one of the best developments of a natural resource done in short order and low cost and fantastically efficiently was by the state-owned British Gas developing the North Sea. I am not advocating state ownership for assets, or thinking that state ownership of assets is a good idea, but one has to remove some of the conventional wisdom which suits certain lobby groups to argue. It is likely that Gazprom will remain inefficient but does that matter to Gazprom when the oil price is where it is and when the revenue flow is at it is at the moment? What would it do with more money? The country is in surplus, it can do all the political pay-offs it wants to do, the owners, managers and senior politicians are getting themselves extremely wealthy as a result, where is the difficulty? Indeed, put it the other way around, the more nervous the Europeans become about the uncertainty about the gas supplies from Russia the more they are going to rush to do bilateral deals with Gazprom to secure their own positions. That is what the Germans have done, the Italians, the Austrians, and the Dutch have now followed that policy too. Again, from Gazprom’s point of view this is not a disaster from their perspective even though it may be very troubling from ours. Finally, on the skills issue, it might be true that state owned and particularly authoritarian regimes are quite bad at co-ordinating assets and the skill application to assets, but the education system to produce these skilled people is not necessarily inferior to ours. I suspect if you look at the supply of nuclear engineers in Britain joined up with the question of building new nuclear power stations it is not a pretty picture. In my half of my origins in East Germany, the technical education of the East Germans has turned out to be extraordinarily useful in West Germany, and of course most of them moved to West Germany when reunification took place. Again, Gazprom and the centralised state are actually capable of directing the education system to produce technocrats for these purposes. Yes it will be inefficient, yes there will be big difficulties, yes Western companies will be welcome to provide technical skills but, no, it is very unlikely that this is going to result in a debacle for Gazprom and a begging for the Western oil companies to come in and take over the oil reserves and sort the mess out.
Lord Crickhowell: Can I ask one supplementary arising out of that. The implication of what you say is that production may level off or even fall at the existing rate gas fields are coming on. They have got a political problem, have they not, in making sure that their own people have enough gas? Is the implication going to be that that may add to the energy risks for Europe who may find that there is simply not as much gas as they expect coming out of the Russian pipelines or is it all going to come anyway from the Caspian or elsewhere?
Professor Helm: That question raises the crucial issue that the demand for gas in Russia is at least as important for security of supply in Europe as the potential supply of gas available in Russia, and we should be deeply concerned about that. It is part of the very predictable pattern that countries which are blighted by what we call the resource curse turn out to have these kinds of characteristics. It is no accident that Iran cannot supply enough gas to its domestic population at the moment despite having the third largest deposits in the world. Then you have to say how will the Russians solve that problem. It is pretty obvious in the short run what they are going to do, which is take Caspian gas north. You have to then add Caspian gas to the Russian equation in order to calculate what surpluses are available which can come into the European market. That happens to suit some political objectives as well and it makes the modern great game in the Caspian area of a higher sensitivity in terms of the politics but it also has a practical analogue. Supposing, because I know the British Minister has been there and met the Turkistanis, as have the Iranians, the Chinese and everyone else, the pipeline comes west to Turkey and then up through Europe and does not go to Russia, it is projected that will solve our security of supply problem, but it does not, it just means there is less gas available in Russia to service its domestic market and, therefore, there is less gas available from Russia to come into Europe. It helps in bargaining but it needs a certain sophistication to see how those relationships will be affected.
Lord Hannay of Chiswick: If I can follow up on two aspects of what you have said. You have spoken very convincingly about the Russians’ ability to catch up on their production problems, to provide the skills and so on, but you would not make a distinction between onshore and offshore, would you? Some of the evidence we have had has suggested that the Russians capacity, even within the reasonably near future, to conduct really sophisticated offshore exploration and development is absolutely close to zero. I do not know whether you would like to comment on that. The second is, could you just enlighten us as to whether the Russian Gazprom move to buy into Nigeria is likely to be another damaging choice for us, ie they are putting their investment dollars into Nigerian gas, not into Russian gas.
Professor Helm: Let me take those things separately. Yes, of course the skills for offshore and the skills for onshore are substantially different. There is some commonality but deepwater fields like Shtokman are a completely different ballpark from what they have been doing so far. That says it needs the skills to do that, but there are a couple of caveats. Firstly, these fields are a long way off. If you are thinking about the energy crunch in the next decade that faces Europe, and particularly the UK, these fields like Shtokman and so on are not really going to come into that play. The time horizon for this is not congruent with the energy security problems that we might have. Once you are beyond 2020 and from then on we may have changed our energy mix quite substantially. That is the first thing. The second thing to say about offshore is that while it is true that they may not have the skills, and the Norwegians in particular do, and to a certain extent the British do from the North Sea, it has to be remembered that virtually nobody had these skills at the beginning of the 1970s and by the end of the 1980s within a 20 year framework we had built an entire skill set. Similarly, in nuclear power we do not have any skills in nuclear power in Britain but it does not mean in 15 years’ time we will not have considerable skills. It should not be taken as read that the Russians are incapable of getting up that ladder should they be so minded to do so, and that is a political choice. In the meantime their strategy in Gazprom, as I understand it, is entirely rational. You say to Western companies, “No, you can’t own the stuff and, no, we are not doing the original Shtokman auctions. No, we are not having people politically we don’t like”, which is essentially a rebuttal to the Americans in the Shtokman field, “and, yes, if you now understand as oil companies that you can come in and bring your operational skills and you wish to be paid for your operational skills in deepwater, sure we will come and get you and get lots and lots of British and other small to medium-sized companies who have expertise in these activities”. There are people falling over backwards to do it. From their point of view it is rather like how do you bring in a whole host of particular skills. The issue will then become will they treat those skills as an exercise in knowledge transfer to gain independence from overseas companies or will they remain dependent forever. The Chinese strategy in these areas, in clean coal, in nuclear, et cetera, is clearly knowledge transfer, they buy the skills in for a short period of time, “Thank you very much, we now know how to do it. Off you go, we will have our own Chinese nuclear industry”. It is not clear how the Russians will drive that forward.
Chairman: Thank you. Perhaps we can leave the Nigerian question because it does come up more appropriately under our question five.Baroness Symons of Vernham Dean: You have described the reluctance to accept foreign and direct investment as a combination of commercial protection of the asset for the future and of political motivation. What is the balance between those in the way that there is this aversion to anything more than a short-term investment in skills, marketing and operational requirements?
Professor Helm: I think here one has to have in mind, if you like, the economic fundamentals that lie behind the changing position in Russia. Up until 1990, and indeed even when Putin came into power, the assumption was that oil prices would be $10. Some of you may remember The Economist ran a front page in 1999 which said: “Oil $5?” At the end of the 1990s there was no expectation that oil prices were going to go up; in fact, it was expected they would fall. In such circumstances it is unsurprising that the Russian debacle in 1998 happened, the oil and gas reserves were not worth very much and the new Putin regime was very unstable in the way it was structured because it had no money, it was still recovering from bankruptcy. The early years of Putin’s foreign policy and his domestic policy and the activities of Gazprom were all based on the idea that this was an important source of revenue and this was an important way of enriching particular individuals. There was a need to remove the oligarchs, hence the famous meeting in 2000, but beyond that there was a necessity for foreign companies to come in. By 2002-03 and building up to the 2004 position this had been completely transformed, they did not expect this to happen. They suddenly had massive oil and gas revenues, so the country was no longer an importer of capital, it was an exporter of capital. It has effectively a sovereign wealth fund, it has large reserves, so instead of having to suck financial flows in it is throwing them out, as indeed is China. This is the bizarre thing, a developing country throwing off reserves. They do not need the money. In such circumstances where you suddenly realise that something you thought was not worth very much is actually going to be worth virtually everything, your economy is going to be a carbon economy, it makes great sense to use your leverage to get control, and that was exactly what they did in Sakhalin, with BP and with others.
Baroness Symons of Vernham Dean: The point I am trying to get at is the wealth has obviously been the means by which they have got this sort of independence of action but is their objective to maintain that wealth for its own sake or is there an objective to have the political place that Russia really wants to be in, ie nationalism, and, if you like, a sense of its reassertion in the world dynamic of superpower status?
Professor Helm: The answer is both but the former is a necessary condition for the latter.
Baroness Symons of Vernham Dean: Can you see this changing?
Professor Helm: Yes.
Baroness Symons of Vernham Dean: Obviously it can change if the oil price collapses but is there anything internal in the Russian political mind at the moment which would be a spur to changing that, to have a more co-operative position in the world market, or do you just not see that as changing?
Professor Helm: Why would you want to do that? The answer is the following ---
Baroness Symons of Vernham Dean: Because of external factors, because other people have got gas too, the markets change and you might want to hedge your position.
Professor Helm: The most important thing you would do if what you are trying to do is both of those things, maximise the money, asset manage if you like, and help the political elite in that frame, and increase whatever your political objectives are internationally in respect of Russia, fear and all that kind of stuff, your strategy would be to ensure that you get the maximum bucks for your resources. What I have been trying to argue in this particular context for some years now is that in that context it is really quite frightening from the Western perspective but the right rational strategy for Gazprom to pursue is pretty close to what it is doing and it has two or three parts. The first part is to monopolise the domestic resources. That means you want to own the reserves and own the pipes. Secondly, control as much of the downstream market as you possibly can, and that is the buying of the pipes and other assets in Europe. Thirdly, divide and rule and get bilateral contracts with particular countries, particularly Germany, make sure that you go round the ring of Europe and do your politics with all the other sources of supply. It is very easy to add those up. Norway has four million people and more gas than it can possibly cope with. They are never going to be price competitive against the Russians, hence the contracts do not have price in them. Algeria and Libya, crucial to supplies to southern Europe, and you have seen the political competition between the French, the Russians and others for access and a role there, including the provision of civil nuclear power. Finally, the Caspian, and we see the game going on there. LNG does not solve this problem because inherently pipeline gas is cheaper except if the pipes are incredibly long. That is why we should take as given that they are going to pursue that strategy and if the oil and gas prices fall they will have to pursue it even harder. We should not have illusions that somehow Russia is suddenly going to say, “Let’s liberalise our market and give third party access and sell the oil to anybody who wants to buy it”. This is an illusion which has cost the Europeans several years in getting their strategy together and it will have very serious consequences in the next decade.
Chairman: I am worried about our range of questions, can we move on. We are now going to Lord Hannay on question four.
Lord Hannay of Chiswick: I think you have answered how far Russian policy is designed to control or influence the supply of gas, so I will not put that question again. Could I put a different question, which is quite a lot of the people we saw when we were in Moscow said that the European Union’s relationship is usually described as one with Russia about energy but in a way that is a misnomer because the problems do not really lie over oil much, electricity not at all, coal not all, they are all about gas and pipelines. Could you just confirm that is a fair assessment of it because it does seem to colour quite a lot of what we talk about. If we talk about energy, despite the fact that Russia is a very large oil exporter, there does not seem to be a big problem because oil is a world market, it is not subject to quite the same criteria as gas. Going on from that, to what extent is Europe’s energy dependence on Russia for gas a source of vulnerability or weakness only or to what extent is there validity in the view that actually there is a dependency on both sides? Finally, what action can the EU take if there really is a fundamental source of vulnerability or weakness?
Professor Helm: The first part is yes, it is overwhelmingly about gas although there are some oil issues and they did slow the oil supply in Germany and cause some disruption. Basically the exposure to Russian oil is somewhat limited and the big game is about gas, so you are right about that. On joint dependency, not really. If one gets one’s Atlas out and looks at where the gas and oil is and where the alternative places it could go to are, although Europe is by far the best market for them because it is the most secure, because it is most likely the Europeans will actually pay whereas a number of other countries might not, go back to the whole debate about UCOS, this was all about whether the stuff went to China or Japan and there are alternatives. Finally, as the Arctic melts the options become quite considerable as to where the stuff can go. It is true they are a bit dependent upon us but we are much more dependent upon them when it comes to gas. Going forward, dependency has a certain real politick to it and our dependency is going to exist come what may, almost whatever they do, for the next ten to 15 years, whereas they can do something about their dependence on us, and we are going to pay anyway so why should they take us seriously in a negotiation. The final bit about what action is a big question. Ever since the Hampton Court Summit I have tried to set out a set of internal actions which the EU should pursue in strengthening its own resilience, particularly in respect of grids, but, in addition, the huge failure in Europe, and this is deeply political, is the detachment of particularly Germany but then others to form bilateral relationships with Russia and the inability of the British, the Germans and the French to agree an overarching view about energy policy which would enable Europe to speak slightly more with one voice and therefore exploit its multiple relationships with Russia, including the other side of that dependency relationship. That has been a magnificent failure in the sense of scale and it seems to me this is the first episode in which Germany has displayed from its own interests very sensibly the sorts of political and foreign policy strategy which was at the heart of why Mitterrand and Kohl were determined to have monetary union to bind Germany into the European project rather than allowing it to detach. That development of the E.ON/Russian relationship, the Baltic pipeline, Schroeder’s involvement in it, was a clear signal to everybody else in Europe, “If you don’t get in on the act too with Gazprom then you have left out an enormous amount of security”. We have already had one winter in which we have experienced the consequence of not having those long-term take or pay contracts when, of course, Germany did.
Lord Truscott: I felt I had to challenge your point about mutual dependency and the fact that Russians have other markets, China and Japan, which is undoubtedly true, but it is also a fact that 80 per cent of their pipeline infrastructure leads into Europe. It would take billions of pounds and many years, maybe ten or 15 years, to re-gear that infrastructure towards the east. For the foreseeable future they are dependent on Europe for their markets and their revenues and it is not an easy option for the Russians to just say, “We are going to flog all of our gas to China and Japan”.
Professor Helm: I accept that entirely but my reply is the following: if you were sitting in Gazprom’s headquarters do you think it is ever conceivable that any European country will say, “Okay, we don’t like the way you are behaving in Russia, we don’t like you interfering with the British Council, for example, we are going to stop taking your gas”? The point is the dependency is complete, we have to have the gas otherwise people’s lights will go out. Therefore, from a dependency point of view, how are we going to exercise at our end of these pipes any credible strategy which says, “If you don’t do what we want we won’t buy your gas”. There is no other option and that is the situation we are in. If any individual country in Europe said, “We are fed up with you, Russia, we are not having your gas”, the others are going to take it. Look at their exposure. Look at Italy’s exposure. Look at Germany’s position. Look at Austria and Hungary’s position. Dependency is really about whether you have a credible strategy to opt out of the relationship. It is right to say of course they need to send the stuff this way but they can be absolutely certain that we are going to take as much as we can get from those pipelines, and that is the problem with dependency.
Lord Hamilton of Epsom: Following on that point, and we have referred to the bilateral arrangements that have been made between European countries and Russia, does this dependency then reflect itself in a premium in terms of the prices that are being paid by these countries?
Professor Helm: No. The Gazprom strategy is pretty sophisticated and it is partly political and partly economic. At the hub of the Gazprom relationships with Europe is the joint share ownership of E.ON and the partnership with E.ON and the Baltic pipeline and so on that goes with that. The insistence that Gazprom have made, which sadly is entirely rational, that “If you want to buy our gas you must sign a long-term take or pay contract”, that is really the premium, and from their point of view is absolutely right. After all, gas and oil are upstream sunk costs and a natural competitive market will produce long-term take or pay contracts. That is how we did the North Sea, long-term take or pay contracts, it is the right way of doing it. We do not sign any of those because our market does not allow companies to take those risks because people can switch as final customers. I am not saying they should not be able to, I am simply saying what is called the NETA-based market, particularly electricity, is peculiarly badly designed to enable serious players to sign long-term take or pay contracts. The real difference between us and what the Germans and the Austrians have done in particular, also now the Italians and the French, is they have signed long-term take or pay contracts. If you want to see the effect, in excess supply, which was 1998 onwards, they have much higher prices in Europe than we do but in deficient supply, as we are quite close to now and as we got to a couple of winters ago, the price in the UK rockets and no gas flows. Why? Because the other side have signed long-term take or pay contracts. There was that absurd moment when both the Prime Minister and the then Energy Minister talked in the House of Commons about energy markets behaving irrationally when the price went up in the UK and the gas did not flow for that price. It is absurd, what did they expect to happen. These were long-term take or pay contracts and that is the form. The final thing in a relationship is that Gazprom is not just interested in the short-term contractual position it strikes, it wants the assets too. The other dimension here is if you want a long-term take or pay contract and you want that relationship, “Could we have some of your gas assets, please, could we have some of your pipelines and, by the way, we will expect you to advance our interests in the European market, not yours”, so you find the spectre of Gazprom, BP and other companies making statements about the importance of allowing Gazprom downstream into the markets which is part and parcel of the long-term co-operation that takes place. All of this is entirely rational, entirely predictable, and energy policy in Europe should take that as a given and then work back from that position.
Lord Anderson of Swansea: Before looking at Russian policy in other countries, I wonder whether the traditional interdependence of supplier-consumer is more than you are saying. Even though the lights would go off in our country and others, if Russia failed to supply a very substantial amount of its revenues which they receive and will continue to receive, and must receive because of the direction of pipelines, that would have a substantial impact on them, the elite in their country and so on. I would like to turn to the proper question, my Lord Chairman, which is five and look at various areas and ask you for the significance, political and economic, of Russian policy. I suppose at one level one can see a rather more sinister, tentacle-like extension of Russian policy of seeking to have total control. I would like to look area by area. For example, would you say that the Russian pipeline dependency and the northern current position into the Western Balkans are undermining the Nabucco project?
Professor Helm: A very quick comment on your first point. You are absolutely right. I am not saying that Russia does not have an interest in making sure its market is there and we have no influence whatsoever. Indeed, if Europe was to act together in speaking with one voice to Russia the influence would be much greater. It is not a position of hopelessness. I would, however, say that as you build up sovereign wealth funds you buy insurance and, therefore, the degree to which you are vulnerable as an elite to a fall in oil prices or a loss of sales is less. That building up of those sovereign wealth funds is quite important in the equation.
Lord Anderson of Swansea: Confidence is a factor too.
Professor Helm: Yes, I agree. Of course, there is an interest on both sides but my point is you should think about the influence being vastly greater if it is European as opposed to if it is bilateral. To look at the influence very quickly you have to go round the block, and one really needs a map for this, but if you start at the top Norway has a disputed sea area with Russia in the north in which there is probably carbon resources. Norway has a deep interest in how the Arctic area, foreign policy and politics plays out and it has a deep interest in its company’s selling expertise, the Shtokman and other deep Arctic fields, and it only has four million people and a sovereign wealth fund of at least 300 billion so far. From Norway’s point of view, why compete on price. Secure supplies, yes. The idea that the UK, because it has got long-term contracts with Norway, has solved its reliance on Russia is not the case, it has solved the quantity issue but not the price. Norway is not a problem for Russia in the sense of being a competitor to Gazprom. If we go round the block, Algeria and Libya are serious potential suppliers to southern Europe, Spain and Italy in-between, both of whom are heavily gas dependent, and in particular Italy is terribly vulnerable in terms of the lack of domestic resources. There is a competition that goes on there and it is very sophisticated. For example, in my mind it is no accident that on the one hand President Sarkozy is trying to provide for a Mediterranean strategy and provide civil nuclear power to the North African gas producing states and Total has been allowed into the Shtokman field after the Americans have been pushed out. These are very careful, deep and serious foreign relationships which are being constructed. Russia is working very hard at those relationships too and we will see how those play out. In the Caspian area, and I do not think it is cynical, if you were Russian the big game is to work out where that gas is going to go, north, south, east or west. We have the Iranians arguing about it at the moment and in some difficulty with getting supplies flowing south. We have the Chinese desperate in their resource hunt looking for absurdly long pipeline solutions to get access to those supplies. The Russians’ political control of the region or the history of the Russian empires tells them that this is part of their backyard and they have a series of regimes which are pursuing energy strategies which are no different from Gazprom, Kazakhstan being the most obvious, and all these countries are interested in those pipes and energy security, so of course you would want the stuff to come north. Nabucco and the Turkish position is an alternative. It is extremely important for Europe to have alternative routes in. The difficulty is that nearly all of these equations on these pipelines involve either going through places like Georgia or going through Turkey and/or both and Turkey then becomes absolutely pivotal to the energy game because Turkey has got the southern side to think about in the Middle East, it has got the northern barrier to Europe and there is a great game on as to which particular political framework Turkey may adhere to.
Lord Anderson of Swansea: Still looking at our backyard, what significance do you attach to the Western Balkans and the fact that Putin today is in Bulgaria discussing matters including energy and that the Russians may take over the petroleum industry of Serbia which will give them Serbia as a hub and for the Russians a much greater control over the energy supply in the Western Balkans?
Professor Helm: Russian diplomacy has been very heavily focused in the Caspian States in Hungary, Austria, Serbia, Bulgaria and Romania. The most notable example, not for scale but in terms of revealing how these things work, is the Hungarian issue and the attempt to detach Hungary on to the Blue Stream Project. Similarly, the involvement of Gazprom with the major Austrian company is connected to that Austrian company’s potential stake in the Nabucco Consortia.
Lord Anderson of Swansea: And the Bulgarians have a stake in Nabucco too.
Professor Helm: Absolutely. The Russians have two advantages here. First of all, they have a very clear strategy of what they want, and the second thing is they have enormous flexibility, so they have got a finger in lots and lots of different pies, “We’ll have a few assets here, we’ll do a swap in Serbia, we’ll take out bits along with component parts, we’ll intervene in the merger debate between the Austrians and Hungarians to create their position. We’ll offer them long-term take or pay contracts”. From the Russian perspective, you do not have to fossilise and say, “We must have this particular bit”, you can play a game of opportunity within the framework of a general strategy, and clearly influence on that backyard is not just about oil or gas, it is about the former Soviet Union, the Ukraine, a whole series of political influences which are well beyond my expertise.
Lord Anderson of Swansea: What are the prospects for Nabucco in your judgment?
Professor Helm: Quite limited, and it is quite a long way off.