U.S. to Argue for More Open Russian Energy Market at Upcoming G8 Summit

With energy security topping the agenda at next week's Group of Eight summit in St. Petersburg, the United States will pressure Russia and other countries to espouse open market policies in an effort to stabilize the increasingly volatile global energy environment, a top Energy Department official said yesterday.

Assistant Secretary for Policy and International Affairs Karen Harbert stressed that the United States and other G8 countries are wary of Russia's push to increase state control of its energy sector as well as the recent decline in oil production.

"This is a time for responsible actors to try and act in responsible ways to calm a fairly unstable and volatile market," Harbert said.

The G8 summit will focus on several themes, including the importance of an open market and the need to improve the investment climate to attract international funding for the energy sector, Harbert said. These, along with diversification of both energy sources and types of energy, energy efficiency and conservation, as well as energy poverty among developing nations will feature prominently in the communique and several plans of action that the G8 countries will develop next week.

"Energy is such an important component of economic growth that we have to be able to recognize that without reliable supply of energy we actually put in jeopardy the growth all these industrial economies rely upon," Harbert said. "This is the principle we want Russia to embrace and the documents that come out of the G8 will reflect the commitment to those principles."

By placing energy at the forefront of the G8 summit, Russia is hoping to solidify its role as a major player in global energy markets. The country produces more than 9.5 million barrels of oil per day and exports some 7 million barrels per day, second only to Saudi Arabia.

But while energy security for Russia means an assurance of continued demand for its oil and gas, Western countries are instead looking to diversify and reduce their dependence on foreign oil.

This is particularly true of European countries, which import a quarter of their gas from Russia and generally rely on imports for half of their overall energy needs. European officials became alarmed last winter about their dependence on Russian energy after the country's gas dispute with Ukraine that resulted in a temporary supply cut. Russia also angered Britain when Gazprom began aggressively pursuing a takeover of Centrica, Britain's largest gas supplier.

"Russia wants to use the G8 to submit their status as a key global energy player," Harbert said. "Our most important overarching objective for the G8 is really to show the commitment of all the G8 countries to democracy and to free markets, to the principles of democracy, to the freedom of economic prosperity, to the rule of law."

But while G8 nations clamor for Russia to espouse free markets and democracy, recent Kremlin actions have shown a trend in a different direction. Earlier this week the State Duma approved a bill giving Gazprom a monopoly on gas exports and a separate pending new law would ban foreign ownership of big oil fields. Outside of the energy sector, the Kermlin's drive to consolidate its power is even more apparent, with Russian regulators today forcing several dozen radio stations to stop broadcasting information produced by Voice of America and Radio Free Europe/Radio Liberty, according to news reports.

"You have to look at not only the rhetoric but at the behavior of Russia in the last few years," said international energy analyst Ed Chow. "Whether it is really promoting policies that encourage investments by welcoming domestic investors with a high crude export tax that reaps 90 percent of every dollar. It's not exactly the recipe to invite the Russian industry to reinvest heavily."

"Is an independent gas producing sector ... even desired by Russia given its latest policy actions? You really have to question where it's all leading," Chow added.

Nevertheless, Harbert remained firm on the U.S. commitment to push Russia to reverse its move away from open market policies.

"What we have engaged in and what we hope will come out of this and what we hope to operationalize for the long term is a G8 combined commitment to energy security that relies on market principles, to energy priced at market levels, to free transit and access to resources and transit routes," Harbert said.

Some observers of the G8 agenda have expressed concern that energy security could overshadow issues like climate change, but Harbert said that global warming will not be forgotten.

"There are countries in the G8 that are signers of the Kyoto Protocol and then there are those who are not, and we respect these differences," Harbert said. "We do find common ground in our respect for the environment, and we are looking for common ways to address greenhouse gas emissions.

"We are also looking for ways to more collaboratively address climate change and to break the developing world into this discussion by helping them find solutions to access energy in an environmentally sustainable way."

The G8 consists of the United States, Japan, Germany, Great Britain, Italy, France, Canada and Russia. President Bush will be joined by other heads of state at the summit on July 15-17.

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