 Well, good afternoon. Welcome to CSIS. My name is Andy Kutchins. I'm the Director of the Russia and Eurasia Program here today. And it's really a special pleasure for me to be chairing this panel of two of my favorite people working in the Russia and Eurasia field, Isabel Gorsht and Ed Chow. You know, it seems like there's an inverse correlation. The lower the oil price goes, the greater the proliferation of gas projects that gas promen the Russians seem to come up with. Now, perhaps many of these projects were designed when the gas price was a lot higher, and maybe they seemed more, all of them seemed somewhat more realistic and more commercially feasible at that time. But today we will be discussing the future of gas exports, and Isabel and Ed will try to help to clarify the real from the slightly less real to the less, less real in various other categories there in between. Isabel Gorsht has been based in Russia in the former Soviet Union for more than 20 years and actually first traveled there back in the 1970s where she felt liberated. She just told me now she grew up in Iran. She is a foreign correspondent and writer who has been based in Moscow for most of the last two decades. She's traveled extensively in the former Soviet Union reporting from Russia, the South Caucasus and Central Asia for various international newspapers including the Financial Times, Washington Post, Los Angeles Times and the Irish Times, as well as specialist oil in gas industry publications. She is the co-author of Lifeblood of Empire, a history of the Russian oil industry with Lev Churilov, the former Soviet oil minister, which was published in 1998. She has also contributed to various energy seminars and conferences at the Baker Institute, at Rice University. She won the International Association for Energy Economics Award for Excellence in a Written Journalism in 1999 when she was working for Petroleum Intelligence Weekly and Petroleum Economist as Moscow correspondent. She will be making our presentation this afternoon. Let me introduce our discussant before we turn over to Isabel, a very familiar figure here at CSIS in Washington, Ed Chow, who is a senior fellow in the Energy and National Security Program at CSIS. He is an international energy export with more than 35 years of industry experience. He's worked in Asia, the Middle East, Africa, South America, Europe, Russia, the Caspian region. You know, Ed, as I read your biography, it might be simply easier to state where you haven't worked. North America. Uh-huh. In Tedesna. He has developed government policy and business strategy as well as successfully negotiated complex multi-billion dollar international business ventures. He specializes in oil and gas investments in emerging economies. He's advised governments, international financial institutions, major oil companies, and leading multinational corporations. I've had the good pleasure over the course of the last 15 years or so of traveling to many of these continents and unusual places with Ed and appreciating his commentary and he will be a discussant. Ed has also published just today at CSIS with Zachary Kyler a new commentary entitled New Russian Gas Export Projects from Pipedreams to Pipelines. Or is it from Pipedreams to Pipedreams? Okay. Let me turn the floor over to Isabel and I'll stop, trying and failing to be entertaining. For the introduction and for inviting me to the CSIS. It's an honor to be here with everybody here in Washington. It's also a nice pleasure to see so many familiar faces and friends in the audience. Ed suggested the idea of doing this seminar and me participating in it. A few weeks ago, after I'd messaged him from Moscow telling him about the latest of many twists in the Russian-Ukrainian gas dispute that's running in parallel and adding to the agony of the conflict between those two countries. What we were discussing together, Ed and I, was a statement by Vladimir Putin saying that Russia would just have to go on using Ukrainian pipelines to transit its gas exports to Europe, something that everybody knows the Kremlin badly wants to stop doing. Putin's remarks were actually conveyed by Alexei Miller, his ally who runs Gazprom and they represented a total U-turn in Russian gas policy in Ukraine and were just one in the latest, there was the latest in a series of flip-flops in Russia's recent gas export plans. Only a few days before I'd heard Alexander Medvedev, the bellicose head of Gazprom's export division saying the moon would have to change places with the sun. While the other way around, the sun would change places with the moon if Gazprom was ever going to continue funneling its gas exports to Ukraine. Everybody here probably knows that Gazprom is Russia's state control natural gas monopoly. It controls vast gas reserves and handles most of Russia's lucrative gas exports. What's often overlooked is that Gazprom is also a pipeline company. It owns and operates Russia's sprawling domestic gas transport network and the export pipelines that carry Russian gas to European and former Soviet markets. As a state company, Gazprom has responsibility for ensuring that Russia's own gas needs are satisfied even if that means shouldering the burden of supplying cheap gas to domestic consumers. Almost all of Gazprom's profits are derived from its gas export business, so it's logical and even reasonable for the company to do everything it can to hang on to and if possible increase gas sales to Europe. It already accounts for 27% of imported supplies and to strive to diversify into new markets elsewhere in the world. At the same time, it's not so easy to see the commercial logic behind the raft of new plans for getting Russian gas to foreign markets and the plethora of new export pipelines that Gazprom is planning or says it's planning to build with the Kremlin's blessing over the coming few years. I want to focus here on the four proposed new pipelines on Gazprom's immediate agenda. Two of them would take gas to Europe, Russia's main export market, one going via the Baltic Sea and another via the Black Sea. Two other pipelines are going to go east for the first time to link Russia-Siberia's vast gas deals with China where Gazprom is getting ready to make its long-awaited debut as a gas supplier. There are actually plenty more gas export projects, as Andy mentioned, on Gazprom's agenda as the company seeks to broaden its global outreach. They include a pipeline linking the Russian Far East and Mainland with Japan, a country that doesn't have much of a gas reticulation system, kind of difficult to take seriously, and another one running from East-Siberia to South Korea via North Korea that could present some pretty insurmountable political complications when it comes to implementation. Gazprom also wants to make deep-roon roads into the liquefied natural gas, that's the LNG market, where it's a relative newcomer. So getting back to the two pipelines to Europe and the two pipelines to China, these are the projects that are getting the most attention at present, partly because Putin has been taking such a public interest in them, and Putin is the star attraction in Russian TV broadcasts. Another reason for the intense interest is because the Kremlin and Gazprom have recently just repeatedly been changing their minds about these pipeline plans, or that's what it looks like they're doing. They've cancelled some projects, announced other new ones, and generally are raising questions in a country that's really quite big on conspiracy theories about what's going on behind the gas scenes in Russia. Total cost of all the big four pipelines would be around $200 billion, and that's money that Gazprom's going to have to spend or find in the next four to five years. Timing is not really propitious, as Andy said, or oil and gas prices are low. Russia's frail economy is struggling from that double whammy of lower oil prices and western sanctions. Also, these pipeline investments are set to take place against the backdrop of sagging demand for gas in Europe and heightened EU determination to reduce reliance on Russian gas. Even in China, with its vast appetite for more energy and drive to switch to cleaner fuels and environmental damage in coal, questions have been surfacing recently about how fast demand is actually going to grow there. I think it's worth pointing out that from a purely Russian perspective, the new pipeline projects would bring some compelling benefits. Investment in infrastructure is one of the main ways the Kremlin sees to spend itself out of the current economic contraction. A lot of the counter-contracts for new pipes will go to Russian steel groups that have been investing billions of dollars in modernizing their plants, preparing just for these kind of mega and industrial projects. In the case of the two European routes, they're essentially transit avoidance projects and they serve the Kremlin's long-term goal to bypass Ukraine when transporting gas to foreign markets. That means they won't bring any additional Russian gas to Europe at all, but they will just change the route by which Russian gas arrives in the market. So a little bit of background on Russian gas exports to Europe. Russia's been supplying gas by pipeline to Europe since the 1970s, a long time. The European Union relies on Gazprom for about 20% of total gas supplies and 40% of its gas imports. Historically that export gas has flowed through a vast web of pipelines running from West Siberia and the Volga region to Russia's western frontier and on to Europe through Belarus and Ukraine. Putin has always been totally allergic to the transit of oil and gas exports across third countries. Ever since first becoming Russian president in 2000, he's been driving forward a series of projects to establish more direct routes to energy markets. Putin's dislike of transit is driven by a sort of characteristic desire for the Kremlin for total control and it's been fired up by repeated disputes with Belarus, the Baltics and most of all with Ukraine over energy trading and transport terms since the Soviet Union fell apart. Taking a big view, it's also about the real allergy to transit is all about the failure in the post-Soviet world to move relations onto a more constructive footing between former allies and failure that's now having such tragic consequences for security and energy security for that matter in Ukraine at the moment. Of course there's a very long history of strained gas relations between Russia and Ukraine. Ever since I began working in Moscow as an energy reporter in the early 90s, it seems to me that two countries have been arguing about gas prices and gas transit and we've been trying to write stories about that and make sense of it. I remember one press conference at the time when Gazprom was first considering going public when the former head of Gazprom was complaining yet again that Ukraine was stealing gas out of transit pipelines. At that point we're actually carrying more than 90% of Russian gas exports to Europe and Gazprom said it was only because Ukraine was robbing Gazprom blind that the company had to resort to selling its equity on international markets. What we're seeing today is an evolution or a continuation of a policy that Putin began in his first presidential terms. When he presented a plan to build what he called a ring of export pipelines around Europe, they were flagged as a move to bolster EU energy security and would eventually allow Gazprom to cut Ukraine out of the transit business altogether. The northern part of the ring was called North Stream. It was a 1,224 kilometer pipeline across the Baltic from northwest Russia to the German coast. It's fed with gas from West Siberia. The first string of North Stream with a 27.5 billion cubic meter capacity came on stream in October 2011 and the second parallel stream a year later so that project was kind of a success. EU energy officials, or some of them, saw the Putin gas ring idea not so much as a ring but a kind of noose that would just tighten Russia's stranglehold on the European gas markets. European majors have never really been so paranoid about Gazprom's plans and they've signed up to join the North Stream project and other gas line projects. In North Stream you've got Gazprom, Winterschal, EON, Gas de France and Gasunit, if anyone's interested. For these companies, investing in pipelines has been like an opportunity to cement relations with Gazprom and in some cases get access to coveted upstream deals. A gas pricing and transit dispute between Russia and Ukraine culminated in a brief disruption to gas deliveries to Europe in the winter of 2006, the first of the two so-called gas wars. And it was a catalyst for the second part of Putin's planned European gas ring to get going. Announced in 2008, the so-called South Stream pipeline was to run across the Black Sea to Bulgaria, feeding up to 67 billion cubic meters of Russian gas to countries in South and Central Europe. Gazprom drew E&I in as partner for the offshore part of that project in the Black Sea and it also offered the Italian group a role in developing Siberian gas fields at the same time. This is when things started going sadly wrong. South Stream ran into difficulties with the Europeans' new antitrust legislation aimed at bringing more competition to energy markets. The EU's third energy package lowers prohibit gas suppliers from controlling gas transport networks, presented a huge obstacle to what Gazprom initially wanted to do with South Stream. South Stream was in many ways a political, more than a commercial project. It targeted the very same markets in the EU that the EU backed Nabucco pipeline, another pipeline that never happened, to bring Caspian gas to South Central Europe was going to serve. Quite a lot of analysts, some of them are sitting rather close to me now, believe that the gas project was motivated primarily by Gazprom's desire to keep the likes of Azerbaijan off its turf in South Europe and the Balkan area, which were consumers of far more dependent on Russian gas than elsewhere in Europe. Others thought that Gazprom had absolutely no intention of building South Stream at all and the project was really more of an elaborate bluff designed to bully Ukraine and undermine Caspian producer's ambitions to move into the European gas market. I'm just sort of setting this up to show how the pipeline business is a lot of smoke and mirrors, but some pipelines do happen. All the same as this, it came as a huge surprise to a lot of people in the EU when Putin finally killed off the South Stream project late last year, announcing that it would be replaced by another pipeline across the Black Sea, same sort of route, and it would take a twist south and land on the Turkish coast rather than on the Bulgarian coast. Turkey, Putin said, could become a hub for Russian gas destined for the European Union. Putin's surprise cancellation of South Stream was a kind of capitulation for Russia. It was an acknowledgement that the EU's third energy package really was going to change the way Russia operated in the European gas market and the Gazprom just had to accept that. Probably for that reason Gazprom officials have been being rather aggressive over the last few weeks when they're presenting the case for the Turkish Stream and the Turkish Gas Hub. It's just up to Europe to come and get gas from Turkey if it wants it. Alexei Miller, head of Gazprom, told reporters last month. Other top Gazprom managers have been complaining to reporters that EU officials are being very unhelpful. They haven't come to talk to Gazprom about the Turkish Hub proposal and they're not taking it seriously. One reason perhaps why the way EU is waiting in the wings is that the Turkish Stream plans are not progressing at all smoothly and don't look terribly realistic. The Turks have not given all the necessary approvals for the projects and they're playing hardball with Russia in negotiating big reductions in gas prices in exchange for hosting the pipeline. Political uncertainty in Turkey following the June general election. I think the Russians were expecting Erdogan to sort of sweep to victory. Are likely to delay any kind of final decision on Turkish Stream moving ahead. It's probably, although I mean I don't know but I just assume that the uncertainty or growing uncertainty with the immediate viability of Turkish Stream that bought Gazprom to the realisation which wasn't realistic to go through with its threat to stop transporting gas exports across Ukraine when the transit contract comes up for renewal in 2019. All the same I don't really envy the Gazprom official, whoever it was who got the job of explaining to Putin that it wasn't really possible to escape from Ukraine transit anytime soon. Six times, six months after being announced, plans for Turkish Stream are beginning to unravel. Perhaps not fatally, the projects just really not looking good. Gazprom cancelled the contract with Saipem, an Italian division of ENI to lay the offshore section of the pipeline in the Black Sea last week. Just a few days after the Russian Parliament gave Saipem's barge permission to move into the Black Sea so the kind of announcements are coming to and fro in extraordinary rapidity. Maybe that cancellation is probably, Saipem's probably going to levy fine off Gazprom for that cancellation of up to 300 million dollars, a lot of money to lose. Just started making mistakes. Separately Gazprom has halted work on onshore pipelines in Russia leading up to the Black Sea to bring the gas down for the export project. That's very bad news for Russian steel pipe makers. There was another surprise in June at the St. Petersburg Economic Forum which is a prestigious international business conference in Russia when Gazprom announced yet another pipeline plan for Europe. This one was North Stream 3 and 4 that will double the amount of gas that's being bought across the Baltic to the German coast. Again, foreign companies have been drawn into the project. This time it's Royal Dutch Shell, EON and Austrian OMV. Those foreign partners were only asked by Gazprom to support the idea a few weeks before the Petersburg Forum. Presumably they went along with it because they've got valuable assets in Russia and they just need to stay on the right side of Gazprom. It's important to note that North Stream 3 and 4 is called... It's only a memo of understanding, I think, or memo of intent so far. The project's got a long way to go before it materializes before we have to take it particularly seriously. Now to look east to China, the Ukraine crisis has been overwhelmingly negative for Russia's gas relations with the EU, but it's been a stimulus for Russia to build closer energy ties and particularly gas ties with China. A few weeks after Russia annexed Ukraine's Crimea last year, Gazprom clinched a massive long-term export gas deal with China that had been under negotiation for the best part of 10 years. For contract, we'll see Russia export 400 billion worth of gas or estimated 400 billion worth of gas by pipeline from East Siberia to China over the coming through decades. The new pipeline has been rather grandly in giving the title of power of Siberia. The timing of the deal had enormous political importance for the Kremlin. It was kind of a favor by China, I think, through Putin demonstrating that Russia had other friends and business partners in the world even as its relations plunged to a kind of Cold War low over the crisis in Ukraine. The power of Siberia was only the start of Russia's sort of move towards China at the APEC summit in Beijing last November. Gazprom and China National Petroleum Corporation signed a framework agreement for a second pipeline to bring 30 billion cubic metres of a year of West Siberian gas across the Altai Mountains in Siberia to Western China. If both power of Siberia pipeline and the Altai pipeline materialize, China could actually overtake Germany as Gazprom's biggest foreign customer within a decade before that, probably. While Russia and China are, in a sense, natural energy partners, Russia's got huge resources. China's got huge energy demand. They've got a common border. But there are already strains in this new Sino-Russian gas alliance. Russia favours its Altai pipeline project over the power of Siberia pipeline. It likes Altai. Altai would be cheaper for Russia to do. It taps into West Siberian fields that are already developed. Whereas with power of Siberia will require massive investment in challenging new gas deposits in East Siberia, and will be far more expensive to execute. China is much more interested in power of Siberia that would bring Russian gas into its north-eastern industrial heartlands where it most needs to reduce dependence on environment and carbon-intensive coal. And in any case, with demand for gas rising much more slowly than before or those projections that it's going to slow down, I think China is in less of a hurry to sign up for additional Russian gas and it can just wait to see how things play out between the two pipelines which one gets chosen to go head-versed. So to round up, I think this all looks like an incredible model. It's very difficult to say which project will go ahead. I think Ed's probably going to tell you that none of them have any commercial sense. You know him well. I would just say, and I don't want to defend gas promise, not my job, but just to point out that these are very, very uncertain times for the Russian gas industry and also as a consequence for the markets that depend on Russian gas. We've been seeing very erratic moves by the Kremlin that I've been talking about. And by gas prom, which is kind of odd because it's a country and a company that's always provided itself on being a very reliable gas supplier. I think there is room for consumers in Europe to worry, maybe not consumers in China, they're not in so much of a hurry. So what do we think is going on? What does it mean for the future? I think it's clear that even if there are really big questions on the table now about the future routing of Russian gas exports and what Russia is up to, gas prom is going to remain the major player in the European market. The company might have to accept a lesser role than it wants and of course it wants a ginormous role, but it's still going to end up as a sort of swing producer for gas like Saudi Arabia is for oil. Swing producer in Europe like Saudi Arabia is for oil worldwide. I think it's also clear that Russian gas is going to get to China by one pipeline or two pipelines possibly and also in the form of LNG. I think the first pipeline might not arrive in time to meet the planned target dates of 2018-2019 and China might succeed in having another go at knocking the price back down. But I think basically China is going to open up as a market for Russian gas as compelling reasons on both sides for that to happen. I think looking at the horrible model that we're seeing over the last few months, it's important to understand that gas prompts confidence is very badly vented. It could be in a panic, it could be being incompetent or it could have something else up its sleeve another strategy which is I think the more scary scenario. Inside Russia, gas prompts have been losing share to independent producers including powerful oil majors Rosneft, Wilcoil and as well as Novotech. These companies have signed up long-term contracts with industrial gas users in Russia that pay a premium for gas, leaving gas prompts lumped with the job of taking care of subsidized gas households which hardly pay anything for gas. Leaders of the big gas independence, people like Igor Sachin, the head of Rosneft are all part of the Russian oligarchy and oligarchic system just like Alexei Miller, Gazprom. They're also close allies of Putin and they're jockeying for favors. Sachin may have quietened down a bit recently because Rosneft is so burdened up with debt and is facing Western sanctions but everybody knows that he's got a sort of ambition to break up Gazprom's monopoly over gas exports, muscle and get Rosneft to muscle into the business. Ukraine crisis has probably been the most damaging thing of all for Gazprom. Companies lost its biggest foreign market for gas as Ukraine moves to reduce energy consumption and obtain gas supplies from alternative sources in Europe. Of course, the gas that's galling for Gazprom because the gas that Ukraine's been buying in Europe is actually Russian gas that's just been sent back in the other direction and somebody else is reaping the profits. Gazprom has cut off gas supplies to Ukraine twice since the conflict began last year which really means that its precious reputation as a reliable gas supplier has gone for good and that reputation is very important in the energy supply business. Of course, Ukraine has been a big loser, a huge loser from the general crisis but when it comes to talking gas, I think Ukraine plays a very tough game. It knows that Russia's going to get the blame in the West whichever way the gas disputes swing. I think it's worth noting in this context that I think it's two weeks ago they were negotiating Gazprom and Naftogas when negotiating the gas supply contract for the coming three months. Naftogas was sticking to what really is an absurdly low gas price of $200. I was also saying it was going to double up the price for transiting Russian gas across its territory and the talks of course reached deadlock because Gazprom just wasn't going to swallow it but it was Naftogas that said it was halting imports of Russian gas forcing Gazprom to turn off the tap rather than Gazprom saying well we're turning off the tap. I mean there's kind of, I think Naftogas is playing a tough game with Gazprom over gas. Global market forces are also working against Gazprom which has struggled to come to terms with more competitive gas trading environment in the EU and the advent of EU antitrust legislation. Companies facing accusations from the EU of hindering competition in European markets that could in the worst case scenario lead to massive fines. Gazprom's strength in the European market of course is that it can produce and deliver gas more cheaply than most of its competitors but with gas prices much lower than a year ago the gas company, Russian company is going to have to compromise far more than early anticipated in price negotiations. It's worth remembering Russia doesn't pose any longer because of the market, the gas markets become so much more fungible and so much more competitive that Russia doesn't pose the kind of challenge to European energy security and markets as it once did. In China, so it's not, it can't throw its weight around as much as it used to I think it's finding difficulty adjusting to that. In China, Russia's coming to the market as a relative latecomer. It doesn't have the advantage of first mover as a foreign supplier as it did in Europe. It's sure, even Gazprom is sure going to be a big player in China but there's going to be loads of other players as well. So to sum up I think Gazprom's still hugely powerful but rather like Russia it's a smaller and weaker power than it was before. The threat it could pose in the world gas market is not really about its expansion and all these pipelines it wants to build but it's potential for unpredictable and even reckless behavior. I think probably when we, that Ed's going to talk now but I think when we get to the discussion maybe we could talk now about which of the new export pipelines might go ahead. I mean some of them are going to go ahead I think. Which ones will be dropped and what that means for the market. I'll just throw in my top and take me with the start to say that I think out of all of them I think, out of the ones to Europe I think North Stream 3 and 4 have got a better chance of materializing than Turkish Stream if only because it'll bring gas into an area of Europe basically the northern of Europe where demand is stronger than in the south. I think Turkish Stream is immensely complicated and it still involves transit which is exactly what the Kremlin and Gazprom want to get away from doing. And then my last conclusion is to say I think any lasting resolution to the broader conflict in Ukraine is going to need to involve some kind of amicable settlement of gas relations between Moscow and Kiev that's going to be very difficult to achieve. It's not impossible, I don't think Ed agrees with me about this that we could slide back to sort of the beginning like snakes and ladders and begin talking about modernizing the Ukrainian gas transit pipelines again and just transiting Russian gas across Ukraine to Europe. It's the most economic approach. The bill for that modernization according to Alina Burmistrova told me a couple of weeks ago she's a sort of rising star at Gazprom export so I kind of listen to what she says would be about 20 billion dollars. She said there was a really big question who would want to stump up for that amount of money and she also implied although she didn't actually say so that for sure Gazprom didn't want to chip in. So that's the end of my presentation. Thank you for your attention. That was really masterfully comprehensive, Isabel and you even delivered a couple of predictions, at least one Nord Stream 3 and 4 over Turkish Stream and raising the possibility of the modernization of the Ukrainian pipeline system as part of a broader Russia-EU Ukrainian agreement. Russia says that the last hope dies last but that would be an extraordinarily good outcome eventually. Now Ed has assumed the role now that David Letterman has retired he sees himself as David Letterman and he's kind of got his own perspective on this with Russia's top 10 pipeline. So Ed, let me turn the floor over to you for your insight. Thank you very much Andy. It's a real pleasure to be sharing a panel with my friend Isabel. We were trying to recall at lunch when we first met and I think we both agreed that it was about 20 years ago at the Tangi's oil field in Western Kazakhstan. And when we were, we along with the former Soviet republics were both young and hopeful at that time. And you can see from her very thorough presentation what a good reporter she is. It was her job in those days to ask tough questions and it was my job at Chevron to fend off those tough questions and try not to answer them. But she certainly knows the right questions to ask. Let me betray my own kind of industry bias which is that, you know, the industry that I grew up in, think of transportation options in terms of what would achieve the highest net back to well-hit. In other words, what mode of transportation, which direction that you send the gas would be most economically efficient and then give you the highest possible profit as a oil or gas producer. This is particularly true for gas because the transportation component for gas is so much larger than for oil. Transportation is a cost center. It's not a profit center. The higher the transportation costs, the less money you make as an oil and gas producer. So, you know, I tend to judge pipeline projects on the basis of economics and commercial viability, not political or geopolitical considerations, which is of course why I'm such a failure in analyzing or predicting Russian pipeline policies. Andy will tell you, as he has told me over a decade and a half that Russia is special. And he can answer the political reasons why Russia is special and you do ask him that during the Q&A. But let me look at it from an industry point of view. Why is Russia special? I would say, among other things, it has very limited bandwidth for decision making. Decision making is highly centralized. The fact that you have national champion oil and gas companies means that they are even more centralized. Special interests tend to drive and want to do big projects. Some of the special interests I think Isabel had referred to already. I stopped betting against Russia doing economically suboptimal pipeline projects after Bluestream. And also the Baltic pipeline system, one and two, leaving the perfectly good Druschberg pipeline system dry almost. So this function of that sort often leads to, it leads to very swift announcements and bold decision making, seemingly bold decision making, but also can lead to lost opportunities. I would say that if Russia were really interested in doing more energy business with China, its own sort of dysfunction had led it to lose the first mover opportunity on oil pipeline to Kazakhstan because of the long delays on the oil pipeline to Asia, as well as the first gas pipeline to China onshore turned out to be from Turkmenistan, not for Russia because of the time that's wasted. The Russian gas industry also faces a number of headwinds, it seems to me. First of all, domestic gas demand is dropping because of a very weak economy. Political concerns, and you might mention an election or two coming up, limit one's ability to raise domestic gas prices as one might have planned. Oil indexation in international gas prices with the lower oil price means a lot lower international gas price. You have declining European imports from Russia, gas imports from Russia the last two, three years. For a variety of different reasons perhaps, slow economy, two mile winters in a row, the perverse effect of renewable subsidies in Europe, the Ukraine crisis and the call for more diversification of supply away from Russia. Many analysts, including Russian analysts, estimate that there is more than 100 billion cubic meters of surplus capacity sitting in western Siberia right now with no place to send the gas. You have EU regulatory challenges. Isabel already mentioned the third energy package, but not just. The competition case against gas problem finally filed this past spring after more than a year of delay. I think the competition directorate is waiting for a gas fund response by September. It's coming up rather soon. For gas problem, Isabel also mentioned, more recently Rosnett and Novotek has been nipping at their heels. First on the domestic market, I have to say that there must be a good Russian sense of irony to call Rosnett an independent gas producer. Independent of gas problem means independent in Russia. The largest oil producer in the country generally don't get called independent in American simple lexicon. And also those two companies want to break gas problem monopoly on exporting gas. Sanctions limit your access to international financing. All these Russian companies are reduced to begging for money from rainy day funds and even public pension plans. Now I have to say the last thing is sovereign wealth fund should be doing is investing in more oil and gas. They're supposed to help tie you over on the rainy day as well as help the economy diversify away from oil and gas, not double down on oil and gas. And if I were a Russian pensioner, I wouldn't be very happy with money being spent on pipelines of various kinds. Ed, you've already exceeded the average Russian life expectancy. I have, yes, yes. Sorry about that. The perceived Russian solutions have very high price tags. Accessing new markets like China, for example, leads to lower net back to well head, not higher net back to well head because it requires new pipe. And you transport the gas three times longer distance and you have expensive and challenging new gas field developments in this case in eastern Siberia for power of Siberia. An example of why new pipe is worse than old pipe is that the fact that North Stream gas delivers gas to Europe at $10 more per thousand cubic meters than the transit through Ukraine. So at 50 BCM, that's roughly half a billion dollars that you have for gone profit. So you have to ask yourself, throwing out all these pipeline projects, is that a sign of Russian strength or Russian weakness? And I have to say the press has not been very hopeful in clarifying the situation for the general public. Isabel's former colleagues at the FT, for example, played up the 2 billion euro Southeast European pipeline through Greece in the midst of the Greek debt crisis. So that's really not very helpful. At that point, I decided to play David Letterman and started counting the number of projects. And I stopped at 10. Beyond that, it is we like looking at the starting gate of the Kentucky Derby. So I stopped counting after 10. But Zach and I did create a racing form for you to figure out which are the horses that might more likely win this pipeline race. And suggest to you some criteria for judging which are the ones that are most likely to succeed. I would say the first thing is, does the project bring new gas via the most economic route? Socklin II LNG expansion comes to mind. The only way of producing more gas out of the second and two block is to build additional LNG facilities. You already have an LNG facility. So adding the incremental capital investment is not as costly. Plus, you've got a nearby customer in Japan that wants the gas. Power of Siberia, a little bit more difficult, right? Because you actually have to invest in the Chayanda and Kavika gas fields. They are complex, costly developments. And you're not sure whether they're profitable or not. But if you don't build power of Siberia, that gas is going to be stranded, that you know. Without Yamal LNG, the gas reserves in the Yamal Peninsula won't be developed. So you have a choice to make. And that is the most economically efficient project that you could build. The second category in my mind is, are you just bringing old gas to the same market through new market, through new infrastructure? Turkish Stream comes into mind. And the DLi LeMente South Stream project also comes into mind. You're not moving new gas volumes, same gas volumes through a more expensive route to Europe. Altai, diverting West Siberian gas to a new pipeline connection to Western China where the Chinese don't want the gas. North Stream 2 or 3 and 4 strands of North Stream in the way Isabel named them. The third category might be, are you bringing new gas through new infrastructure with the least economic route? Those are long odds. I don't bet on those as much. My personal favorite among those is the Vladivostok LNG project, right? Once touted by Putin as a strategic project, it now stretched. Conventional industry wisdom says you don't pay for high transportation costs twice. You don't build a long haul pipeline over land in order not to reach the ultimate market. To get it to the coast, liquefy the heck out of the gas and then ship it on LNG tankers to reach the market. That's a great way to lose money or value destruction as Wall Street people might say. But as Andy has already indicated, very Soviet. According to Isabel and others, all these projects cost over $200 billion. Well, you know, that's about, you know, just slightly under the size of estimated capital flight from Russia last year, right, Andy? So if you concentrate all your resources and you want to double down as a petrol state, Russia could do it, right? It's possible. But we have to remember capital escapes in order to seek safety in a higher rate of return. So whether they fit that, these projects fit that criteria or not is a different question. How many of these projects can Russia realistically build? Is this something to worry about? Some observers and commentators in the West seem to think that this is something to worry about. I'm not so sure. Maybe we can discuss that in the remaining time. But I would say this. I'm not sure the West is the strategic need, but it also have no tools to get into a pipeline contest with Russia. Let's take the United States. We have no national champion on gas companies to direct them what to do. We want to let markets perform their job and commercial logic dictate. The companies take the risk. We don't generally subsidize on gas pipelines. And as Isabel already indicated, European national champion companies are more likely to side with gas pump in Russia than to want to play against it. So if there is a context with Russia on gas exports, we really also have to consider what real tools we have to play in that game. With that, I'll stop. Thank you. Thank you, Ed. Terrific comment. Well, you asked me to answer the question, why is Russia special? Well, I think it was well illustrated in Thane Gustafson's brilliant book about the Russian oil industry post-collapse the Soviet Union entitled Wheel of Fortune. The second edition is coming out. It will be called Wheel of Misfortune. But there is a great quote there in one of Thane's interviews with a Russian oil company official, I believe. And Thane is kind of, I think, kind of scratching his head as well. How do you make money on this project? And the answer was basically that we don't make money on profit. We make money on costs. And you keep that in mind, then some of these oil, some of these pipeline projects look a little bit different, perhaps. Now, I have two questions I'm going to leave to our panelists before turning it over to the floor. One of them is more general. And I'm reminded of one of the first talks that Ed gave when we were together at the Carnegie Endowment more than a decade ago. I think it was, the year was 2002. And the title of the talk, the title of the talk, well, no, you weren't necessarily wrong. It's just not where the oil price went. But the title of the talk was in 2002 people were concerned about the Russia's 2003 problem. And the 2003 problem was the $17 billion in debt due to the Paris Club was coming due and there was no money to pay it. But the title of the talk was why $13 oil is good for Russia. And, of course, $13 oil isn't where the oil price went. And Russia was able to easily pay off its Paris Club debt in 2003 than actually pay off the entire debt early because of the rapid increase in the oil price. But the larger point being that, you know, I joked at the beginning that it seems the lower the oil price is, the more of these gas projects come out. Now, in gas problems defense, and I think of this as I look at the company that built this keyboard, the name of the company you can't see it, but it's called gyration. There have been a lot of gyrations in the market, I think, as Isabel alluded to even before Ukraine with the major changes in the gas markets in Europe and outside of Europe. Subsequently, the Ukraine crisis and then, of course, the steep drop in price in the oil. And related to that, the steep drop in the price of gas. And presumably a lot of these projects were, I wonder what degree to some of them they were developed in a much higher oil price or gas price environment. Or does that make much of a difference? It does seem like some of them came, were announced at least, kind of in a different environment. But, you know, I guess the question is, is the lower price environment going to cause lead to greater discipline for gas problem and force them to basically do more commercially viable projects? You know, one has a lot of room for strategy, so to speak, in a very high price environment. One has a lot more room to make money on costs in a high price environment. A low price environment is different. And that takes me to the last point of Isabel's, which was so intriguing, because everybody knows that the most commercially viable way to get West Siberian gas to Europe is through Ukraine and through the modernization of the Ukrainian pipeline system. And it was a gas prom official, an analyst, that raised this with you. And I'm wondering if you could kind of elaborate on that and to what degree you think that this actually may be plausible. Should I begin with the last question? I think it is possible just because it just makes so much sense to go back to using the Ukrainian pipelines. I mean, it's a no brainer. It's crazy to be building all these new pipelines. And I also think that if there's going to be, and I know it's difficult to see it at the moment, but in the end the Ukrainian crisis has to be resolved in some way. I mean, maybe there will be a huge legacy of this, which of course would be bad for their gas relations in future. But if there is to be a resolution of the conflict over Crimea and Donbas and various compromises will have to be made on both sides, I think that the discussion about the gas transit network will come in as part of that. Particularly if oil and gas prices stay low and gas prom just simply won't have the room for maneuver to build so many alternative gas pipelines. I think if the oil price goes up again, the situation could be very different. I also think that a lot depends on how the EU behaves towards gas prom in the coming months and the coming years. I mean, it's not a very long scenario now. We're waiting to see what happens with this case, which Ed mentioned that gas prom has been accused by the EU of obstructing competition. I mean, it could get very large. The EU is in a position, if gas prom doesn't get a good enough lawyer to defend itself, which it will might, to find gas prom huge amounts of money. And this would really tip the relations between the EU and gas prom onto a very, very bad level. And maybe the EU will hesitate to push for the kill. Maybe they won't. There's a lot of big questions out there. But I think for the time being, the EU is angry with gas prom. But it's afraid of gas prom to a certain extent. It wants to keep them online. And I think that the EU will push for modernization of Ukraine. Because ultimately, if you build a whole lot of expensive pipelines, the people who pay for those pipelines are the people who buy the gas in Europe. It's passed on down the chain. And that's not good for politics in Europe. It's not good for ordinary people. So that's my view. I think it's slightly, it sounds very optimistic at the moment to talk about it. I think that's what's going to, I think there's a strong likelihood that will happen, ultimately, with some hiccups on the way. As for whether the construction of pipelines is related to the sort of announcement of a new pipeline, it happens, can go on happening in a low price environment. I think it can go on happening for an awful long time. I think that mention about the capital flight being $200 billion is very relevant, especially now you've got Putin calling people to bring back their money. I think there's a lot more money in the system than any of us can even dream of. I think if Russia wants to do something, it could command the resources. And I think it's worth raking back into far history when Russia built the YAML pipelines to Europe, the gas pipelines, which I think must have been in the, there was a huge row. Was it the 70s or the 80s? I can't remember. Sorry to say. But it was Ronald Reagan anyway. We had a very good try to stop them doing that because Mrs. Thatcher in England was also dead against it, saying the Russians will still come and strangle us with them. And it was much more serious the opposition from the West then to the pipelines because the Soviets didn't have the capacity to build their own steel pipes, which they do now. They had to import technology. The Americans blocked the export of U.S. licensed technology. The Russians got those, the Soviets it was, they got those pipelines built against incredible odds. There was a huge propaganda effort. It was a sort of incredible victory that, and that YAML pipeline looked stupid at the time and it looked politically risky and it faced impossible obstacles, but it's paid for itself in huge amounts. I mean, it's been supplying gas, gas problems, reaping huge profits of gas going through that pipeline. And I think that history, a lot of the people who work at Gazprom are quite old. I think they remember their history and they don't crow about that very often, which is odd because they do crow about other victories. But it was a victory and it was a very powerful victory in a Cold War scenario. And maybe they'll think about that. Ultimately it's worth doing what looked like crazy pipelines don't end up being so crazy in the end and it's worth making huge sacrifices for them. Ed, do you want to say something about it? Maybe a bit more down to words. Well, let me cherry pick the parts of Andy's question that I want to answer, which is what I used to do to you. I think what's happened to Russia actually validates that talk I gave back in 2002. Because high oil prices converted Russia into a petrol state when it had other options. High oil prices crowded out other parts of the economy. It stopped economic reform in its tracks. It certainly facilitated corruption, if not promoted corruption. For a country with over 100 million educated people with other resources, Russia had other options. It did not have to be a petrol state. But the fact that oil prices are now much, much lower than over $100 in answer to your other question, Andy, I think suggest that there is now a distinction between what projects are affordable versus strategically desirable. Desirable depending on whatever definition you want to place on it because it avoids transit or because it diversifies into new markets and what is most economically efficient with the last category being the least important from a Russian point of view because Russia is special. The question about whether gas problem is adaptable or not to new conditions, I think they've managed to be quite adaptable in the last two, three years. If you look at the concessions they've made on contract pricing, concessions they've made on take-off pay obligations, concessions they've made on destination and concessions they have come down a lot in terms of moving away from inflexible contract prices. So can they adapt further? Sure, I think they have within that's an option, that's a choice that gas problem has to make and even the suggestion that they're willing to negotiate a new transit deal with Ukraine I think demonstrates something. I have to say the $20 billion price tag for modernizing the Ukrainian gas pipeline system is terribly, terribly inflated. It's not the houses price tag. And the Russian response is if we cost $20 billion we may as well build South Stream or Turkish Stream. No, why spend $20 billion in order to have Ukraine remain a transit country. You don't need to rebuild the Soviet era international transit system to about $200 billion cubic meter of nameplate capacity that you used to have. You were only transiting 60 BCM last year or something like that. So you can modernize the system with a lot less money than what the Ukrainians claim and that should be modernized. And also the Ukrainian gas storage systems in the western Ukraine are strategically very, very important. Give me a couple of billion dollars and I'll go to town on modernizing NAFTAHAS. I'm shocked to hear that NAFTAHAS is price on modernizing the Ukrainian pipeline system might be inflated. With that we have about a half an hour for questions, discussion that please raise your hand and identify yourself for the crowd. Julia, yes, right here. Julia Nanay Energy Ventures LLC I had a question about well, first of all, I know Ed, you said that Gazprom has been more flexible and I think that was pressure from the Kremlin as well as Rossnep. The LNG export monopoly was lifted and I think there was pressure also to accept the China gas price for the first pipeline. The question is really about do you foresee a lifting of the pipeline export monopoly as a next step? And I, it probably has a view on that too. Why don't we collect a few questions, comments. Yes, right here. We'll take three at a time. Doug Hangle with the German Marshall Fund On the subject of Gazprom's flexibility as US LNG comes on to the market does Gazprom lower prices to compete or do they sacrifice market share to keep prices up? And on LNG, Ed, you have the LNG projects at one in three with all of the LNG capacity coming on from Australia, United States and potentially elsewhere does that really make the most sense for Russia? Let's take one from this side. Yes, Jeff in the front. Jeff Mankoff with CSIS In addition to the increase of LNG production I wanted to ask about the potential for the end of the Iran sanctions and the arrival of Iranian gas on international markets and how that could affect Russia's and Gazprom's strategy. Okay, who would like to go first? I shall do lifting of pipeline monopoly. I think in answer to Julian and his question I think that I don't think even before the oil price went down I don't think there was any real consideration in the Kremlin of lifting Gazprom's pipeline monopoly. I think Gazprom had been forced very much against its will to accept that the so-called independence like Rosneft were going to be able to export LNG and I think it was a big blow to Gazprom and I think it was probably promised it could hang on to the pipelines in exchange particularly as it's built them all and LNG, the LNG projects aren't built and it maintains them, it knows how it works which is quite a secret of business by the way and I think now that I think Sachin is sort of like quite an ambitious figure and was really going on, he doesn't respect Mr Miller at Gazprom and I think he thought it wasn't just that he sort of like any very ambitious businessman to grab everything I think he thought that Gazprom was being incompetently managed and it would be much better if I was managing it better so why don't you give it to me and he had those arguments up his sleeve and now Sachin now, well I don't think Miller is looking great I have to say, but he's not looking that much worse whereas Sachin has gone from looking like the titan of the Russian oil and business to looking like the lame duck he sold pay and car BP for far too much money or that's what they're saying in the Kremlin he's loaded up Rosneft with debt which company can't pay, he's on the sanctions list I don't think he liked going abroad actually I mean it's not nice to be on the sanctions list although he said it was an honor his company can't raise money on capital markets so he can't go on buying things I don't think that he's even going to want to think about the pipeline I mean he'll come back to it of course but I think Gazprom's got a very valuable breather and I think you raise the question at an interesting time because maybe that's why Gazprom now Gazprom's got a reputation for being very good at building pipelines and in a way that's justifiable maybe that's why it's throwing out all these ideas and saying hey we're going to build more pipelines because there's no one who hasn't got any competitor at the moment it's a sort of bravado but the short answer is I don't think it's going to lose it for a bit the only thing I think could happen is that, but I think this will also be delayed there's been talk of breaking up Gazprom which does make sense and then you might have a separate pipeline company which also could explain why Gazprom now or the pipeline people at Gazprom want to make such a big show of how many fantastic ideas they've got I can help them can you? give them some more fantastic ideas small, modest in answer to both Julia and Doug's very good questions I think that's right that Gazprom has been forced to do this it's not out of their own volition that they're being flexible of course they have been forced but the question is did they have the capacity or is that a possibility and I think the answer is yes and the objective is to protect market share or to expand market share let's remember the West European LNG import facilities are operating at something like 20 to 25% utilization rate importing LNG into Western Europe hasn't been that great so if Gazprom is more flexible and it's gas pricing it can and it would make eminent commercial sense to want to protect market share it seems to me on the export monopoly question let's remember that the Dumas wrote legislation specially tailored for the Yamaha LNG project and the possibility of soclean-1 LNG it wasn't a broad base elimination of the export monopoly and I think the pipeline monopoly as demonstrated by TransNet actually is rather useful to the Kremlin because it gives you control you can exercise leverage on oil and gas producers by controlling pipelines so I don't think there's any sign right now that they're going to do anything I guess I see soclean-2 LNG as in different category because of the price tag and the fact that you're building on existing facilities I don't know if the other LNG projects are actually economic or not you know you're more the projects I'm talking about have received project sanction Yamaha LNG you know they've got partners who are willing to invest they can raise some money the question is is this profitable and banks will have to be addressing that question very soon as well Jeff, Iranian gas not in my career I used to say not in my lifetime but then since I've already exceeded the average Russian longevity I'm not sure about that why? let's say sanctions are completely removed on Iran I think in the short to medium term the Iranian economy might recover the Iranian Iran is a very heavy domestic gas consumer so if the economy recovers its own energy needs including for generating electricity will increase, they will need the gas for domestic consumption they will also probably do more gas re-injection in order to get more liquids out so I think there's some immediate call for gas in Iran and if and when Iran starts exporting gas internationally my bet is LNG rather than pipeline gas unless it is to India I am not a big believer in Iranian pipeline gas to Europe the way I look at it again perhaps wrongly because I don't actually Isabel is quite educated on Iranian thinking so she maybe should comment on this but if I were Iran and my big gas is on the coast in South Pass why would I liquefy the gas and have that gas go either east or west depending on what is the best market why would I build long haul pipelines through 6-7 transit countries in order to deliver it to say bomb garden in Austria it's not worth the transit risk on the other hand it costs Iran absolutely nothing to tell the PNs that we're very interested in exporting pipeline gas to Europe so that's what they do I just like to add to that I agree with that Iranian gas exports are probably way down the line but I think a sort of related question is how Gazprom and Russia are now going to react to Caspian gas exports which is the same sort of question so far Russia has tried various ways to obstruct the passage of gas and gas into Europe it doesn't like it, it's competition I think probably that a version is going to stay unless they can they've got quite a good relationship with Azerbaijan of trading favours like arms for Azerbaijan in exchange for you can produce your gas this kind of stuff but this could change I think it depends how the Turkish pipeline Turkish stream evolves and Turkish transit I'm personally very skeptical about Turkish transit I think the Turks could make life rather difficult for Gazprom and they might even look back to the days of Ukraine being difficult with huge nostalgia but the Turks have already emerged as a hub for the Caspian gas Ukraine never had any alternative so the Turks can afford to play a much tougher game with the Russians maybe either Gazprom is just going to have to swallow that and Putin is going to have to swallow it or perhaps you'll see when the gas comes into the tap pipeline across Turkey to Europe and then you could see them the opening up of whole new relationships and possibly even something better coming out of it more positive basically getting back to the flexibility issue which is related I think Gazprom has taken extraordinary strides from being totally inflexible to being moderately flexible and the first steps of the heart is to make I mean I'm quite shocked by the kind of compromises they've made with the EU and with prices and that is a sort of glimmer of hope for the future because the nature of the company has changed in that very critical area Okay let's take another round right here and then right here Thank you Kevin Massey with Statoil I wonder if you could speak a little more about the implications of the anti-monopoly case currently with the commission and how if and how this changes the whole scene and the landscape for Gazprom with regards to European gas sales for example the Nord Stream expansion can this go ahead without this case being resolved and without Gazprom acknowledging the European competition rules I mean is this a game changer? Lucien Polarisi Energy Policy Research Foundation Ed and Isabelle I'm wondering on your list Ed whether if you think about an environment of lower oil prices one of the things that comes up is project risk in other words it's one thing to put a project together where you can get revenue in three or four years another when you put a project together that's really expensive and revenue is not going to come for ten years even the unit cost might be low so I mean if you were a strategic planner at Gazprom you might say look you know this regulatory stuff in Europe we got all this other stuff going on these projects are expensive let's peel off the low cost highly diversified market projects for me that would mean soccer in one and two I'd put those right up front maybe a mall if you've got good support I'm just wondering that gives you the whole Asia Pacific you still have access to China if you can get there and I'm just wondering whether there's some rethinking on how they address these fundamental project risk issues Hi, Larry Wright from the State Department's Bureau of Energy Resources related question to Kevin from Statoil's maybe to put a more fine point on it I just want to challenge your prediction that Nord Stream would have a higher probability of being constructed than Turkish Stream given that the current Nord Stream is not operating at its full capacity because of European regulations that limits the amount of gas that can be supplied to the connecting pipelines at Greifswald the Opal pipeline and the other pipelines do you see any possibility that the EU will take whatever action is necessary to eliminate those restrictions to make it possible for an expanded Nord Stream to operate Okay, let's go back to the panel Isabel? Okay, so on the antitrust case against Gazprom is it a game changer? I don't think it is a game changer personally it could be, but I don't the accusation rests on actions that Gazprom allegedly took in East Europe two, three years ago it's not when it's a sort of limited competition the possibility for Gazprom to behave like that is getting less and less because of interconnecting pipelines in Europe because the market is just becoming so much more flexible I think to be honest I don't think the EU is going to even push through the find, that's my personal view but I think even if they do and it's embarrassing for Gazprom if it can't prove it's innocence etc I think it'll blow over some quite quickly and I don't think it's going to be possible for I think Gazprom, one of the problems that Gazprom is facing that it realizes it can't play around and limit competition on the Europe it's annoyed by that so I don't think it's a game changer I think the game has changed already it's over basically it's just a question about that 10 billion on a fine which I think is a little worry I don't know, Ed do you agree with me? I don't know I think it's really funny Kevin Pauley knows more about the subject than the rest of us and Larry too from his time in Berlin so I'm not a EU regulatory but it does raise the question of the bankability of Nord Stream 3 and 4 though because with the banks lend to a project that may be a subject to not being able to meet EU regulatory hurdles I think that's a really good question why this uncertainty over the competition case is hanging over us these competition cases to my friends and Microsoft and Google take a long time to get resolved so it's not something that even given with the statement of objections being issued in the spring and Gazprom's response in September it will be a year or two probably before we actually know the result and that uncertainty will cause a problem for any project Gazprom's logic of saying it doesn't apply because it goes under the Baltic Sea I didn't understand that so you have to ask Andy to explain that one I think Lou's question is really very important and interesting I agree with you on Socklin 2 and probably Socklin 1 as well except that Rossnett and Gazprom don't want to play ball with each other on combining resources on LNG something that Exxon I'm sure would like to see happen if it were possible the difference with Yomal is that you've got Total and CNPC with equity participation in the Yomal LNG project and might make a difference it may also lead one to think about what the future of power Siberia might look like why did the Chinese want the two fields designated as the supplier one, they don't want Gazprom the arbitrage difference between West-Siberian gas going west or east two, maybe that's a future way of clawing upstream to gain in equity that the dog that has embarked since the signing in Shanghai in May of 2014 is whatever happened to those Chinese loans we're hearing about 25 billion dollars of Chinese loans of prepayment for gas nothing's going on so if I were playing China's hand I would say times on my side and the Russians need the money you need the money give me something in return and that return may be upstream equity I don't know, but that might be the difference that make the project go one thing we know for sure is that these gas fields and might recall that BP was the first company that tried to move Kavika gas into China that gas could be stranded for a long long time Isabel do you want to say anything further about Nord Stream 3 and 4 Nord Stream 3 and 4 I agree with you that there's a problem there they're not even being used the first two lines aren't being used to full capacity and there is discussion going on about OPAL etc but first I want to backtrack I didn't want to say that I thought Nord Stream 3 and 4 would happen I want to say that it's more likely than half on the Turkish Stream I don't think Turkish Stream will happen as it currently stands so it doesn't necessarily mean I really think but I was just trying to give it a sense of discussion which we're now having but I think it's worth remembering that the whole point of these pipelines as they're being presented now as they were originally presented although the Russians of course backtracked is that it's the end of Ukrainian transit so you've got about 60 billion cubic meters a year coming into Europe now that isn't going to be coming anymore by Ukraine and it's got to come in some way so I'm open to Nord Stream on those grounds basically but you've got a more nitty-gritty question I agree with you there's a problem Isabel do you think that modernization of Ukrainian transit system is more likely than Nord Stream 3 and 4? You can think about that It's a time sensitive question It's economically more sufficient so no I think we have time for one more round of questions, comments from the audience we've addressed all of your questions but maybe not Julia I just have a comment that the relationship with China is not as smooth as it seems because look at the Vancouver field still no decision it was going to be a 10% stake but they can't agree on price so in the background it's hard to know how I agree that the logic of a Chinese upstream stake in Chayanda and Covicta makes sense but the pricing and how is it going to be paid for and all these issues remain so difficult to resolve I would agree that it won't be easy and pricing is a real problem right now because pricing obviously depends on your forecast on future oil and gas prices so how do you assess the value of an asset that you're going to produce oil or gas from over the next 30-40 years if you have different price forecasts I mean that's true this was Shell talking with Exxon on an asset swap so it would be just as true for Rosneft and CNPC and Gasprom and CNPC so it may be that these things would be settled until we have a more settled view of where the price of oil is heading because it's too risky for both sides to make the wrong decision Any final comment, Elizabeth? I think that the I'm a little bit cynical I'm a little bit cynical together as opposed but Chinese Sino-Russian energy relations I don't think they're that friendly when the oil pipeline first came on stream the the ESPO extension to China Russia doesn't make so much of a song and dance about that and I think there's very good reasons for that and within a week of it starting up they didn't have a party and it's just as well because the Chinese, it stopped altogether because the Chinese are at a lower price I never, to be honest, got to the bottom of it because Transnest wasn't really forthcoming and neither was Rosneft but that's within a week of starting applying to China I think it's a very bad start to relationship and that sort of it coloured my thinking and I think it's certainly coloured Russia's thinking about dealing energy with the Chinese it's very dangerous to put energy into an end-stopped market at least you put gas into Europe it can go off into other places in principle, in theory China, you're there, they've got you by the short and curly, it's unfortunate geography It also illustrates a point, it seems to me, that if you raise commercial issues to the highest political level it may be easy to make an announcement but it's hard to sustain the deal because you just want to deliverable for the two leaders to have something to announce and then it all falls apart in execution from both sides because the deal was not laid on a solid economic foundation so beware of heady announcements I guess Well, on that optimistic note let me note that Isabel, if you've lived in Russia and the region for more than 20 years and you're only a little bit cynical you are truly an extraordinary person more extraordinary than I even thought let me also note that I want to acknowledge the support from our colleagues at the Energy and National Security Program for putting together this program today thank Isabel for coming all the way across the pond to share her wisdom with us and Ed, for taking the elevator to come downstairs and share his wisdom with us again and, well, I think the gyrations in this market are going to continue for a while both of you have helped to illuminate these questions to a great extent Thank you and we thank you all for attending