 I am the energy editor of the economists, but I've spent most of my life dealing with different aspects of European security. I was the Moscow bureau chief, I ran a newspaper in the Baltic states, I studied Polish in Poland during the Cold War, and I lived behind the Iron Curtain as a journalist, and so I'm going to talk today mainly about the energy aspects of European security, or perhaps the security aspects of European energy. I'm going to focus particularly on gas. Electricity is a really interesting subject, and we were just discussing over lunch the enormous importance of building electricity into connectors across the North Sea connecting Ireland, Britain and other countries, and that's a whole big subject on its own. I'm very happy to get into that in the Q&A if anyone wants to talk about that particularly. And I will touch on a bit later maybe the effect of the fall in the oil price, which is also an absolutely enormous subject which has both some implications that I think people haven't spotted and some implications that I think have been rather overstated. But I want to focus for this talk really on the question of Europe's gas supplies and Russia's role in them, because I think we've seen a historic change over the last nine years. And one that hasn't been fully appreciated, certainly not in Britain where people see everything that happens in Europe through the goggles, the distorting goggles of British exceptionalism. I speak as a former vice president of the Young European Federalists about 30 years ago, so I'm one of the few paid up British Euro files, and I hope you won't beat me up for the sins of UKIP or anything like that because I really don't like them. But if you cast your mind back to 2006, we were in a completely different situation with regard to Europe. We had many European countries that were 100% dependent on Russian gas supplies. We had other countries that weren't 100% dependent but were very dependent. I remember going to the German Energy Ministry in I think 2004 and asking them whether they were worried about the German dependence. This is where Nord Stream was first being talked about, where they were worried about the dependence on Russian gas, and they said, well, we don't really have any alternative. They've got the gas, we need it, we can afford to pay for it, they want to sell it, so that's just the way things are. I didn't think you'd find anybody, not even in the Bulgarian Energy Ministry, would you find someone saying that now? They've got it, we need it, so let's just go ahead. There's been a fundamental change in our situational awareness. People see energy in quite a different way, partly because of the political and diplomatic developments in Russia, partly also because of the vulnerabilities we've experienced in Russian gas transit chiefly across Ukraine. We've had several instances, the first in 2006, but also in subsequent years, where arguments between Russia and Ukraine, and I wouldn't say at this stage where I say the blame should lie mainly, but led to factories shuttering people being cold, real energy emergencies in countries in Eastern Europe. This map, which I think is from a couple of years ago, shows the way we used to be thinking about it. I don't know if this has got a laser pointer, let's see. I don't want to blow the place up, which one do I think? Here we are. We were thinking about Nord Stream, and that was seen at the time as a big danger. This was going to allow Russia to bypass these main transit pipelines and supply gas to Germany. The Polish foreign minister, my friend Radeck Shikorski, notoriously said this was the energy equivalent of the Molotov-Ribbentrop pact. Now our thinking on Nord Stream has changed a bit since then, as I'll say. Then we had all these planned projects to try and get gas from here, where there's a huge amount, Turkmanistan also in Azerbaijan, and to get that across southeastern Europe and up into Central Europe. We had all these different plans. The main one was Naboka, and this was the one that was strongly backed by the EU and by the United States. That was going to get gas from Iraq, when we thought Iraq was going to be a success story for at least the Kurdish part of Iraq. It would get gas from here from Azerbaijan, and then we were going to build a Caspian interconnector and get gas from Turkmenistan. The Russians had their own project of South Street, and that was going to be straight across the Black Sea, and then go on a slightly different route, bypassing Romania, going through Bulgaria, and giving them a slice of transit revenues and then up through into Austria. Then we also had these two pipelines here, which were much less talked about, were going to be built, taking gas to Italy. The situation has really changed a lot since then. I hope I can now go to a slide. This is a rather complicated slide, but it shows what we are in now. Nord Stream has been built, and thank goodness for that. It's a really big shift now. The same century Europeans, Poles, Czechs, Slovaks, Hungarians, who were worried about Nord Stream being built 10 years ago, and I see it as a really important fact in their security, because what it means is that so long as the gas is flowing from Russia to Germany, we can then send gas by reverse flow into countries like Poland, the Czech Republic, Slovakia, and so on. This is happening. We are beginning to get a north-south gas grid, and I said to the Czech energy representative, a great friend of mine who has been doing this for years, aren't you worried that the Russians in a crisis will cut the gas off to Germany as well? He said, if the Russians cut the gas off to Germany, we're going to be in uniform anyway, and we're going to have other things to worry about apart from gas. I think that explains it very well. It's very hard to imagine a situation in which Russia is going to cut off its main customer and the only country in Europe where the leader still really takes Putin's phone calls. That then allows us to supply mixes a lot less dependent on these transit pipelines. We've actually seen a remarkable development, which I don't think anyone would have anticipated 10 years ago, that we are now supplying quite significant amounts of gas to Ukraine. We've got gas coming to Ukraine from Poland across an interconnected. We've got gas coming from Slovakia, and there's potential that isn't actually happening at the moment. It did happen a few couple of years ago to send gas from Hungary. The idea that gas simply flows from east to west, and there's one supplier and one customer, and there's not very much you can do about it, has changed very substantially. We've also got LNG. Now this map is slightly out of date. This one here on the Lithuania coast has been built. This is the LNG terminal. It's a floating LNG terminal, which is very interesting. The cost of LNG terminals has gone down hugely. It's still very expensive to make LNG, but it's got a lot cheaper to have a terminal to receive LNG. You can have this floating terminal. This is at Clifoda in Lithuania. No sooner had it arrived than the Lithuania Energy Minister was able to negotiate a very substantial discount on Lithuania's gas supply from Russia. It was a very, very clear illustration that even if not a molecule of gas actually flows from that terminal, even if you never need it, the fact you've got it puts you in a strong bargaining position. And more terminals are being built. The Poles are building one here at Finorsci on the northern Polish coast, and there are others which I might get on to a little bit later. But that's one huge change. We are now able to see the beginning of the north-south gas grid and the west-east gas grid, I suppose, in a different position. But there are other things that have happened as well. Compared to 2006, we have an incomparably better awareness of data. The EU in 2006, when the first emergency happened, had basically no idea what was in gas storage, how much gas storage there was, what the capability was to ship gas around. That is now a very sophisticated operation. We collect the data from all over Europe. If there is an interruption, it's much easier to work out what to do. We've also built many more interconnectors. Some of them are on this map. We've got the Polish Czech interconnector, the Polish Slovak interconnector. There is a Slovak Hungarian interconnector I think is working, a Hungarian Romanian one. And we don't yet have, I think this is a bit optimistic. I don't think we have a Romanian Bulgarian one, and we certainly don't have a Bulgarian Greek one or a Bulgarian Serbian one, for the interesting reason that the permissions to build those are held by companies closely connected with a certain foreign power, who I might mention in the off the record session later. So it's far from complete this, and this is very largely thanks to the European Union. The European Union identified the structure of the gas grid as a major weakness, it identified the lack of data as a major weakness. It also identified the lack of storage as a major weakness, and it's put serious money and serious political effort into making that happen. I do apologise to the people at the back who probably, unless you have fantastically good eyesight, you probably can't see any of this. If you Google it, sorry. Oh, you've got another screen there. Oh right, I no longer feel sorry for you. So that's been a very important thing. We've also had the third energy package, which is one of those immense, what we call it, the economist boring but important stuff. If you know about the subject, it really matters, but it's very hard to get people excited about it if they don't know about it. But this has basically broken the gas prom business model in Europe. It's made it impossible to own the pipeline and the gas that flows through it. And this was why Southstream, which I'm going to just highlight here, the Great Russian Prestige project, which made no real economic sense, but was a wonderful way of exporting corruption into the countries through which it was going to pass. A great victory for the EU, almost totally unremarked in the British press, was that in the end these countries, these transit countries, did not want to sign up for a pipeline which the European Commission had said was going to be illegal. The European Commission said very clearly, you cannot build a pipeline and own it and operate it. And the Russian said, that's very interesting, thank you, don't use your enthusiasm, but we have an excellent deal with our friends in the Bulgarian and other governments and we're going to go right ahead. And it was a real battle of will. It was sort of alien-v-terminator in terms of energy policy. And the Russians really believed that they were going to be able to face down the Commission. They thought the Commission would not be able to stand up, not just to having these rinky-tink little East European countries, but what the Russians call real countries, i.e. the Austrians and the Italians, who were going to benefit from Southstream. They said the Commission simply won't be able to withstand this sort of political pressure. And we all get an exemption. We'll be allowed to build and operate Southstream the way we want it. And we'll be able to export gas, influence the energy markets and pump stuff into the political systems and public life as well. And it didn't happen. Very humiliatingly, Vladimir Putin had to say the end of last year were not building Southstream. There were financial pressures as well, gas from short of money. But that was a really important victory for the European Union. What comes next? I'm aware I've been rabbiting on and we want to get onto the Q&A. There's a lot more still to do. I talked to Minister Shevchovich, the Vice President of the Commission Shevchovich, who's the head of the, who runs the overall energy portfolio, a couple of weeks ago and wrote about that in The Economist. And his task is to make the energy union happen. And so his big priority, which he's going to be presenting in Riga on the 5th of February, is interconnectors. He's, we've basically done what needs to be done in terms of the third energy package of dismantling this market abusive model. But we need to do a lot more on interconnectors, both on gas and on electricity. For example, we need to get this Lithuania and Polish one built. We need to get the, particularly here, the Hungarian route to the coast. This is perhaps the single most important thing in, I think in European energy policy, is to sort out the riot between Hungary and Croatia, which is one of these sort of extremely boring commercial squabbles. Build an LNG tunnel here on Hungary's coast, and do reverse-flail on the pipeline back up to Hungary. And I think that would then lead to a radical change in Viktor Orbán's energy policy. Viktor Orbán, the Hungarian Prime Minister, has become a notable Putinista to the dismay of many of the other century European countries. But one of the reasons is he doesn't really get on well with his neighbours. He's very worried about being dependent on gas transit across Ukraine. And he saw South Stream as the best way of widening his options for getting substantial amounts of gas from an independent source. If we can build that, I think that will have a big breakthrough. We need to go ahead with the other LNG terminals as well. But the final thing, which I think is absolutely crucial, and this is perhaps the thing to watch this year in terms of European energy security, is what the new competition commissioner, Margrethe Vestager, does on the complaint against Gazprom. This was one of the great epiphany for Vladimir Putin, Alexey Miller and all the other people who run Russia. Something they never thought would happen. I think it was served three or four years ago now. When commission officials, with search warrants and using their prosecutorial powers, broke down the doors metaphorically, and they actually just rang and showed the warrants and were let in, in 20 or 30 Gazprom offices and affiliates all over this region, and went in and seized documents, confiscated computers and took them back to Brussels and analysed them in order to prove exactly how Gazprom had been abusing the rules of the single market, chiefly, with its country by country pricing, but also with other market distorting behaviour. That led to what in EU jargon is called a complaint. It's exactly the same process that was used against Microsoft. If you remember the row with Microsoft perhaps more than 10 years ago now, about whether it was fair to bundle internet explorer with every version of Windows. Microsoft, rather like Gazprom, didn't take the European Commission seriously. Big mistake. Talk to anyone from Microsoft, they would admit that it was a very, very fundamental misapprehension. They did not see that the European Union's competition commission was something to worry about. The competition commission can impose fines and it can impose more fines and more fines and more fines. It has the full force of law and it can collect them. It also has the ability to make legally mandated changes to business models. It can ban you from doing things. It also has the ability, if a complaint goes through, there's also scope for class action lawsuits by all the people who've been the victim of this market abusing practice. That's really important. I see it as a giant torpedo aimed at the heart of battleship Cremlin. If that complaint is launched, it's curtains for Gazprom, it's current form in Eastern Europe. It'll do far more damage than even the third energy package did. It'll be humiliating, it'll be expensive and it opens a whole can of worms in terms of all the other things. Now, this complaint was already finalised, actually, this time last year. It then sat on Commissioner Almunia's desk because with everything that was going on in Ukraine, people felt this is not the time to pick another flight with Russia. Hawks, such as me, would have said this would be a great time to turn the pressure up on Putin. This is an absolutely perfect time to do it and by not doing it, we signal weakness. As with Southstream, the message that Cremlin got from the fact that we did not go ahead with that complaint was that they were able to face down the EU, that political pressure was getting in the way of what's essentially a judicial issue. The Commission here is not acting as a political body, it's acting as the competition authority. It shouldn't really be open to political influence but, of course, these things do happen. So it was postponed. Almunia said he wanted it to be finished by the time he actually said, I believe off the record, something on the lines of I want Gazprom's scalp on my desk by the time I clear it. I may be being slightly more colourful than he actually said it but he certainly was a very clear priority but it was postponed and postponed and postponed and in the end Almunia left and we got the new commission and it's now on Verstygar's desk and that is the thing to watch for. I think if the Russians are able to face down the commission on this, it will be a very major victory and it will allow them to continue to consolidate the position they've got in Central Europe. It will dismay people who are going for more energy independence and will be really quite a setback. On the other hand, if it goes ahead, I think it's curtains in Europe for a very important part of the Cremlins business model. So on that note, I'm going to stop and if you don't mind turn the cameras off and I shall be very happy to answer questions on background. Great, thank you very much.