Role of energy charter treaty in energy security

Energy security was the priority after two oil crises in the 1970s, resulting in industrialised countries diversifying energy sources and non-OPEC areas increasing production.

The market mechanism took over in the 1980s, and oil became a commercial commodity (NYMEX WTI 1983-, IPE Brent 1988-). Deregulations were taking place in the natural gas and electricity sector in the 1990s, introducing competition in the sector.

Why "Energy Security"? (1)

- Political instability prevailing in many resource-rich areas

- Natural disasters (Hurricanes "Katrina" and "Rita" in the US in autumn 2005)

- Blackouts (California in 2000, North America and Europe in 2003)

- Nuclear accidents (safety records falsification leading to stoppage in nuclear operation in Japan in 2003)

- Russian natural gas supply disruptions (Belarus in February 2004, Ukraine in January 2006 and January 2009)

Why "Energy Security"? (2)

- Concerns over stability of oil & gas prices

- Stagnant non-production

- Inadequate investment in resource development and infrastructure

- Demand growths until recently

- Increasing import dependency Geographic shifts in s ppl & demand

- supply structure (emergence of China and India on the demand side, re-emergence of Russia

on the supply side)

Energy Security Measures

- Diversifying energy sources

- Strategic forces

- Political influences (G8, EU-Russia Summit)

- Petroleum reserves

- Producer-consumer dialog

- Promoting energy investment technology investment, transfer, transit and trade

- Energy Charter Treaty

- European Energy Charter (December 1991): a political declaration for energy cooperation in the post-Cold War era. Western/Central/Eastern European and the FSU countries, plus the US, Canada, Australia and Japan, gathered in the Hague, Netherlands.

- Energy Charter Treaty (December 1994): Intergovernmental agreement to provide legal framework to 14 governmental protect investment and secure trade and transit in the

energy sector. Entering into force in April 1998.

The Energy Charter Treaty is intended for the lifting of political and legal risks associated with investments in the energy sector.

Risks Associated with Energy Investment

- Political/legal risks

- Economic risks

- Related regulations

- Profit transfer

- Taxes

- Changes in terms and conditions of the agreement

- Expropriation

- Jurisdiction

- Energy Charter Treaty

- Prices

- Marketing

- Construction

- Operation

- Inflation

- Foreign currency

- Exchanges

- Other risks

- Natural disasters

- Civil unrests, wars

- Strikes

Dispute Resolution Procedures:

- An opportunity for amicable settlement

- In failing the amicable settlement;

- Investor-to-state disputes (Article 26)

- UNCTRAL

- SCC

- State-to-state disputes (Article 27)

International Law implications on the Status of Caspian Sea:

If Caspian considered as "Sea" - Evaluations under UNCLOS

UNCLOS-Relevant articles

Laws and regulations of the coastal State relating to innocent passage

1. The coastal State may adopt laws and regulations in conformity with the provisions of this Convention and other rules of the international law relating to innocent passage through the territorial sea in respect of all or any of the following:

(a) the safety of navigation and the regulation of maritime traffic;

(b) the protection of navigational aids and facilities and other facilities or installations;

(c) the protection of cables and pipelines     

Article 58. Rights and duties of other States in the exclusive economic zone

1. In the exclusive economic zone, all States weather coastal or land blocked, enjoy, subject to the relevant provisions of this Convention, the freedoms referred to in article 87 of navigation and overflight and of the laying of submarine cable and pipelines, and other internationally lawful uses of the sea related to these freedoms such as those associated with the operation of ships, aircraft and submarine cables and pipelines and compatible with other provisions of this Convention.    

Article 114. Breaking or injury by owners of a submarine cable or pipeline of another submarine cable or pipeline.

Every State shall adopt the laws and regulations necessary to provide that if persons subject to its jurisdiction who are the owners of a submarine cable or pipeline, cause a break in or injury to another cable or pipeline, they shall bear the cost of the repairs. 

Current state of business

- Regardless of the delimitation of Caspian and sharing of resources under the seabed, rights under international law applies

- Certain hydrocarbon reserves currently being extracted utilising off-shore pipeline connections ('collection pipelines') extending to the coastline. No major objections viewed so far 29 far

- Pipeline across the Caspian - international law

or politics playing he role?

 

Report by Sedat Chal

Chief economist of Secretariat of

Energy Charter  

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