Alternative energy is main issue for EU energy security

Foreign Minister Urmas Paet participated in the Informal Ministerial Meeting of the General Affairs Council in Prague. The focus was on energy security matters. Due to Russia’s decision to cut off the gas supply to Ukraine, some of the European Union’s gas supplies have also been drastically reduced.
Foreign Minister Urmas Paet stated that it is regrettable that Russia and Ukraine have not reached an agreement and now many European Union nations have also been placed in a difficult situation. Paet said that negotiations being held over gas prices should not be tied to politics.
“Negotiations on the price of gas should be held on a purely economic basis, and Russia should adhere to principles of the World Trade Organisation (WTO) and the energy charter in order to guarantee the transparency of the price determining process,” said Paet. However, the foreign minister did express hope that the parties would reach an agreement onthe issue soon and Russia would restore the gas supply to Ukraine. It is also very important that the supply of gas to European Union member states be restored.
“At the same time, the European Union should focus more than it has before on a common energy policy and finding alternative energy sources and suppliers. For this, it is necessary to create new connections with Central Asia and Azerbaijan,” said Foreign Minister Urmas Paet. Paet stated that improving the internal connections of the European Union is also important, so that in a crisis situation it would be possible to redistribute the EU’s internal gas supplies.
At the meeting, the Czech Republic expressed its desire to organise a meeting of the European Union Southern Corridor in the near future. “Estonia welcomes this initiative, since reducing Europe’s reliance on a single supplier is important to the European Union’s energy and security policy and should be one of the primary priorities of the Union,” emphasised Paet.
The Southern Corridor (East-West Link) is the collective name given to energy transport projects from the Caspian region to the EU that would not pass through the traditional passageway through Russia. The primary projects in the Southern Corridor are the development of the Nabucco gas pipeline (from Turkey to Central Europe), the White Stream gas pipeline (from Georgia through the Black Sea to Romania and/or Ukraine, and from there to Central Europe), and the Odessa-Brody-Plock oil pipeline.
The foreign and European affairs ministers of the European Union also agreed that co-operation between the EU and the United States in energy security is important. Paet stated that the EU should include the USA in the creation of a comprehensive post-Kyoto Protocol in Copenhagen in December of this year. “The global financial crisis and economic decline should not prevent the EU and USA from making long-term decisions. It should also not damage the balance between climate and energy security, since both of those topics need our attention,” he said.
The Estonian foreign minister also believes that we should consider updating the transatlantic action plan that was drawn up in 1995, taking into consideration changes in the world, including the enlargement of the EU.

Source: Estonian Review

Cheaper oil not yet reflected in prices

According to Statistics Estonia, the Estonian CPI decreased by 0.2 per cent in December. The growth rate of CPI declined to 7 per cent compared to December 2007. Average inflation for 2008 stood at 10.4 per cent, which is in line with Eesti Pank’s forecast for 2008.

External inflation pressures have also eased. Euro area inflation declined considerably in December: from 2.1 per cent in November to 1.6 per cent.

Estonia’s economic growth is negative, similar to the external environment. In earlier periods, the increase in costs was passed on to consumers, whereas now there is more pressure for efficiency improvement. This means that inflation will slow further.

Corrections of the robust price rises carried out at the time of strong growth were evident already at the end of 2008. The start of 2009 has witnessed further corrections through seasonal sales. The extent of price corrections has been shaped by the increasingly low levels of consumer confidence indicators. Inflation expectations have sunk to record lows as well.

Similar to previous months, in December Estonia’s inflation was reduced by the continuing drop in fuel prices. Earlier price rises that had stemmed from growing oil and other commodity prices are expected to be reversed. This concerns the prices of thermal energy, transport services and various dairy and cereal products, for instance.

Eesti Pank expects the inflation for 2009 to be lower than the 3.7 per cent set out in the autumn forecast.

Source: Bank of Estonia
Written by Martin Lindpere, economist of Eesti Pank