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Black Sea Energy and Economic Forum 2009


  • Frederick Kempe, Prsident and CEO, Atlantic Council
  • Ambassador Richard Morningstar, U.S. Special Envoy for Eurasian Energy
  • Paolo Scaroni, CEO, Eni S.p.A.

October 1, 2009

FRED KEMPE:  I’m president and CEO of the Atlantic Council.  We’ve got tonight a very high-powered group of some of the leading experts in the region, and from outside the region, on energy – on economic relations for the region.  And I’m just delighted that you’re all here.

I thought it was a little bit inconsiderate of the political players in Romania to have a crisis just at the time of our conference.  But, on the other hand, I think it will rivet a great deal of attention on tomorrow’s proceedings, when we expect that the three leading parties of Romania will be represented to open the conference.

For the last 50 years, the Washington-based Atlantic Council has been the leading organization promoting a closer U.S.-European security relationship.  And our mission today has been to define security much more broadly.  Our mission is renewing the Atlantic Council for 21st-century global challenges.

That’s two parts.  First of all, we’re renewing the community – (audio break) – me why this conference for the launch, and then the inaugural part of this conference in Romania.  And it’s quite simple.  It’s because Romania gets it.  Romania understands that, to be integrated in the European Union – to be integrated into NATO; and to work with its neighbors on a commercial basis, taking to the extent possible the geopolitics out of a closer relationship is the way to go.

The greater Black Sea region is of paramount importance to the Atlantic community, which is why the council decided to create its new Eurasia energy center this year, to address issues in the region with our fellows.  And dramatically deepen our relationships here, including the establishment of our first overseas office in Bucharest.

The Black Sea-Caspian region is essential not only for what happens here, but if it becomes stable or unstable, it has ripples elsewhere.  The guests that are here tonight, and then through the next two days of the conference, are the region’s major players in energy security.  And it is with great pleasure that the Atlantic Council hosts this inaugural forum.

It is the first year, and next year’s will be in Istanbul.  The idea of this forum has never been to be just a conference that people attend, but, rather, to be an initiative that people can contribute to.

I’m honored to have so many special guests who will join us throughout the forum, including the president of Romania, Traian Basescu; the president of the Romanian Senate, Mircea Geoana; the vice-president of the Senate, Crin Antonescu.  I think we are bipartisan in the United States – we’re tripartisan in Romania.  We have always been an organization that wants to bring people together.  So I think, particularly in a time of government crisis here, it is important to see that we can all come together around Black Sea issues at this event.

The minister of the economy, Adriean Videanu, and their excellencies will be here – ministers from Azerbaijan, and Bulgaria, Georgia, Romania, Russia, Turkey, Turkmenistan and the Ukraine.  This year’s host are Romania’s minister of the economy and foreign affairs.  Our sponsors – it’s too long a list to read off.  But DP Holding and Rompetrol we owe particular thanks.  (Applause.)

I want to acknowledge Atlantic Council board of directors and members who are present.  We have former ambassador Jeremy Grizzard Burke (ph); former foreign minister of Spain Ana Palacio; the founder of Firebird Management, Ian Hague; the former deputy commander of EUCOM, Gen. Chuck Wald – one of the smartest minds of energy from the military sphere; former first vice-president of the EBRD, Ron Freeman; former chair of the International Trade Commission, Paula Stern; and then chairman of the U.K. Atomic Energy Authority, Lady Barbara Judge; and CEO of Greensource Energy, Fitz Lee (ph).

I’d also like to acknowledge the forum’s co-chairs:  Atlantic Council chairman Sen. Hagel.  Eni S.p.A. Paolo Scaroni, our guest of honor tonight; and Dinu Patriciu, chairman of DP Holding, and an International Advisory Board member of the Atlantic Council.

Lastly, Atlantic Council Chairman Sen. Hagel unfortunately cannot be with us tonight due to flight delays, but he’s going to – he looks forward to opening the forum tomorrow morning.

It’s now a great honor and pleasure to introduce Richard Morningstar, the U.S. special envoy for Eurasian energy.  I think it’s fair to say, Ambassador Morningstar, that you are a skilled and veteran hand at Eurasian energy issues.  In his early career, he played a leading role in the private sector as chairman and CEO of Costar Corporation, listed by Forbes as one of the top 200 small companies in the country.  He served as senior vice president for policy and investment development at OPIC – the Overseas Private Investment Corporation – where he’s responsible, among other duties for the development of implementation strategies for new investment programs in Russia, and the newly independent states around it.

While wearing the diplomat hat, he served as U.S. ambassador to the EU, one of our most important diplomatic posts, as special advisor to the president and secretary of state for Caspian Basin Energy Diplomacy; as ambassador and special adviser to the president and assistant to the newly independent states of the former Soviet Union.  In short, few Americans have the same depth and breadth of expertise on the topics of this forum.

His position as U.S. special envoy to Eurasian energy is a hugely important one.  Its creation, itself, underscores U.S. commitment to Europe’s energy security, as one of the primary avenues through which the U.S. can engage with the countries of this pivotal region.

And since his appointment of April 6th this year, Ambassador Morningstar has visited every single country in the Black Sea-Caspian region, and recently came back from Kazakhstan and Azerbaijan.  Please join me in welcoming Ambassador Morningstar to the podium.  (Applause.)

AMBASSADOR RICHARD MORNINGSTAR:  Well, thank you very much, Fred.  It’s certainly a pleasure to be here tonight.  You know, when you sort of recite a long résumé, all it proves is that I’ve gotten old.  But thank you – thank you, in any event.

So it’s also a pleasure to be here with the distinguished forum players here tonight:  Mr. Scaroni, Mr. Patriciu.  And I know that Sen. Hagel wishes he could be here tonight.  And he’ll be here, I guess, beginning tomorrow.

It’s certainly a pleasure to be in Bucharest, and to talk about one of the most important pillars of U.S. diplomacy – energy security.  I’d also like to thank President Basescu, who I just met with this afternoon – or late this afternoon.  That’s why I was late for the reception.  But for President Basescu and the Atlantic Council for inviting me to be part of this distinguished forum, and have the opportunity to talk about what the U.S. is doing with regard to energy security.

You know, when you talk about Eurasian energy, we often focus on another sea – the Caspian Sea.  And, certainly, the Caspian Sea has enormous potential, and exciting developments in hydrocarbon exploration and production in Kazakhstan and Azerbaijan and Turkmenistan.  And the resources of Caspian Sea will meet growing global demands.

But, as you all know, there’s another sea that’s the focus of the forum today and this week, the Black Sea.  The Black Sea is bordered by Romania, Bulgaria, Turkey, Georgia, Russia and the Ukraine, and the Black Sea has been at the center of commercial activities since ancient times.  And it has a long history as a significant trade route between – linking Asia and Europe.  And today, things are going to be extremely important.

And, lastly, the Black Sea, which boasts an average depth of 1300 meters, is largely unexplored, and could be the site of its own rich oil and gas resources.  And I know that many companies who will be involved in this forum this week are interested in that.

I think one of the key points to emphasize is that region cooperation among the Black Sea countries, and all of the Central and Eastern European countries, will be the key to achieving this new energy infrastructure.  Regional cooperation is necessary, as well, for further development of the Southern Corridor.

The countries that are bordering the Black Sea, in my view, really need to work together – to form a coalition to garner support for the work that will be done in the Black Sea, as well as for the Southern Corridor.  But times can be difficult, as you all know, to achieve a real consensus in Europe about energy security.  This makes it critically important that the Black Sea countries come together to support the exploration and production in these areas, as well as transportation of these resources to world markets.  And that’s something that I’m going to be working on very much, and working with the countries in this region to work in a united way.

Regarding the Southern Corridor, in July I represented the United States in a signing ceremony in Ankara for the intergovernmental agreement on the Nabucco pipeline, which is a major milestone in opening a new gas corridor to Europe.  Clearly, not the only step – many steps still need to be taken.

Sen. Lugar, who is the ranking Republican member of the Senate Foreign Relations Committee, and I represented the United States at that event.  Sen. Lugar’s strong interest in the region, as Sen. Hagel’s strong interest, reflects the strong bipartisan approach that the administration and Congress has taken with respect to these issues.  This is one area where we really are bipartisan.  The ceremony demonstrated the commitment of Turkey – and the other participating countries in this region, including Romania – to the project – (inaudible).

Let me just take a moment to address the broad framework of U.S. energy diplomacy, and talk about our strategy for moving forward.  And then, later, hopefully, there’ll be time for questions in the later part of the program, although I know we’re running very late.

What is the U.S. strategy?  There are three main components to our Eurasian strategy.  First, we want to encourage the development of new oil and gas resources, and also promote efficiency and conservation in the use of our energy resources.  When we’re talking about new national gas production in Azerbaijan or Turkmenistan, it’s unlikely that one molecule of that gas will reach the United States.  But it’s still important, because it will add to the international gas supply.

New supply in one place frees up supply in another.  And as the market for liquefied natural gas grows, we can start to think about gas moving around markets in much the same way that oil does.

Second, we want to assist Europe, as much as we can, where we can be helpful in its quest for energy security.  Taking goods and services together, the EU and the U.S. account for the largest bilateral trade relationship in the world.  The significant amount of bilateral trade and investment illustrates the high degree of interdependence of the two economies.  We have an interest – a very direct interest – in maintaining this level of commercial and economic activity in Europe, and energy security is critical to that.

In addition, Europe is our partner on any number of global issues.  We have an interest in an economically strong Europe.  Of course, Europe is composed of many different states, and energy security is a more pressing issue to some than others.  Some countries in Europe do not have a diverse energy mix and depend, to a great degree, on supply.  And when that route’s destructed, as we witnessed in January of 2009, the consequences can be severe.  The population of Bulgaria and Serbia certainly can attest to that.

So our aim is to encourage the development of multiple energy sources, with multiple routes to market.  And this approach will further competitive and efficient markets, and the best prices for consumers.

Third, we want to help Caspian and Central Asian countries, as well as Black Sea countries, as the Black Sea is developed, to find new routes to the market.  We want to foster economic growth and prosperity in these countries.  We’re not trying to play a zero-sum game in Central Asia and the Caucasus.  We simply want these countries to be able to develop their resources and export them, in a way that they choose is consistent with their interests.

And we can’t reach our energy goals alone.  We have to engage with our friends and allies around the world.  Friends like we have right here, in this room, truly, in helping to achieve our goals.  In the 21st century, countries cannot insulate themselves from the economy and global markets.  So we’re working closely with the EU and energy – (inaudible).  We’re trying to work closely with Russia on the energy – (inaudible).  I hope and think we’ll make progress.

With the EU, we’re working together to diversify Europe’s energy sources; develop new clean-energy technologies; as well as improve energy efficiency, and strengthen the energy security of third countries.  We’re working to set up a new council, that we hope will be ready to deal with energy issues, and we hope we’ll be ready by the summer to officially announce.

With Russia – now, I want to emphasize this.  We do want to cooperate on energy issues.  Our policy is not anti-Russia.  As President Obama said at the U.S.-Russia summit, in Moscow in July:  The United States and Russia have more in common than they have differences.  We’re working to have an open dialogue with Russia, and identify areas of mutual interest and benefit – including investment on both sides of the ocean, and third countries.  And I’m sure you all noticed Prime Minister Putin conferencing to Yamal in the last two days.  I think they’re getting more and more interested in investing.

Zero-sum games are too expensive, and we need to find areas where we can cooperate.  In this spirit, since the White House announced a new binational commission that will cover a host of issues, including energy.  And we’re working with our Russian counterparts to kick that off in the next weeks.

The bottom line, as I see it, with respect to Russia – they’re going to be a major player for as long as we can foresee.  And it’s in all of our interests that Russia increase its production of oil and gas resources.  That that is not inconsistent with seeking diversification and competition.  You can help Russia; work with Russia to increase their resources; support their increase in resources – and, at the same time, seek diversification.  And if the shoe were on the other foot, you know, Russia would be doing the same thing.  So we really do want to make an effort to work with the Russians.

Finally, just a few words:  How do we achieve our energy-security goals?  Well, you know, private-sector and free-market forces are obviously going to be the primary means through which oil and gas are produced to transport – (inaudible).  But governments can play, and should play, a facilitative role.  Governments should put in place the right business climate to attract investment, and should work with neighboring states to expand the market and increase interconnectedness, which is beginning to happen, as you know, in this very region.

So in the heart of our policies, the belief that energy security is best achieved through diversity of supplies, diversity of transportation routes, and diversity of consumers.  Both are extremely important.  They can help open up further upstream development – not just in Azerbaijan, but also in Turkmenistan, Iraq and in this region – and they’ll form a long-term bond between the countries of Central Asia and Europe.

New pipelines alone will not be sufficient to provide for Europe’s energy security.  The U.S. supports the other initiatives that Europe is undertaking to increase its own energy security.  And those nations focus on a single market for energy; on bundling distribution and supply functions of energy firms; building interconnectivity with European gas and electricity networks; and enhancing LNG – (inaudible) – capabilities for increasing gas storage.

The Southern Corridor is very important.  We’re pushing towards – (inaudible).  But it’s only one part of the puzzle.  An important part of the puzzle, but one part of the puzzle.

So to summarize, the key to achieving our strategy is engagement.  We play a supporting, not leading role – clearly, not a leading role – in Europe’s energy security.  We can only play a supporting role, as well as the development of Caspian oil and gas.  We need to continue to engage with the private sector, with the EU and the individual European states, with Russia and with Central Asia.  So our job is to listen; to identify common interests and priorities; and play a facilitative role where we can.  Thanks.  (Applause.)

MR. KEMPE:  Thank you, Ambassador Morningstar, for that important statement.

Before I comment on that statement, let me comment on your meals – which will come out as we talk, because we got started a little bit late.  And we’re dealing with the complications of Romanian traffic and Romanian politics.  We will be flexible, as the Atlantic Council always is, and just continue this program as we’re being served.  And so that’s the way we’ll go forward.

I got from Ambassador – the mixture of Ambassador Morningstar giving his policy view.  And because I’m not a government official, I will be a little bit provocative, in the sense that I think the statements he made on all issues are very important.  But, clearly, Russia is crucial.  And Ambassador Morningstar is not a missile-defense ambassador, but I think you could see the impact of the change in America’s missile-defense policy on other aspects of policies with Russia.

And the relationship’s in play right now.  It’s a dramatic time in the U.S.-Russian relationship.  It could turn out much better, or it could turn out to be a disappointment.  And I think we’re here at a historic moment in the U.S.-Russian relationship – in the European-Russian relationship, and, overall, with the Russian relationship with its neighbors in the West – where we’re really going to see, over the next year or two, what sort of relationship will be formed.  And I think that’s going to a big part of our conference.  And, because of that, I think Ambassador Morningstar’s comments were very important.

We are, also, speaking to much larger audience.  This will be carried on our Web site, – and the transcript, and the sound of this conference, and this important speech, will be there.

Now I’m going to turn to a man that I have respected from afar for a long time.  He’s one of the most important players in the world on energy issues.  And he’s the chief executive officer at Eni, one of the world’s leading energy companies.  And he’s been in that job since June of 2005.

But that really doesn’t say enough about the man.  I’ll give you a couple more sentences from the CV, but then I’ll just give you more of a flavor of what his job is really about.

From May 2002 to May 2005, he was chief executive officer and chief operating officer at Enel, another hugely important Italian company.  And, prior to that, he was chief executive officer of Pilkington, which is when we met, in London.

Mr. Scaroni graduated from Bocconi University, in economics and commerce, and he has an MBA from Columbia University, New York.  I also master’s from Columbia University.  That links us in an Italian way.

But here’s who he really is.  He really is one of the most important global players you’ll ever meet.  The FT defined him as a “CEO – (inaudible) – for the Caspian.”  And, you know, at the Wall Street Journal we would have considered that line a little trite, but I think it matches him.

He is leading the company that has the most global reach of any Italian company.  He may be active in more countries than any of the global energy giants.  He certainly is more active in Africa, I believe, than any of them.  In the Caspian, Eni is, of course, a determining factor in some of the most crucial pipeline projects in the Caspian and Black Sea region – which he’ll be talking about in his comments.

In Russia, he is greeted by the most powerful people in government – as he is in the United States, as he is across Europe.  He’s present in the most sensitive countries of the world.  And, yes, America, that includes Iran.

Now, when he was asked about this – being in all these sensitive areas of the world – he said:  Well, there’s no oil in Switzerland.  So he also has a sense of humor about it all.  But it takes a uniquely talented manager to handle all of that – a manager of a company; a manager of politics; a manager of people – and it takes a great  personality.  It’s my honor to introduce and get to the podium Paolo Scaroni.  (Applause.)

PAOLO SCARONI:  Ladies and gentlemen, good evening.  I’m particularly pleased to be here tonight.  This is an important initiative, and one that will contribute a lot to the energy debate in Central and Eastern Europe.  The importance of this region can only grow further:  geopolitics, economics and infrastructure development everywhere have a global impact.  At Eni, E-N-I, if you prefer, we understand and embrace this.

We are a key player in this region, and our focus also extends further to the East and further to the West.  For us, Central and Eastern Europe lies at the heart of our strategy.  As always, to understand the region, and its potential in energy, it’s quite useful to look back, as well as forwards.

In the case of the Black Sea, very far back, indeed.  And one has to look at both the history and the geological evolution of this area.  The Black Sea is a peculiar geological structure.  Most of it is covered with hydrogen sulfur, and, therefore, is no life.  Yet, ironically, the Black Sea is steeped in history and culture.

Throughout the centuries, the major powers have all been players in the Black Sea region – owing to its central location, its vital trade-route status and its complicated political environment.  The Persian and Roman Empires brings the Ottoman Empire and Russia.  They’ve all been here – and some of them still are here.

Today, the Black Sea is a vital body of water in the middle of a resource-rich area.  All those who play a serious part in developing energy resources – and among those, certainly, my company, Eni – must today give their close attention to Black Sea developments and projects.

Today the region is at the center of a global energy game.  Indeed, the maneuvers of certain governments have been compared to the Great Game of the 19th century, when the Western powers were determined to prevent Russia to gain too much access to the so-called “world waters.”

Now, when the Black Sea links together the interests of all the players in the energy scene – all industrial users, consumers and transit countries – the game has become a question of which pipelines were lying under whose control, or pass through whose territory.  The outcome of all these decisions will be vital for Europe.  And especially so because of Western and Central Europe’s appetite for more gas – an appetite which is going to grow in the years ahead.

We are dealing here with a zone which connects the Caspian-production area, the European markets and all the various channels and choke points lying in between.  To be effectively involved, we need to look realistically at the challenges, as well as opportunities, in the Black Sea area.  One of these concerns – and maybe one of the most important concerns – is the transit on the Bosporus Strait.  The Montreux Convention in 1936 gave Turkey full control of the straits.

Now, at that time, in 1936, about 20 ships per day crossed the Bosporus.  Today, there are 2,000 ships per day, with significant delays of more than 20 days, and big environmental impact in Istanbul and in the Black Sea.  In 2008, just to give you an idea, 50,000 vessels passed through the Bosporus, including more than 5,000 oil tankers.  Today there are 2.8 million barrels of oil that transit the strait on a daily basis.

Now, with the increasing amount of Caspian Sea oil expected to flow into the Black Sea in the near future, the Bosporus is bound to become more and more a choke point.  Traffic in and out of the Black Sea is already stalled because of the increase in tanker volume.

Given this challenge, there is a need to diversify the transit routes and find alternative ways to connect the EU with this area.  Eni recognizes such a challenge and is well-placed to play an increasingly important role in the region.

First, we have a strong, upstream presence in the Caspian area through our – (inaudible) – operation in Kazakhstan and Turkmenistan.  Second, we have a leading market position in the gas market in the world.  We also have a strong presence in oil and gas transportation, investing in infrastructures needed for exporting oil and gas in international markets.

Eni is importing similar projects in the Black Sea region.  These projects will provide, through new routes, a significant contribution to secure direct gas and oil supply to Europe.  The first of these projects is the Blue Stream pipeline, which Eni promoted and built, together with Castrol.  We built it through Saipem, a company that we control – and now we own 50 percent of this pipeline, which flow gas from Russia into Turkey.  When it will reach peak, 60 billion meter of Russian gas will supply Turkey, crossing the Black Sea at more than 2,000 meters depth, with a pipeline 700 kilometers long.

The second project that we are promoting is the 25-billion-euro – maybe this is an estimate – South Stream joint project with Castrol.  This is designed to pump 63 billion cubic meter of gas – of Russian and Central Asian gas – to the Balkans and to all other European countries.  This pipeline will be run from Russia, 900 kilometers under the Black Sea to the Bulgarian coast; northward through Serbia and Hungary, up to Austria.

At the end of 2005, Eni and the Turkish group Çalık signed an agreement to jointly build and own the Trans Anatolian Pipeline, basically to transport oil from Samsun in the Black Sea to Ceyhan in the Mediterranean.  This project will contribute to reduce the number of tankers crossing the Bosporus; cutting down delays and costs; and, more importantly, improving the Black Sea environment.

All these are exciting and challenging developments.  They make the Black Sea a key region for my company, and the EU.  And because we live in a global-integrated energy system, a well-supplied European region means that those on the edges of that region, or another market, will also benefit.

Only a few years ago, that you have no strategy for the Black Sea region worth considering.  But now, with Romania and Bulgaria members of the EU, the EU borders are with the Black Sea.  Like it or not, the EU has become part of the area.  This is not just because of economic and energy interests.  The Black Sea is becoming part of the EU constituency.  Turkey’s EU membership may still be some way ahead, but economic logic will bring the areas together, whatever politicians may decide.  Thank you.  (Applause.)

MR. KEMPE:  Let me start this Q&A round.  Please.  We’re in your living room – you’re having dinner.  Enjoy your dinner.  Don’t clink your forks and knives too loud, but feel free to eat.

I think we have a real treat here.  We don’t have that much time, but we have a little bit of Q&A with one of the leading thinkers and players in the business of energy, and then one of the leading thinkers and players in the policy of energy.  And so I think we really have a chance to bring out a little bit of interesting comment.

The one thing I forgot.  I forgot to mention one member of the Atlantic Council who is here, and a president and CEO always has to be careful not to miss anyone.  And that is Rupert Younger, who’s the director of the Center for Corporate Reputation at the Said School of Business of Oxford University.

Now, I am mentioning this in a little bit of a self-interested kind of way, because I’m also a visiting fellow at Oxford University, at this center that Rupert runs.  But so are you, Paolo Scaroni, and so is Lady Barbara Judge.  And so thank you, Rupert, for being here, and your center is quite important.  And I’m certainly honored to be associated with it, and with Lady Judge and Paolo Scaroni.

Let me ask my first question to Ambassador Morningstar.  You said some very diplomatic things about Russia.  So obviously, someone has written your comments very carefully.  But, you know, I am a recovering correspondent for the Wall Street Journal.  So if U.S. energy-policy priority is supporting market-oriented energy projects in Eurasia, is, in fact, a confrontation, conflict, with U.S. over these projects of pipelines inevitable?  And then, how do you do that when market orientation comes up against the political weight of such a major player in this region?

AMB. MORNINGSTAR:  You know, not necessarily.  I mean, I think that we’re really – we’re maybe – and maybe this is wishful thinking – that we’re going through a transition period.  And that that transition period is, in part, a result of the huge global financial difficulties that we’ve all been going through over the past couple of years.

And I really do believe that the zero-sum games that have been played in the energy area no longer make sense, because they’re too expensive.  And that countries – whether it be Russia, or other countries – have to begin to look more rationally at investment decisions and projects.  And that that, hopefully, will ultimately give rise to greater cooperation.

And that, basically, that market rules, transparency, will take further hold, we hope, in Russia and in other countries.  And it will allow countries in the region – whether it be Turkmenistan, Azerbaijan, Kazakhstan, countries in this region – to make rational investment decisions, and rational decisions with respect to how to handle the resources.

So I guess I don’t see an inevitable conflict, because Russia is going to continue to be a major player.  And for Russia to succeed, it’s going to have to look, I think, at things in more of a market standpoint.

MR. KEMPE:  Paolo Scaroni, do you agree with this point of view?  What’s one of the biggest changes in the oil field is how many companies now are really state-owned or state-directed.  Would you agree with this view, in this world that is certainly commercial, in a certain extent, but is heavily political, as well?

MR. SCARONI:  Well, let me just first say that, as far as we are concerned, we take very rational and very economic decisions, and we do not follow any project if it is not creating value for our shareholders.  So we are really behaving as ambassador would – such as everybody should be behaving in our interest.

Now, moving to what countries do, their behavior changed substantially, according to the oil price.  When the oil price is low, they tend to be very rational.  When the oil price goes to $150, they normally behave very politically and much less rationally.  So there is a kind of pendulum which keeps going, between the $40 and $150, in which sentiment; behaviors; decisions of the national producer – let’s say the national oil companies of the producing countries change over time.

Now, in the last few months, yes – the crisis have suggested to everybody to be wiser and less political, simply for necessity.  Now, I am not as sure that, in the long term, if the oil price move up again, this rationality will prevail.

MR. KEMPE:  Thank you very much.  I think that shows both your business understanding and your political and human understanding.

Ambassador Morningstar, people have asked the Atlantic Council why we’re here, so far from the U.S. shores.  And it’s easy for us to explain that, because we just think this is intellectually fascinating, and we want – and we actually aren’t here promoting U.S. interests.  We are here, with our partners in Romania and the region, trying to create a platform, where we can make the region more prosperous; make it more of a region working with each other; making policymakers work with business.  So they ask us, but it’s easy for us to answer it.  But why is the U.S. government so actively engaged in Eurasian energy-security issues, so far from U.S. consumers, who get not so much of their energy from this region?

AMB. MORNINGSTAR:  I guess I’ll just briefly repeat what I said during my presentation – my speech.  And I apologize if I sound incoherent, having gotten off of a plane just this afternoon.

But the point is that there are three basic reasons why our being involved is in our interest.  And, again, one, that the overall growth in energy supply is in our interest, because, ultimately, energy is fungible.  If you increase the gas supply in one area – yeah, maybe the molecules won’t come to the United States, but it may free up gas in other areas.  Or oil in other areas.

Second, with respect to European energy security, I’ll repeat again:  Europe is our partner.  We want to see as strong an economic Europe as possible.  Energy security and lack of energy security can threaten that economic security.  We’re partners with Europe on all sorts of global issues.  So a strong Europe is in our interest.

And, third, we really do want to see the countries in the region to be able to develop their resources.  Not just in the Caspian and Central Asia – also in the Black Sea region.  It’s going to strengthen those economies.  And we simply – again, I’ll repeat what I said before:  We’re not looking for zero-sum games in Central Asia, the Caucasus or here.  We want countries to be able to make their own decisions with respect to resources which make sense to them, and will ultimately strengthen their economies.

MR. KEMPE:  Thank you, Ambassador.  I’m going to ask more question of Paolo Scaroni, and then I’ll go to the audience.  Actually, because I cheat, it’s going to be one question that has two parts.

First of all, what is the most pressing issue in Europe’s gas center?  You have choices:  deregulation; market opening; security; supply; diversification; and perhaps something else.  You can guess the second part, which is:  What is the most pressing issue for Europe’s petroleum industry?  Access to resources; globalization of demand; competition with national oil companies.

So as you’re looking at these two sectors, what do you see as the most pressing issue?  Maybe, also, for Eni, but for Europe, more generally.

MR. SCARONI:  Let me answer, first, your second question.  The oil market is a global market, so it does not exist as a European issue or a North American issue.  Oil flows anywhere in the world.

Of course, all of us in the world, we have a problem – a major challenge in preserving.  Also, we have a challenge in the way in which international oil companies preserve their role in the face of the national oil companies, which are more and more aggressive, and more and more defending their resource bases.  But this is not a European issue – it’s an issue of the industry.

Now, as we’re moving to gas, gas, so far, has been very much a regional market.  By “regional” I mean the European market was one thing; the U.S. was another thing; Australia was another thing.  And gas does not flow easily from one region to the other.

If you were asking this question one year ago, the answer – the major issue for Europe was security of supply.  The European consumers have been hardly bitten in the last few years around the issues coming from the conflict between Russia and Ukraine.  Not far from here, in Bulgaria, last winter hospitals and schools during the winter were cold, simply because the Russian gas was not flowing into the country.  So security of supply was a major, major issue.

Today, with the massive drop in consumption of gas in Europe, and the new routes of gas which have been opened, the fact that LNG is flowing more easily to this part of the world, rather than – (inaudible) – this problem of security of supply is somewhat forgotten.

But I – (inaudible) – from this point of view, I share the point of view of Ambassador Morningstar that security of supply for gas will remain a major issue for Europe, and which implies diversification of the sourcing of gas; diversification of the rules for the gas; also diversification of the fuels we use in our industry and in our electricity production.  So these will remain a major challenge for the industry.

MR. KEMPE:  Before I turn to Dinu Patriciu, the keynote speaker tomorrow, and a member of our international advisory board, I’m going to ask my favorite question, in order to really understand what people really care about.  And I’ll ask it briefly, and then I beg you for a brief answer, so we can get to the audience.

First of all, for Paolo Scaroni, what – we all are so busy.  We all have so much to juggle.  And you, with a company spanning so many – how many countries?

MR. SCARONI:  Seventy-nine.

MR. KEMPE:  So 79 countries.  Every morning you wake up, and you have crises and you have challenges.  What is your single-biggest business priority right now?  When you wake up in the morning, you know – I always wonder because of Obama:  Is it Iran?  Is it Af-Pak?  Is it –?  You know, what is it?  What is it for you?  And then I’ll do the same with Ambassador Morningstar.

MR. SCARONI:  Well, let’s say the priority normally is some catastrophe which happened somewhere in the world.  Every morning there is a problem – a major problem which has been raised somewhere.  So this is the priority.  But if you want to understand what is the strategic priority we had, the strategic priority is resource replacement – that is, the way in which our company ensure that its future will continue.  And we’ll continue producing buckets of oil, buckets of gas, for our clients.

MR. KEMPE:  The same thing for you.  You have so many things coming at you every day.  If there’s one issue you’re looking at that is top of your list, what is your top priority?

AMB. MORNINGSTAR:  Well, it’s hard to narrow it to one issue.  But I’ll say – I’ll try to do it.  Is that we want to see more diversification; we want to see greater diversification; we want to see increase in production in various regions that we’re talking about.  While, at the same time, engaging more – working more in a coordinated way with our friends in Europe, for example.  Beginning engagement, more engagement, with Russia, in the hopes of becoming – making more rational decisions, with respect to diversification and resource issues.

MR. KEMPE:  Thank you, Ambassador.  I will have a little trouble seeing you, but I see the – (inaudible) – of that question.  Could we get a microphone here, please?

Q:  I have it.  Mr. Scaroni, I will put you a very complete question, starting from our subject, the Black Sea, and what you said about the Bosporus.  Do you consider that the Burgas-Alexandropoulos pipeline and the Constance-Trieste pipeline are complementary, or are they in competition time-wise?  The same question applies to South Stream and Nabucco.  Thank you.

MR. SCARONI:  Look.  I’m not familiar with the Constance project – the one which goes north.  It’s a very old project, which I don’t know exactly where it stands now.  As far as the Burgas-Alexandropoulos it’s, of course, an alternative to the Samsone-Jehan.  So it’s crossing the Bosporus north, rather than crossing the Bosporus south.

I think that the two projects will happen, both of them, because there will be a day in which the fact of crossing Istanbul with tankers will be completely impossible.  Out of the 2.8 million barrels a day which are crossing the Bosporus now, the Samsone-Jehan will transport not more than 1.5.  So there will be still room for an additional pipeline north, particularly considering that the Caspian is going to be – the Caspian Sea is going to increase significantly its production, and most of the production will flow through the Black Sea.

Now, as far as the South Stream and Nabucco is concerned, the two projects are, in my view, complementary because the South Stream is all around Russian gas, whereas the Nabucco is attracting other sources of gas into Europe.

Just to give you a number – (inaudible) – the whole number – Europe is importing today 300 billion meter of gas.  The South Stream is planning to bring 60 billion meter, which a large proportion will be gas replacing the gas which today cross Ukraine.  The Nabucco project is planned to be 30 billion.  So you can see that these numbers are not numbers that make one project an alternative to the other.  Both of them can up and running in the next five to seven years.

AMB. MORNINGSTAR:  Well, I guess I would only comment on South Stream and Nabucco.  I hope Mr. Scaroni is right.  Our position with respect to South Stream is that we’re not staked to any opposition to South Stream.  We think there are problems with it, from the standpoint of cost and the standpoint of source and supply.  But we’re not, you know, the countries in Europe supporting it.  And if it turns out to be commercially viable, so be it.

I agree that we’re going to push forward, and I think our European friends are going to push forward very strongly on Nabucco.  Whatever the progress that is made, or not made, on South Stream, there are steps that need to be taken.  Turkey and Azerbaijan have to reach an agreement on gas transit and on pricing, which they will, ultimately.  We have to look at Turkian gas – we have to look at Iraqi gas – all of which will play itself out over the next few years.  But I agree with you that the sources are probably going to be quite different.

It’s going to be interesting to see what happens with demand as we start looking at efficiency, alternative technologies – you know, how fast the economy recovers, and so forth.  And that’s why we have to start looking more and more rationally at all of these projects, and determine which ones really make sense.

MR. KEMPE:  You’ve just seen a demonstration of why this panel is so valuable.  Boyko Noev, former Bulgarian defense minister and a member of the Atlantic Council’s Strategic Advisors Group.

Q:  Thank you, Fred.  I’ll cheat, also, with one question with two subquestions.  And the first is – and I will ask you to divert it to either of these panelists.  There is a notion in Russian national security doctrine on documents that oil and gas is not an economic, but a geopolitical issue.  Oil and gas is not a economical, not a financial, but a geopolitical issue.  I would ask the panel to comment on this notion.

And the second is – this is a question to the – shall I repeat the first one?

MR. KEMPE:  No, I’ve got it.

Q:  Okay.  And the second one is to the Eni chairman.  What do you think are the main obstacles to a common European energy policy?  Thank you.

MR. SCARONI:  Maybe I will say a word about energy policy in Europe.  Let’s say Europe has been – well, this is the view I take about that – has been taking several decisions in the last few years without really a real concern in terms of energy security and energy dependence.  The fact that Europe is today so dependent from external sources from Europe on energy supply has not happened by azar (ph); it’s not happened from one day to the other.  It’s been a result of a series of decisions which Europe took starting from 1990.

Now, one day we woke up, and we discovered that energy security is an issue, and that our dependence from external sources is something we don’t like.  Now, I simply can assure you that in order to reverse this situation, this will take many years – because energy issues take many, many years.

Just to give you an example.  The simple fact that Europe, at the beginning of the ‘90s, decided to stop nuclear-energy investments have created a major dependence from foreign energy sources.  This has been a decision the Europeans have taken.  Right or wrong, it has been not happening for external reasons – being a complete internal European decision.

My impression is that, in the last few years, there has been a new awareness of the issues around security and dependence, and Europe will act in that direction.  But in order to reverse the situation in which we are, this will take, I don’t know, 10 years – 15 years.  It will not happen overnight.

AMB. MORNINGSTAR:  I guess if I understand the first question correctly, the question revolves around whether Russia’s energy policy is more commercially based or politically based.  And it’s interesting; I had a conversation with a Russia official a few months ago, and he asked me, he said:  Do you think we use energy as a political weapon?  And my response to him was:  Well, gee, you know, I don’t know; I hear things and so on.  But you tell me.  And he said:  No, it’s – you know, it really is all commercial.  You have to understand that this is our most important sector – and, frankly, we just want to make as much money as we can in that sector.

And that’s fine, but I don’t think you can – and this goes back to maybe Mr. Scaroni’s answer to my – answer to the very first question, as to, you know – the first answer to your question, Fred:  Is there an inevitable conflict?

I agree that you can’t – and maybe the key point – you can’t separate out the political issues from the commercial issues when you have a situation where the goal is to fully maximize that one very strong part of the center.

But I think – and my hope for our further cooperation with Russia is that to the extent that politics does enter into it, it is becoming very expensive.  And, ultimately, whatever the projects that go forward are, these projects have to be commercially viable.  You know, there won’t be a Nabucco, or cannot be a Nabucco, ultimately, unless it’s a commercially viable pipeline.

Eni, ultimately, is not going to invest in South Stream unless it believes that it’s commercially viable.  You know, there’s talk about:  Well, there should be political pipelines.  We can’t afford political pipelines at this point.  We need to all work together and engage with each other – to come to rational decisions with respect to how to utilize these resources.

MR. KEMPE:  We have four minutes before Paolo Scaroni has to get off to the airport –

(Audio break.)

MR. SCARONI:  – may be time.  But I’m convinced that, in energy terms, Turkey has already joined the EU.  So it’s already part of the EU.  It’s such an important transit country, that whatever politicians will decide – and this is just a matter of fact:  Turkey is the most important transit country in the region.  There is not much we can do about that; this is just geography.  And this is going to happen every day.

MR. KEMPE:  Our conference next year is in Turkey for this reason.  And, in energy terms, Turkey has already joined the EU.  I always like ending and starting my articles with a great quote.  Thank you very much, Ambassador Morningstar and Paolo Scaroni.  (Applause.)

As president and CEO of the Atlantic Council, I want to announce that dessert will still be served.

Transcript by Federal News Service, Washington, D.C.

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