2020 Global Energy Forum
Sustainable Metals and Minerals for the Energy Transition
The Hon. Francis Fannon,
Assistant Secretary, Bureau of Energy Resources,
US Department of State
Business Emerging Markets Editor and Anchor,
Location: Abu Dhabi, United Arab Emirates
Time: 10:10 a.m. Local
Date: Sunday, January 12, 2020
ANNOUNCER: Ladies and gentlemen, please welcome to the stage business emerging markets editor and anchor of CNN International John Defterios. (Applause.)
JOHN DEFTERIOS: Good morning. We’re going to do a quick changeover. I would ask everybody to try to stay in your seats because we have a very interesting conversation after what was a fascinating panel this morning on the geopolitics of energy.
Originally we were going to have a conversation limited to the subject of rare earth minerals and a policy partnership that has emerged between the United States and Canada because of the demand for the rare earth minerals, but our guest is the assistant secretary of state for energy resources. And this is a critical issue following the panel this morning, but also what has transpired in Iran over the last 10 days and what’s taking place overnight, and how that links to energy policy.
I’m going to let them finish setting. Ladies and gentlemen in the back, with respect to the assistant secretary of state, if we can have you either exit the room or sit down. We’d much rather have you involved in it. It’s going to be a 20-minute interview with His Excellency and we’ll get started momentarily. Let me know when you’re all set to go. If I can have the ushers just make sure everybody’s seated. You in the back, if we can get you either seated or out of the way, thanks.
OK. Let’s give a warm welcome to Francis Fannon, the assistant secretary of state for energy resources. Welcome to the Atlantic Council. Thanks. (Applause.)
FRANCIS FANNON: Thanks, John. (Applause.)
MR. DEFTERIOS: I didn’t want to say I was doing crowd control, Frank, but I wanted to make sure everybody was listening when you walked in.
MR. FANNON: Thank you.
MR. DEFTERIOS: It’s great to have you.
So I’m going to break this interview down into two parts, if we will. One is on the energy resources and in particular what’s happening here in the Middle East. The second half of it I’d love to look at this new strategy you have for rare earth minerals, which I think is undercovered in the media and less of a focus despite the huge demand that we see because of the digital economy worldwide, and particularly in the mobile phone market.
So let’s start with what we’ve seen and what’s transpired in the last week. So it’s extraordinary sometimes when a black swan appears and you don’t expect it. Everybody was sitting on pins and needles over the last week, not knowing if this was going to escalate, the situation in Iran, and spill into the Gulf States, and what after we saw with the Aramco attacks in September kind of redefined the region. How does the downing – the accidental downing of the jetliner, the Ukrainian jetliner, alter the landscape now in Iran, do you think, in terms of the pressure that we see?
MR. FANNON: Well, thanks, John. It’s good to be with you.
I guess first I’d like to underscore why I’m here. I was here about the same time last year and we were in a very different world with respect to our maximum pressure campaign. But I was – I came here for two key reasons then and it’s the same reasons why I’m here today.
And firstly, it’s to demonstrate our commitment and partnership to our friends and allies in the region. We’re committed to stability in the region, and that’s why we’re here and we have a committed relationship.
Secondly is to underscore the importance of the U.S. as a party to support resilient, fluid, liquid, transparent energy markets and oil markets in particular, and to underscore the prominence and criticality of the U.S. producer as a – as a partner in this global supply chain.
The events with respect to Iran continue. I think what we all see are calling for de-escalation and continuing to seek opportunities to welcome Iran when they behave like a normal country. This is what we’re here and this is what we support, and we’re doing it in partnership with other nations around the world.
MR. DEFTERIOS: The president overnight was suggesting in a tweet that he’s watching the protests very carefully. Prior to that he said he doesn’t want regime change. Which one is it?
MR. FANNON: I didn’t see anything – a distinction. I think those can both be true. We’ve not said we’ve sought regime change. From the beginning we’ve asked for Iran to behave like a normal country. I think it’s also kind of a shared understanding of recognize people have a voice and human rights should be respected. I think those are two completely consistent concepts.
MR. DEFTERIOS: What’s the next step, then, with the administration – maximum pressure, economic sanctions to topple the regime or get them back to the bargaining table?
MR. FANNON: Well, our maximum pressure campaign is multifaceted. Of course, for my patch in the energy context, what we’re here to do – we targeted oil and condensates because that is one of the chief ways that the regime is able to generate revenue that it then uses to fund proxy wars and instability and terrorism. We’ve done a remarkable job – as I mentioned, I was here last year. At that time we were allowing eight countries to continue to import permissible volumes. Since that time we’ve eliminated that completely. We’ve taken over 2 million barrels off the market and have deprived the regime of tens of billions of dollars in revenue that could otherwise be used for those malign activities.
We continue the maximum pressure campaign. As I’m sure you saw, some additional sanctions have been imposed. We’ll continue to go after both those individuals as well as sources of revenue. So that’s the – that’s the purpose.
MR. DEFTERIOS: Doesn’t that make this region much more unstable, though? This puts the Gulf states at risk, and we saw the attacks against the Aramco facilities in September which redefined what security risk is all about.
MR. FANNON: The attacks on Abqaiq and the other facilities was abhorrent and we condemned it in the strongest terms. What I think it illustrated is what we’ve been saying from the beginning, which is we can’t rely – customers around the world not rely on Iran and think that they would be a reliable supplier.
You know, the attack on the Kingdom was, of course, an attack on a country, but it was also an attack on the global energy consumer. In particular, it was an attack on those consumers in the Indo-Pacific region who were – 70 percent of the production that comes out of this region is going there. So that’s not the kind of supplier you want to rely on.
MR. DEFTERIOS: But doesn’t it put this region at risk, the maximum pressure campaign? You don’t know what the next steps are? But if you’re squeezed economically, from the gas market, in particular the oil market, you’re going to lash out. Can we expect the same from this regime?
MR. FANNON: I think what – we’re committed to the maximum pressure campaign. I think it’s fostering – it’s effective in terms of the depriving of the revenue, and we’re seeing more Iranians as well as other states in which Iran has had – has had a heavy hand, the people are speaking up. And I think it’s about time.
I mean, Iran has such great opportunities. What we want to see is them to become a normal country and welcome them back to the community of nations. There’s such great opportunity here, as well as the other countries in the region. We’re committed to that and committed to working in partnership with our friends.
MR. DEFTERIOS: What does it take, then, to get them back into the community of nations? Can it be done with this leadership in Iran or not?
MR. FANNON: I can’t answer that, you know, nor can I forecast what their responses will be to various actions. We are – the secretary’s been pretty clear in terms of the 12 points he would – he would like to see.
MR. DEFTERIOS: Secretary Pompeo.
MR. FANNON: Correct, Secretary Pompeo. And the president’s been clear as well. So we’re kind of in a wait-and-see mode at this point.
MR. DEFTERIOS: How about the security pact with the Gulf states after what we saw in 2019, multiple attacks against oil and gas facilities? Is it NATO that will come in and help patrol the Straits of Hormuz now? Is that what the president was suggesting when he said he wants NATO to get engaged?
MR. FANNON: I think what the president’s comments speak to – and of course, I’d have to direct you to the White House – but from my vantage point it was – it was seeking to invite the international community and NATO in particular to take a greater role. And I think that’s certainly a positive – a positive thing, and I think it provides a(n) appropriate position given that oil markets are global and everyone has a – can be impacted, the global market participants can be impacted. And so inviting others, I think, is an appropriate way to go.
MR. DEFTERIOS: Do you think it will be a formalize pact with NATO to help usher ships and tankers in and out of the Strait of Hormuz?
MR. FANNON: I can’t speak to that, John. I think it’s a – it’s a big premature for me to speculate on that. I think the leadership are in discussions.
MR. DEFTERIOS: The president made an interesting remark, saying that the U.S. is energy independent, referring almost complete. The U.S. almost imports a million barrels a day. It’s well off the highs we even saw five, 10 years ago. What was the motivation of that comment, would you suggest?
MR. FANNON: I can’t speculate, but I think the trend is pretty clear. The U.S., we’re on – we’re on track to produce 13.3 million barrels per day this year. It’s absolutely tremendous.
Now, in terms of some of the refining complexes that we have who are designed/optimized to run a different crude slate, I suspect there’s a bit of a latency for them catching up to what the U.S. is doing. But that’s going to work its way out. I think it’s really a remarkable day in terms of U.S. energy and the U.S. energy ability to contribute as a reliable supplier. But it’s not the U.S. government doing it; it’s the U.S. business. It’s the private sector. It’s the entrepreneurial spirit.
What we are seeking to do is to ensure that there’s free, transparent markets. And that’ll – that market signal will be responded to by the U.S. producer. And they will react, and here we are producing levels/volumes that were unthinkable just a few years ago.
MR. DEFTERIOS: There’s two ways to read his comments. I spend more than half my time covering energy. It was almost the implication we don’t need Middle Eastern oil and we shouldn’t be the global policeman to make sure that the energy market is stable. Is there a guarantee here? You’d acknowledge that a fifth of the supplies come from the Gulf states; it’s nearly 20 million barrels a day being exported to the market. That needs to be protected, you’d suggest?
MR. FANNON: I think that the global community who rely on a fungible product, they want to ensure that there’s a degree of resilience. I don’t think that’s inconsistent with anything anyone’s said.
What’s a meaningful change is the U.S. production and the U.S. production in response to market conditions, not because of government dictates. That’s a unique system and the world is still catching up to it.
MR. DEFTERIOS: Getting used to the concept of it. Extraordinary that you would have even the attacks in September, the killing of the general, Soleimani, and the oil market takes it in stride. Is it because of transparency, because of U.S. supplies, because of the security pact here in the Gulf region? What’s the mix?
MR. FANNON: I’m sometimes bewildered by market reactions. I mean, you saw the attacks on Abqaiq took 6 percent of global supply off the market, and that’s meaningful. And I have to commend Saudi Aramco and the team for getting those back up and running in pretty short order. And of course, the more recent events that you mention had similar market. But there was no supply disruption in that context. So it’s hard to – it’s hard to divine what the market was responding to exactly, other than, you know, a big event.
What I think the market is seeing, though – and they’re still catching up to this new era of U.S. energy abundance and U.S. contribution – is that the U.S. production is there. It’s safe, it’s secure, and it will respond based on market conditions. I mean, that’s one of the virtues of shale, is it can be ramped up relatively quickly.
MR. DEFTERIOS: I want to talk to you about rare earth minerals because this is a major initiative on your part. This is a segment of the market that people often overlook, but the role of China and its dominance and the foresight over the last three decades to plan for such. Is this similar to the effort on money laundering, when the United States decided to work with the OECD and then extend it to the G-20 to say we shouldn’t be overly reliant on a handful of nations and we can’t have one major economic power have that much control?
MR. FANNON: Well, firstly, the president was prescient in recognizing the issue of critical minerals going into all – a variety of – you mentioned phones. I mean, defense applications. Particularly, we have an initiative with respect to energy, or the minerals that empower and enable clean-energy technologies.
What we – what we see is, of course, there’s – we want to – as I spoke about the oil markets, what we are seeking is to ensure that there’s a proper market for these minerals. There will be an increasing awareness of how these minerals are being developed. As I like to remind people, as clean and green as any energy technology is, it requires really big shovels at the beginning of its lifecycle. And we should all be concerned and inquire where and how those shovels are being deployed.
There will eventually be, as there is in the climate context – the ESG activists will turn their eyes on, what are the human rights implications? Are local communities empowered? What about environmental degradation? They will eventually turn their eyes to that. And our concern is that as the demand for clean-energy technologies, which are minerals-intensive – the World Bank did a report concluding that demand for these minerals will increase over 1,000 percent. It’s just – it’s opening up new frontiers. As demand increases and the concern/awareness of where these are being developed, if there is a cloud over a particular country or region, the best-in-class companies won’t go there because of that reputational risk, which is the worst possible outcome for those countries. It will result in two instances: one, the world won’t get the minerals, when they need it the most, to go into these clean energies; or two, those countries will be denied best-in-class producers, and they will be subject to only predatory investors.
MR. DEFTERIOS: Hasn’t this horse already left the barn, though, honestly, with China’s dominance in Africa, and can that kind of grip on the market be loosened in your view by this effort that you are making with Canada and other players like Australia?
MR. FANNON: Yeah, well, what we’re seeking to do, John, here is to support countries who want to develop their own resources to achieve their self-determined economic development. And what we’re doing – and thank you for referencing what we call the Energy Resource Governance Initiative. It’s a multi-country initiative.
What we’re seeking now is to identify – you know, we have this coalition spanning – with five countries – also Peru and Botswana – spanning four continents, different cultures, different regulatory environments, very different histories, but we’ve all managed in our own different ways to have a viable best-in-class mine industry.
What are the lessons each of our respective countries can share? We’re going to come together, develop a tool kit, and then deploy them in other countries to help them to achieve their own ambition.
You know, we’re not here to stop anyone from investing, whether it’s China or someone else, but whoever is the investor ought to develop the minerals in a responsible manner, and then develop those countries appropriately.
MR. DEFTERIOS: We have 40 seconds, but this is such an interesting conversation I wanted to get your thoughts on this. Can we make the comparison to blood diamonds when people weren’t paying attention to the mining practices in the diamond industry, then you had the major retailers profoundly change the market? Can you get to that level? Is that what your initiative is really all about – to shed the light and say, this is taking place, and we can go in this direction?
MR. FANNON: I think that’s a – that’s a useful allegory. I don’t think it is necessarily the same, but what we have seen is an increasing level of media reporting about the dark side of clean energy, you know, and there’s pretty horrific stories that are being reported.
Again, what we’re seeking to do is not just help those countries to develop their own standards, but also help them to implement it. It’s not just a matter of information but how do you execute against that.
The other point is – and as the administration’s critical minerals report, North America and the U.S. in particular is endowed with a lot of these minerals. I mean, one of the greatest lithium deposits in the world is in North Carolina. People don’t think about that.
We have the resources, as well, and so what we’re seeking to do is develop, with our partners, resilient, liquid, true markets for these minerals.
MR. DEFTERIOS: Great. Thanks for taking the latest on the news today. I know it’s a very fluid situation. I appreciate your perspective from energy standpoint and the security standpoint as well.
Let’s give a nice round of applause – (applause) – to Francis Fannon, assistant secretary of state.
MR. FANNON: Thank you, John.
MR. DEFTERIOS: Really nice.
MR. FANNON: Thank you.
MR. DEFTERIOS: Thanks. Please.