Location: Atlantic Council, Washington, D.C.
Time: 2:00 p.m. EDT
RICHARD MORNINGSTAR: I’m Dick Morningstar, for those of you who don’t know me. I’m the founding director of the new Global Energy Center here at the Atlantic Council. And I can tell you that we’re – I’m just very excited, one, to be here – in that this is our very first program of the new Global Energy Center. And it could – we could have no better start than to have Amos Hochstein, who is the special envoy for energy of – special envoy and coordinator for international energy affairs at the State Department.
First, let me just say a couple of words about the new center. The Atlantic Council’s always been involved in energy. I think probably many of you have been – I hope many of you have been to the Istanbul summit, of which there now have been six or seven. So we have been very much involved. But now, the Atlantic Council has determined to focus very heavily in the energy area, and therefore starting this center.
And our mission basically involves – I’d say that we have three major pillars to what we’re trying to do. First of all, we’ll obviously focus on energy security issues, of which there are many around the world right now relating to political security. Amos, I’m sure, will be talking quite a bit about that. We’ll be looking at governance issues, as well as sustainability issues. And we’ll focus, by the way – (coughs) – sorry about my throat right now – we will focus heavily as well not just on oil and gas issues, but also on environmental issues, alternative energy, energy efficiency, climate change and the like.
And we’ll be looking also – the third pillar is what we’re calling strategic foresight. And I hope that this is what might differentiate us to some extent from others in the area, although there are a lot of groups that do a terrific job in energy. But taking the – taking the energy security issues, new technology issues, economic issues and looking at where things are going, how it going to affect – how is it – what kind of trends is – will it – will it affect looking into the future? And I think that is particularly important.
We’ll look at a lot of what-if situations. What is the future of the European Union and energy? What would be the ramifications if this happens or that happens or something else happens, with respect to energy on a – on a global basis? What happens – what are – what are the possibilities of what could happen with Russia, and what affect will that have on global energy? What if there is a settlement – God willing – with respect to Iran and what effects – what effects might that have? These are the kinds of things that we’re going to want to look at and examine and I think will be useful to all of the various stakeholders.
I’ve said enough about that. Now, I just want to introduce Amos. I think we passed out a biography. I don’t need to say – I think you all know Amos and what he’s done in the past and what he’s doing now. He’s an absolute terrific choice as this special envoy. I’ve had the benefit and pleasure of working with him when I was special envoy for Eurasian energy, as well as when I was in Baku. I’ve observed first-hand – more than observed, worked with him first-hand on many issues and know-now, effective – how effective he is.
For those of you who were at the Istanbul summit, he received – Amos received much praise from Vice President Biden during his speech for the working being done with respect to the Eastern Mediterranean and also in connection with getting gas to Jordan, and there are any number of other areas where Amos is playing and has been effective in. So, having said that, let me pass the floor to Amos. And that will be followed by a question and answer period. I might ask a couple of questions and then turn it over to the audience for their questions.
By the way, David Koranyi, who’s the director of the Eurasian Energy Futures Program, who was supposed to be part of the program today, apologizes, but he was called to Amos’ department, the State Department, to brief the new U.S. ambassador to Hungary on issues relating to Hungary. For those of you who don’t know, David had been the national security adviser to Prime Minister Bajnai when he was serving before the ascension of Prime Minister Orban. So on that note, I will turn it over to Amos.
AMOS HOCHSTEIN: Well, thank you, Dick – Ambassador Morningstar, Founding Director Morningstar, former Special Envoy Morningstar. And I could not be more both proud and happy that I can be here on the very first public event that somebody who’s been a mentor and a friend and a colleague for the last several years in Ambassador Morningstar. So thank you for having me as part of your first public program.
Politico had a great headline the other day. It said that: Accept non-stop energy drama in 2015. I don’t even think we have to say anything else. That’s exactly what it’s going to be. And they meant – their article is more here in the United States, but I think that applies to the rest of the world. We are going – we’re going to start 2015 with the same intensity that we ended 2014. And while we spent a lot of time in 2014, and my past appearances here at the – at the council, we talked a lot about European energy security, we’re going global as far as the drama. It’s not just here in our hemisphere – in Europe, in Asia, in the Middle East.
And so much is happening simultaneously across the board and across different geographies when it comes to energy. And as Ambassador Morningstar talked about what the focus of the center is going to be, he talked that it was not going to only be about oil and gas, it’s also going to be about some of the other issues. And first of all, I applaud the council for focusing on the other issues because it’s the integration of the other issues into oil and gas that is going to be the focus around the world. We’re getting to that point of these issues are no longer have any parallel and advancing in parallel. They’re actually integrating.
But let me – let me do a little bit of a geographic run around the world about what I mean about the drama and where we’re going. So first, let’s acknowledge the biggest issue that’s happened in energy markets, the collapse of crude prices over the last several months. Nobody predicted it if you read any of the energy notes from the last summer. Although, if you read some of the notes from the last few weeks, everybody’s reminding you of what they said last May and June that suggested this is a potentially – that this could happen. But nobody really saw this happening. Some talked about – at Citibank – about coming down below a hundred, but nobody expected that we’d be at $50 Brent and even below $50 for WTI.
So that’s – let’s put that aside for a minute. We’ll get back to the implications of that because that is important. And instead of starting in Europe where we had so much of the drama in the last few months since the Crimea events, here in the region – here in our own hemisphere we are looking at a great transformation in Central America and the Caribbean. And it is an opportunity. As things change on the ground here in the region, we have two different kind of events that are happening.
One is in the United States and North America, where we have this great boom in oil and gas production. And at the same time, there are changes in the production side in this region that are causing some concern for those who’ve been reliant on that source – on that single source for those island states in Central America. And that’s happening at the same time. And that’s a moment of opportunity. And that’s why Vice President Biden went to the Dominican Republic in the summer and announced a Caribbean Energy Security Initiative, to zero-in and focus on what do we do to create a more sustainable future in energy for the island states of the Caribbean and, by extension, to Central America.
And that’s – you know, at the time I was asked by a reporter – said, you know, you America, you come up with initiatives all the time and then the next year we come up with a new initiative and – every year, but there’s no follow-through. There’s follow-though. We mean it. And we want to be able to be helpful to the Caribbean region and to the island states to get away from the existence of what they’ve been doing until now.
And that doesn’t mean replacing one financial scheme with another financial scheme. It’s about creating the fundamental change in the regulatory environment that allows for investment of the private sector in the Caribbean. And I think we have real partnership how with the Caribbean countries, island states, to work with us on that. And that’s working with us, with some of the other multilateral institutions, with the EU. There’s a real understanding this is a moment of opportunity.
In Central America and South America, there is – with the reforms that were passed in Mexico, which was a historic moment, the question now becomes: What happens next? And this was a – this was a made in Mexico – this had – we had nothing to do with that. This was all about what Mexico did to implement what was right for them But now that that’s happened, how do we work together to make sure that as international oil companies come in, as the – to support the already-impressive growth in renewables in Mexico, and the role that Mexico can play as a leader into the Caribbean – sorry, into Central America and South.
And the integration of what President Obama talked about a couple years ago, about connecting the Americas 2022, of getting the grids interconnected, the pipelines interconnected, this means if we can get these connections there, we can alleviate some of the concerns that have always existed of the isolation, of the special interests that exist, of the inefficiency. And having energy – countries that are energy-rich that sit next door to energy-poor countries – to be able to share those resources and, once again, to limit and to reduce the dependency on other actors that would use energy as a political tool.
So that’s going to be – I think you’re going to see from the administration’s perspective a real focus on the Caribbean, Central America and South America and the interconnection of the United States and Canada with this region.
In Europe, we’re going to continue – 2015 is continuing as we ended 2014. We had dramatic events with the Russian actions in Crimea and in Eastern Ukraine. And that resulted in a reminder once again to Europe: If you don’t do something about the fundamentals of your energy supply, this will continue to happen. This was not an extraordinary event. When the gas was shut off from Russia to Ukraine in – in June 16th, that was not a unique event. It happened in 2006 and it happened in 2009 and, therefore, it happened again in 2014. And there is no reason to believe it will not happen again.
The way to prevent it from happening again is to change how Europe does its own business. And that means creating new infrastructures that can allow for energy, for gas and for other sources of energy to come into Europe from other places to compete with Russian supplies. And there is no reason why Russia cannot be a continued and consistent supplier into Europe. It just has to play within a market system.
But that means that you can’t have a priority list of projects that is 200-and-something projects. That’s not a priority list. But have a few projects. Focus on those projects. And bring that infrastructure online, because part of the problem is that those infrastructure projects are not necessarily financeable on their own. So you need the public aspect of this to make it financeable. So you’re looking at the – bringing the infrastructure so that you can bring new sources in, new suppliers from other directions, making sure that the regulatory regime is there to support it.
And in that sense, Europe has done a phenomenal job. Few understood how critical the third energy package was when it was passed. It sounded like a very bureaucratic name with very bureaucratic new rules. But when the crisis hit in June, that’s when everybody realized the brilliance of the third energy package and how important what Europe did was. And it worked exactly as it was intended to. There was – it meant that you cannot use the destination clauses where you – any gas that entered into the EU could then be shipped onwards. And that meant that we can have reverse flows from Hungary, from Poland, later from Slovakia go into Ukraine.
And that changed the dynamic of the conflict and the disagreement between Naftogaz and Gazprom and ultimately led to the fact that we can get an agreement negotiated between the two parties to allow for the gas flow to happen and we did not have a total shutoff to the rest of Europe in the middle of the winter, as we did in January of 2009. So were going to continue the closer and closer collaboration between the United States and the EU and Europe. And through the U.S.-EU Energy Council that Ambassador Morningstar is so familiar with, we have been able to really extend and deepen our relationship. And with the new commission that has come in now, we are already working extraordinarily closely together.
The Middle East divides into a few different groups. We saw the – instead of looking at it regionally, the Eastern Mediterranean that Ambassador Morningstar mentioned earlier is a critical area because we believe that the new discoveries in the Eastern Medit (ph) can be used as a vehicle to increase cooperation, to increase collaboration, to support stability, security and prosperity. It’s an opportunity. It’s a moment in time. But it doesn’t mean that it will necessarily happen. All the parties in that region will have to take some rational steps that will overcome some of their tendencies and old conflicts in order to make it happen.
You have a number of countries that have different assets. Some have new supplies coming online. Some have old infrastructure that can be used that has, because of the structures of demand – like in Egypt when they went from an exporter to a country that is now consuming more than it produces, but the LNG terminals need to be used, those are immense investments; Turkey that has a great demand that’s going to grow and continue to grow for the next 20 years. All of this can be worked out together.
But for that, again, regulatory things have to happen. Rational decisions have to take place. And we have been standing ready to support that process along, of bringing people together to figure out how can we take the next step. It worked in the Israel-Jordan context, where Noble Energy, and American company, signed a deal with a Canadian subsidiary in Jordan, the Arab Potash Company and signed a contract to deliver gas and build a pipeline and signed an LOI later to deliver far greater amounts of gas from Israel into Jordan. Jordan lost its gas from Egypt, just as Israel did.
But that doesn’t necessarily happen. Everybody has to – this is an area that every small change can have a domino effect that will take away the gains that were taken before. And we’ve seen some of this play out in Israel recently where a regulatory decision could have a ripple effect on the investment climate in Israel and, by extension, on the ability of Israel to take advantage of its energy resources to play that role in the Eastern Mediterranean. I’m an optimist. I always am. So I believe that that’s going to get worked out. I don’t know how, but I believe it will. And I think that we’ll be able to see that kind of cooperation there.
In Africa, we’re looking at Power Africa, SE For All, which is led by the United Nations, and some of the oil and gas issues. So we have a continent that has so much potential and such an increase in demand and a truly global effort – it started out as a(n) interagency, whole of government approach that President Obama announced. Together with the U.N. effort that Ban Ki-moon has spearheaded three years ago in SE For All, the energy for all – Sustainable Energy For All.
And we’re starting to marry some of the different efforts, looking at what the EU wants to do, some of the Middle East countries, different organization, the African Development Bank, the World Bank, and see how can we have that coordination across all the different lines of effort so we’re not doing what we’ve done so many times in the past of no donor coordination, dollars coming on top of other people’s dollars, sometimes in conflict, not knowing who’s doing what and therefore the marginal dollar not being used as it should. And I think we have a great opportunity.
We also have a new democratization of the producer class. So from going from in the oil sector having OPEC as the vaunted OPEC and in natural gas having a small number of countries controlling the market, we have that democratization, in a sense. We have more and more producers coming online that are not – that are looking at this from their own self-interest. They’re not going to be told to produce less or more because of a collective – small collective interest. And that means that the dynamics of the market can really expand.
And that’s especially true in natural gas where we’re looking at the United States growing and getting into the export business in late 2015, Australia is going to be an – on the levels of Qatar by the end of the decade, Papua New Guinea, East Africa, North Africa, the Eastern Mediterranean – they have so many opportunities there to create that market. The demand though – where does the demand go? And that’s where we get to Asia, where we have to look at Asia in a number of ways.
The demand for gas is going to continue to rise. Even with the economic slowdown in China or in India, we’re going to continue to see a rise in gas. But what creates that market? What creates a trading hub in Asia. I don’t know the answer to that question, but that’s something that we are – I think it’s inherently in our interest because one of our goal – one of our main goals of this administration, and especially of Secretary Kerry, is to have the debate of the nexus of energy into climate. And as we gear up for COP 21 at the end of the year, again, where is going to be the demand not only for energy products, but also the increase in coal. And that’s where we’re starting to see that integration.
So we have – we see gas as – natural gas as a transition fuel, and that it’s not that it – we’re going to see a slowdown in production of coal and use of coal, but rather if we can increase as – since all sources are going to increase – if we can increase the use of coal and create an integrated market in Asia that would have more natural gas as a player there, to work with them on some of the goals that were the great achievement of the discussion between President Obama and his counterpart in China that were announced with great fanfare, but how do we get there?
It’s not only on cutting emissions, it’s on bringing about more renewables. And the Department of Energy has been working in China for the last several years on a number of efforts, but I think what we see for the first time is an ability that there’s an opening among several countries in Asia and Southeast Asia to work with us together to get towards that goal.
So I really believe that it’s going to be an exciting year across the board throughout the world on all these issues as we work on the renewable side, on what are the implications of climate, on the energy security side because the one thing that stands between us a lot of these issues is the use of energy not for a tool of cooperation, as I just described, but as a weapon.
And that means that as we’ve – I talk about all the positives, we still have the Iran oil sanctions, we have the effort against ISIL to make sure that they cannot use their oil to finance and fund their operations, and making sure that oil and gas discoveries – specifically offshore in areas that have not been delineated in the water, the maritime delineations – that they’re not used as sources of conflict. So we have to watch out for that part of it while we promote all the positives.
With that, I’ll stop there and I know that we’re going to have a conversation and answer some questions. So thank you again very much. (Applause.)
MR. MORNINGSTAR: OK. I had – you know, I was going to have a few questions to ask almost to start things off, but then he’s answered most of the questions I had. And I certainly agree with, you know, virtually 100 percent of what you said. But I will ask – I will ask one question.
On the question of oil prices and Saudi production – and I realize that it’s a very complicated issue, it has a – the Saudis – the Saudis not reducing production has an effect on countries – on the oil prices on countries like Russia and Iran, which I guess don’t bother us too much, but it can have a negative effect to some extent on our own domestic production. It can have a negative effect on some other countries who we feel strongly about. So it cuts both ways, I guess. So the question is, is there a U.S. policy towards Saudi oil production?
MR. HOCHSTEIN: I think – look, I think Saudi Arabia is a very careful, creative, professional country when it comes to addressing its oil at the oil markets. Few countries have the expertise and knowledge base that Saudi Arabia has. And I think they’ve managed – overall they’ve managed oil markets and their own production in a – in a remarkable way. The game that has been played over the last couple of months is to get headlines as to what is the motivation of this or that country in their management of whether they’re going to produce more or cut, will OPEC cut, will they support a cut.
I think that we’re in the early days of a new reality as we went from averaging in the ($)100 to $110 oil. It started dropping rather aggressively. And in my opinion, there’s very little nefarious and conspiratorial reasons for Saudi Arabia or other countries’ actions. I think at the end of the day, they, like us, trying to understand the market, trying to see what this new reality is, where is the price going to stabilize at. Interventions in the market are only useful if you understand all the parts that led to it and then know that that’s going to be successful.
So I don’t buy into the conspiratorial view of what they were trying to achieve by not – in other countries, by not intervening. I think they were primarily trying to understand it for their own economy, for their own management of resources, and knowing from previous years and decades of management that oil markets fluctuate and not every headline in the newspaper calling for intervention means they need to. So I think they’re just being a lot more cautious, careful, as I would have expected them to.
MR. MORNINGSTAR: OK. Questions from the audience. I see a hand back there. And when you – you’ll have a microphone and please identify yourself and your affiliation, please.
Q: OK. Thank you. Kan Huang (ph) with Hong Kong Phoenix TV.
So you mentioned there’s a lot of opportunities and you mentioned that it can be a weapon, the energy talk. So in current and the future diplomatic interactions, which of the two is the main theme between, for example, countries like U.S., China, Russia? Is it more of a weapon or more of an opportunity for cooperation? Thank you.
MR. HOCHSTEIN: Well, I think it’s entirely an opportunity for cooperation. I think some may choose to use it as a weapon and that’s what we have to work as an international community to prevent. I don’t see the reason to use energy as a tool for – as a weapon. I think it has been used as a weapon in the past and in the recent future – in recent past. We’re trying to make sure that we send the signal by working together that that is not going to be tolerated. And therefore, the opportunities far outweigh the negatives.
And I really believe – whether it’s the United States and China as you just said – but anywhere across the world, we don’t want to block anyone from participation in the market. Our efforts in Europe in working together with the EU have not been – and with Ukraine – have not been to block out Russian supplies into Europe. I think Russia will continue today, tomorrow and for the foreseeable future to be an important supplier of energy product, not just gas, into Europe.
But the way it should work is having a real market and having options and having competition, not trying to buy up all the assets, not trying to use intimidating tactics in order to have a – using that as a controlling part of the market, but be part of the market. And I think as long as that works, there’s no reason why Russian supplies can’t compete alongside all other supplies. And they may beat out all other supplies because of price. But if you have a fair market competition, that’s the way to have a real sustainable market for Europe, with options that a threat of a shutoff doesn’t play a disruptive role and is not used for political purposes.
MR. MORNINGSTAR: Let me – let me ask you – I will ask one more question, to follow up really. Why do you think Russia blinked on South Stream, ultimately? And what do you think – and with all of the discussions that took place with Turkey and with some of the other potential transit routes that have been talked about, do you – how do you feel about the chances of Russia taking the path that you’re talking about? Or are they just going to find some other ways to use their – to use their leverage?
MR. HOCHSTEIN: I don’t know that I would necessarily characterize it as Russia blinking or not. I think Europe took a strong stand on what was in its own interest. And I think that Russia understood that it was going to be able to build new pipelines and new infrastructure with Europe, as long – if they played by European rules, of the rules of the game. And Europe, for their reasons, stood up and said: Here is what the regulatory system is. Here is what we’re going to allow. And here is what is in our interest as Europe for energy security, for diversification of supply.
South Stream was not a diversification of supply. It was taking the same gas from the same fields to the same end customers, but using new pipeline. So if you’re going to spend $45 billion on a new system – roughly – on a new system of pipelines that is not creating new markets or creating new pathways for new gas, then as a recipient you got to ask yourself, what is this largess? Why are they so interested in giving me $45 billion worth of infrastructure, not expecting to ever make that money back. And that’s when you have to ask that question. And when you ask that question you say, all right, this doesn’t serve my interests.
And I think when Russia understood that that was where Europe was going to be and was going to stand strong, that pipeline was no longer viable. Now, we’ll see what happens. I’m not one of those that declares things to be dead or alive. I take it every day as it goes. And we’ll have to see what tomorrow leads us. I think as far as the other routes – look, I think the southern corridor is going to be the route that comes into Europe through Turkey. That’s going to be the primary. I don’t see a competition for that developing now. This is a sound project that was done based on economics, which is – serves a good political vehicle for Europe, but it also is founded and based in Economics, and that’s why it’s going to be successful.
MR. MORNINGSTAR: Good. Thank you. Yeah.
Q: Mr. Morningstar, Frank Mermoud of Energy – excuse me. Frank Mermoud of Cub Energy. Good to see you again.
And, Amos, it’s more of a thank-you to you and your team at the State Department on behalf of Cub Energy on your efforts with the independent gas producers and others in Ukraine. The government, as you well know, has taken some very counterintuitive steps to ensure energy security and attracting Western investors, such as Cub Energy, with the doubling of warranty tax and restricting dividends, both of which the IMF has condemned. And just wanted to thank you for your efforts and encourage you and your team to continue to advocate for us. Thank you.
MR. MORNINGSTAR: Thank you. Yes.
Q: Eugen Babau from the Stephenson Foundation.
I have a quick question for you about what is – sorry. Quick question for you. What is the role of independent third-party organizations in overseeing or creating a level of comfort for all the international players in the energy markets that this is done fairly? I’m thinking particularly at the energy charter treaty. Do you see something like that being able to diversify, become more of an actor globally? As we know, many countries, including the United States, are not signatories to the treaty.
MR. HOCHSTEIN: That’s a good question. Look, I think there is a role to play for international organizations or for third-parties in trying to think through some of these issues, and where there is a difficult – difficulties in agreeing to policy that would move us forward. And a number of organizations have come up to try to address that. And whether it’s to support the producer-consumer dialogue where the IEF tried to do that, or the energy charter which, you know, we were involved with in its early days in the early 1990 – 1991, I believe. And I think we signed a charter, but we weren’t signatories to the treaty.
That – these are – I think that’s a good question. And I think we have to think through, what will it do? In other words, I’m not sure that I have a good enough understanding what they want to achieve and how to get there that is not already happening organically on its own. But as a – as a general rule, I think third-party organizations, it’s fine for them to move the ball forward. And I think there’s a role for think tanks as well as multiparty stakeholders. But it just has to be more clear, what do you – what is the problem you’re trying to solve? What is the question that you’re trying to resolve? And as long as it’s done in that direction, I would be open to it. But I think I have to understand it better.
MR. MORNINGSTAR: OK. Yes, right here. We’ll go to the back of the room on the next several.
Q: I’m Péter Kalotai from the Embassy of Hungary.
You mentioned, most very rightly so, that there are more than 200 projects in Europe to enhance energy security, and that is not a priority list. So I would ask you if you could put together a number – like, top five – what would be on your top agenda for priority list?
MR. HOCHSTEIN: (Laughs.) I think the European Union is perfectly capable of coming up with priority projects on its own. And I’ve had very good conversations with the commission on some of my thoughts on what could serve to be a good project. But I think that’s really up to the EU. It’s their money, not mine. And if I start making suggestions I could get a bill at the end for it. So that’s a dangerous.
I will say there are some projects that – irrespective of that question – there are some projects that I’ve been publicly advocating for that I believe would be positive. One of them is an LNG facility in Croatia. I really believe that it’s a critical node in the Adriatic to put together a facility that will bring new sources of energy into a country that – first, you have along the Adriatic – you have countries that really need, from Montenegro to Bosnia to Croatia that need that new source. Croatia is also already integrated into Europe, not just into the Balkans. So it’s connected to Slovenia in a unidirectional. And it’s connected into Hungary. Hungary is connected into Ukraine, into Romania, into Serbia.
So there is – it’s a – it’s a critical node that can really impact a very – a pretty wide swath of territory and countries that are dependent on single sources. But I think there are several other projects that I think would be good. And I think what happened in Lithuania was positive. The agreement that was reached in Estonia and Finland was positive as well. And obviously connections of France and Spain, these are not projects, as you can see, but they are – these are the kinds of things that can be done that would change the picture.
MR. MORNINGSTAR: Way in the back. OK, the furthest in the back. (Chuckles.)
Q: Yes. Thank you. My name is Paul Johnson with the Angola Private Investment Agency.
We’re very happy that Secretary Kerry recently met with our foreign minister here in Washington. Angola, we are happy to be a member of the – of the U.N. Security Council this year and working in cooperation and tandem with the United States on regional and international security issues. But with respect to energy and all forms of energy and harnessing U.S. investment in energy to counteract some other investment from other actors, non-U.S. interests, what do you see your role as or policies that sort of marry the geopolitical strategic partnership between Angola and the United States in harnessing U.S. investment towards that end?
MR. HOCHSTEIN: Well, I think Angola is a critical country for – first of all, for Africa, as one of the largest producers of oil in Africa and one of the very first LNG terminals that is based on Associated Gas. And I’m glad that that’s an American company that’s involved in that. We have a lot of American companies that are present there. I don’t think that’s going away any time soon. I’ve been privileged to visit Angola a couple of times in this job. And we have a robust dialogue on energy security issues and on energy issues at large with the government. We’re hoping to have another meeting soon with the – with my counterparts and with the minister of electricity – of power and the minister of oil.
There is a lot that can be – I think Angola has a lot of opportunity to grow beyond where it is today, and that is to make sure that the revenues that are generated from energy reach all its population and serve to diversify the economy so that it’s not reliant on energy alone, to do so in an open and transparent way, to make sure that – I think that doing that – those things will attract even more investment, to see how we can develop that together. We have had some pilot programs and discussion on taking advantage of areas that are fertile for wind energy.
And I think that’s a really great opportunity. We have discussed having cooperation with some of the – with the Department of Energy that traveled with me on my last trip to look at can we use some of the national labs in the United States to advise Angola on some strategies. But let me take a different aspect. As Angola sits at that southern end of the Gulf of Guinea and one of the things that is a priority for us is the Gulf of Guinea security. And with having so much energy production and activity in the Gulf of Guinea, that generates also a risk factor for our – for international companies, for Angolan assets.
And that’s something that we need leadership in the Gulf of Guinea, from Angola and from its neighbors, to work with us to enhance security and a response. We know what happened several years ago when we had several years of piracy in East Africa. I’m still concerned. I remain concerned about making sure that that doesn’t happen on the west coast, especially in the Gulf of Guinea, as we’ve had already incidents. So that’s another area of cooperation, but it goes to that point before of the security side, the energy opportunity side.
MR. MORNINGSTAR: OK, the person in the back who thought he was the furthest back.
Q: Hi. This is Lee Fang with The Nation magazine and RepublicReport.org.
Mr. Hochstein, I know you were intimately involved in – under Secretary Clinton – in the development of the Bureau of Energy Resources and in tandem with the global shale initiative that has worked to provide U.S. taxpayer assistance to fossil fuel initiatives all around the world, promoting oil and gas production and trading. I want to ask you, for all of this work in promoting fossil fuel initiatives, does this undermine Secretary Clinton’s expectation in terms of reducing global carbon emissions? How do you kind of reconcile the two?
MR. HOCHSTEIN: So I think that – it’s a great question. I think we have to live in a complicated world where our primary target today in energy policy internationally is in the climate area, and to make sure that especially this year, which is a critical year on climate, to be able to achieve some of the agreements that we’re trying to do multilaterally and to get to a much – a better condition than we are today. We also have to make sure that part of the role of the United States, like – in energy as in anything else – is to look at the broad picture as a guarantor of supplies, of routes, security of supply, and to make sure that there’s no disruption in today’s economy.
But as we look at today’s economy, which is predominately a fossil, how do we get to the – to tomorrow’s economy? How do we get to the point where we can have more integration into renewables? And so if you look at the initiative that I discussed earlier on the Caribbean, for instance, that entire initiative is how do we take a region that is relying on fuel oil and other crude products and, using only renewables, because – and natural gas to some degree, because they have so much opportunity? But what is the problem? The problem is the finance side.
And what we’re trying to get at the Energy Resources Bureau, where a third of the bureau is dedicated only to – solely to figuring out that question: How do we get to a point where, especially now with falling prices, that renewables can be – integration of renewables can accelerate? Because they’re already, but – and growing at great speed, but we need to take that to the next level. And – but the problem is that finance piece.
And I think we’re trying to spend a lot of time working on that question of how do you get to that point where, especially in the developing world, that we can work with developing economies to move from what is an expensive but the status quo, to using renewables and other kinds of technologies – whether it’s smart grids and getting people off the grid onto a different model that doesn’t necessarily require them to go on the grid. These are all big questions that we have to answer. But I feel very good about the fact that we’re promoting that.
As far as the first part of your question, we don’t go around the world using American taxpayer dollars to promote shale development. What we do is – on the unconventional side, if the countries are going to make the decision on their own to develop and explore their unconventional potential, what our programs do is to work with them to create a regulatory regime that will make sure that it is done in safe and a sustainable way, because the biggest concern we have is if countries are going to utilize and try to copy what’s happened in the United States but don’t have the regulatory regime in place, that the negative impacts and potentials for the development on unconventional can far outweigh the positives
And so that is – all our support for countries that work with this is in that direction. But just like in other forms, we don’t – we try not to tell countries what to do, except when – well, I guess in certain cases we do. (Laughter.) But we don’t try to tell them: We think you should exploit your shale or your unconventional potential. If they’re going to do it, we should use the fact that we have developed a fairly robust regulatory system in the United States. We sometimes fly their regulators here to meet with American regulators in the federal government, EPA, in the states, and to show them what the menu of different options of how to regulate this industry that’s been used in the United States. And so that’s what – that’s what we do in that area to – and I think that’s a – that’s a reasonable and a rational way to approach the use of resources.
MR. MORNINGSTAR: Yeah, I – just one word on that, since in my prior life I was very much involved in this as well, and just to reinforce what Amos is saying. Put at most simple terms, and maybe in too simple terms: Gas is cleaner than coal or oil. It’s going to take a long time before alternative energy has a major percentage of – in the production of – in the production of electricity. Are we – the question, and it’s a question: Are we better off having more gas and less coal or oil during that period when gas is not perfect, obviously, but it is cleaner?
The counterargument has been, well, but maybe, you know, it’s going to – by having too much gas infrastructure that that would discourage alternatives. I’m not sure that’s true. I mean, I think the market’s going to decide that. And as costs come down, that that will determine how quickly alternatives develop. But in the meantime, at least the argument would be, better gas – better more gas than not.
OK, was nobody on this side? OK, also in the – in the back.
Q: Gentable Vinskos (ph), West Virginia State University.
I’m going to ask about Europe. So, Lithuania has just installed a floating LNG terminal to allow it to diversify its natural gas supply. It’s heavily dependent on one source. When can our EU allies reasonably expect to have U.S. LNG made available to them?
MR. HOCHSTEIN: (Laughs.) Not a leading question. To the first part of your question, what Lithuania did was remarkable. And it – I thought that the LNG facility that they – that they launched, and naming it the independence, says it all, which is why I flew out to Klaipeda to be there for the ceremony and the opening.
As far as having access to American LNG exports, a couple points. One, they have access to it. They can contract with people who are – the companies who are building it in the United States and secure deliveries, just as other countries around the world and other companies have. There is no exports yet. They’re only coming online at the end of 2015 and will grow from there. The United States government does not instruct or request or cajole or hint to any company in the United States who to sell what to. That’s a – we are a free market.
So there will be a process. There is a process for us to approve the construction based on who the purchaser is. What I think you’re alluding to is the fact that there’s a dual-tracked process to approve the construction of a facility for countries that have a free trade agreement with the United States, versus countries that do not have a free trade agreement with the United States. That process simply accelerates the approvals for building the facility. It doesn’t mean that countries that don’t have trade agreement cannot purchase it. They can and they are.
Now, where the gas will go doesn’t matter. The fact that we have approved exports of natural gas has already had an impact on Europe. And where the molecule actually ends up going also doesn’t matter. It’s going to go into the international market that will rationalize itself. And it will therefore mean that a commodity that has different prices in different markets will start coming down. And you’ll see some kind of a coalescing of the prices, as we saw when we stopped importing. Simply by the act of no longer importing the enormous amounts of natural gas – LNG that we were importing, that already had an impact. Once we start exporting, that will be the second, because the first one was that all those – all those natural gas molecules have to go somewhere. They were destined for the United States and they became available onto the markets. Once our supplies come on the market, even though they’re going to – the first ones are going to go to India and Japan, it still frees up gas to go other places.
MR. MORNINGSTAR: Over here.
Q: Hello. Mykolos Nadir (ph) from Mega TV Greece in Cyprus.
Mr. Hochstein, you said recently that Israel and Cyprus, and I quote, “will be able to export natural gas to Turkey.” You said it in Israel. As you know, these countries are enemies, and Israelis and Cypriots don’t trust Turkey. Also, Turkey don’t (sic) recognize Cyprus and Israel. How do you expect this deal – how do you expect these countries to export the natural gas to Turkey?
And also, there is a proposal by Israel for a new pipeline from Israel via Cyprus/Greece to Europe. Do you support this pipeline?
MR. HOCHSTEIN: So first, you know, the danger of quoting half a sentence is exactly that, you can construct a question around half a sentence. What I said at the National Security Studies center in Israel was that I believe – just what I said today, by the way – that I believe that the Eastern Mediterranean region – that includes Turkey, Cyprus, Israel, Egypt, Jordan, Lebanon – will be able to work together to be able to get to a point of cooperation and collaboration for its export resources. I also said that Israel and Cyprus have discovered significant resources, but the most likely scenario is that they will be regional players, not global players. And to that end, I said that I was an optimist, as I said today, and that I believe that Israel and Cyprus will be in a position to export to Turkey and to Egypt and to Jordan. And I still believe that.
If you look later in my – in my comments there, we talked about the fact that for that to happen, some – there are some hurdles that we have to pass. So I’m not saying that they’re going to do that tomorrow, and there are hurdles that have to be passed inside Israel, in the process of – between Cyprus and Turkey, and in the process between Israel and Turkey, and Israel and Egypt, and Cyprus and Egypt. I mean, this is a region that has – I don’t need to tell you where the points of conflict and cooperation are. But within all that, if we simply stand up – I stand up today and say I don’t believe this is ever going to work, then all I’ll do is join everybody else who’s already said it, and I’ve achieved nothing. And I don’t believe that cynics ever achieve anything. So I believe that if we take an attitude of how can we make this happen, knowing that there is a possibility that it will be very difficult, I think that’s the right approach, and I think that’s the role of the United States.
MR. MORNINGSTAR: I will ask your minders, since we started 10 minutes late, can we go an extra 10 minutes?
MS. : Yes.
MR. MORNINGSTAR: OK. (Laughter.) So we’ll have a – I just want to get permission, you know? I know you’re under control, you know.
MR. HOCHSTEIN: Well, you don’t have to put it on public display. (Laughter.)
MR. MORNINGSTAR: Believe me, I know what it’s like.
OK, Doug Hengel.
Q: Doug Hengel at the German Marshall Fund.
Amos, in your comments you kind of divided up – divided them up into a positive agenda and a little bit on a negative agenda. I might argue that there’s an agenda – another agenda which is sort of a problematic agenda, countries that are very important to us that are feeling the effects of the oil price decline that we care a lot about, and I’m thinking here particularly Iraq, Nigeria, maybe Central Asia. And I know this may go beyond your – you know, your responsibility as the energy coordinator; it’s more of a whole-of-State-Department or the regional bureaus there. But anyway, would you like to comment at all about how this plays out with Iraq, Nigeria, some of the others?
MR. HOCHSTEIN: Look, no, I think that’s right. I mean, look, when prices are high, price of oil, there are winners and losers, right? I mean, there are countries that benefit, or not, depending on their condition. Therefore, there’s – that’s why there’s no objective declaration of victory: “oh, $50 oil is better than $80 oil.” And that’s why I try not to get into that game of what is the right price. The right price is whatever the price is right now, is – if it’s reflecting what the market is. And countries have to look at rainy-day conditions when the sun is shining, right? And for a long time now, for several years, producers were faced – were benefitting from extraordinary prices at north of $100 a barrel, and now we’re at the other side of this.
This is not new. This has happened before, and it will happen again. I promise you that I don’t know what the floor of this price decline is and I don’t know if we’ve reached it. If it is, and when we – or when we get there, it will rise again. And we were at $11 oil just, what, 15 years ago? And we were at ($)115 eight months ago, in June, right after Mosul fell. So there is – I just think that that’s why we keep encouraging countries to have diversified economies and to have funds – rainy-day funds and making sure that those funds are – the revenues – the oil revenues in the good days and the high-price days are there and are kept and are not spent so that they can take care.
Now, Iraq is a real concern because this is the worst possible timing for Iraq. This is a time when they need the revenues to continue the fight – very difficult fight against ISIS and to maintain the stability in the country, and we’ve helped Iraq before with their industry and we’re going to continue to do so. And the same goes for Nigeria. And I think they’re – you know, there’s an election coming up, but Nigeria’s one of the most important countries to the United States because of its size, its economy, its position. It’s a producer. But we have been consistently advocating for changes in policy, changes in transparency, and making sure that we know that everybody knows where revenues are going and that they’re maintaining and used to benefit the people. And I think if you have those kinds of policies in place, then you will not suffer then.
And I think that as we look at what the conditions are – we are studying those impacts of the oil declines, but I also think that we can’t get too excited about it because this is a part of the oil industry and it always has been.
MR. MORNINGSTAR: I can remember, in working on the Baku – trying to get the Baku-Tbilisi-Ceyhan pipeline going back in 1999, the companies were saying, oh, how can we build this pipeline, the price of oil is $10 a barrel and all of our economic experts say it’ll never get to be more than ($)15 or $20 a barrel. So, anyway.
A few more questions. Yes?
Q: Hi. Martha Beard from the National Endowment for Democracy.
You spoke about trying to diversify European supplies, but demurred a bit about how exactly to do that, though you did mention the Southern Corridor, which is ultimately dependent on Azerbaijan as the ultimate source. I’m wondering how those hopes are complicated or changed based on the recent human rights crackdown that’s happening there. I think Ambassador Morningstar might also be able to contribute.
MR. MORNINGSTAR: I think since we have a new ambassador arriving in the next couple of weeks, I won’t say anything about it. But Amos – (laughter) – but Amos can say what he thinks.
MR. HOCHSTEIN: You know, I think that’s part of the complicated part of working in the energy sector. We don’t – we don’t choose where energy resources are, but we advocate a consistent policy across the board, and that is we think that they should be developed in an open, transparent way that respects both – the transparency’s there really to – why do we advocate for the transparency, after all? It’s to make sure that the people of any country – that is, a producing country – know what is being produced, who’s been contracted to produce it, how much money is coming in to the coffers of the state, and what is happening to that money ultimately. That’s because we believe in – ultimately believe in the American values and Western values, which we think are global values, of civil society. And allowing these organizations – and Azerbaijan is an EITI member, and I hope they continue to remain a member by doing everything that is required of a – of a member of EITI. And we’ve urged them to do that.
I think that, as long as they take actions they – and by the way, it’s not only Azerbaijan; there are other producing countries that I – you know, in my job in the energy sector I have to deal with that have a difficult record. And we will continue to work with them on the – in the energy side as they continue to be part of that producing class of countries that support the global economy, but at the same time that does not change what our expectations of every country across the board in terms of their behavior towards their own people, allowing civil society and freedom of expression. And that is true for everyone across the board.
MR. MORNINGSTAR: I do think that – and I get asked this question by people from companies – and again, not singling out Azerbaijan, but as Amos said, could be talking about any number of different countries – but a real question: How can companies best operate in these places and, you know, what responsibilities do they have? And I do think that that raises some, you know, some legitimate questions that are worth discussing, again with respect to any number of countries.
MR. HOCHSTEIN: But let me – let me go back to that question, because I think it’s important to underscore because it’s – there are no – we get faced so oftentimes with, you know, the difficult choices, that there are not necessarily easy choices of going all the way in one direction and pretend that there are no consequences. And that – this happens on a very regular basis, of competing interests, and we don’t think that it should be a competition of interests. We don’t see any reason why every country should not respect the same basic – same basic rights that all people have, and whether they’re an oil producer or not. And it’s the fact that they’re an oil producer’s not going to change should not and will not change how we address our policy.
But it also means that we have to be realistic that these countries are producing, there are companies operating there. Whether we like it or not, there will be pipelines built and this oil or gas or other commodities that they may have will reach the market. And so we have to make sure that we address those interests as well. So I don’t see it as competing interests, I see it as having to make difficult choices and addressing all of these issues at the same time.
MR. MORNINGSTAR: That’s a good answer.
Q: Thank you. My name is Genie Nguyen from Voice of Vietnamese Americans.
So you said this is an opportunity with we having energy surplus and we talking about LNG, and we haven’t talk about Asia, where I think the demand for energy will be the highest coming up in the very near future. So you also talk about the financial aspect of it, and talking about accessibility. So with the infrastructure and the connectivity, how would you list those priorities? And how would you assess the function of the Asian Infrastructure Investment Bank? Can we work with them? And what would be the standards? Thank you.
MR. HOCHSTEIN: First of all, I agree with you 100 percent. I think Asia’s entirely important, and in my comments I ended with Asia because I said that’s where it all coalesces because that’s where the demand for energy products is going to be the highest, as you said. And the non-OECD countries have already outpaced the OECD as far as demand growth, and that will just continue in that vein. The growth of coal use is going to also far outpace in Asia the rest of the world. So no, I think that Asia is a critical part of our policy, and it has been.
Where Asia is different than some other areas is that – the existence of a market, of a trading market. There are different countries that are talking about trying to develop a hub in natural gas. Singapore, Shanghai, others have talked about it. There are a unique set of political problems that would be prevent one hub, once place or another from becoming that hub for trust purposes. There are other challenges in – territorial challenges, again, maritime territorial challenges, that would address – that affect the search for new hydrocarbons. There is great opportunity in Southeast Asia in the renewable space – you know, whether it’s in The Philippines with geothermal and in Thailand and there’s small hydro and – so there’s a lot of opportunity.
Where we have been – we’ve been very engaged – and I recently came back, I was in Vietnam, and some of my colleagues are going to be going back to Vietnam and to Philippines and Thailand and Singapore just recently to try to see how we can be helpful. How can we work with the ADB and with the World Bank to see what are the kinds of projects that will create more interconnectivity? There is very little interconnection, whether it’s grid interconnection or pipeline interconnection. And that is where I think we want to focus, is to work within the context of ASEAN and APEC to see how we can fit in. We’ve already done a lot of work in that.
The president of the United States went to Cambodia a couple years ago for the leaders summit, and the one deliverable that was announced from that summit was the U.S.-Asia Pacific energy cooperation. That’s focused on renewable energy and clean technology and how can we work more in an integrated fashion, specifically with Southeast Asia, on those kinds of projects. And we’ve put some money where our mouth was and announced $5 billion of funds for that as a window, a facility at Ex-Im Bank and a billion dollars in OPIC. We’ve actually paid for a new person, an OPIC person to be present in the region specifically to look at renewable energy projects and to support American investment in that area.
So I think there’s a lot to do there, and that’s where all the growth is going to be. So it’s critical for us. So we have more and more resources – human resources and financial ones – to address the energy issues in Asia. They’re just very unique and different than other places and the questions in other areas. But rest assured that that is a huge priority for us.
MR. MORNINGSTAR: OK, one last question. Oh boy, I got to go like this and the closest to where my finger ends up. OK, right back – oh, well, all right, go ahead. Sorry! You were probably the closest, but you’ve already – maybe we’ll have two questions – quickly, though. (Chuckles.)
Q: All right. Thank you. David Ivanovich with Argus Media.
Can we talk about Iranian oil exports? The limits of 1 (million), 1.1 million barrels a day, are those holding? Do you think they will hold through the – this latest phase of the negotiations? And how does the drop in oil prices affect our ability to persuade their customers to continue to respect those limits?
MR. HOCHSTEIN: Yes. No – (chuckles) – we are – yes, we have been able to –
Q: Thank you, Mr. Morningstar, for your consideration for –
MR. MORNINGSTAR: No, no, no, no, no. He has to answer the question first. You’re next.
MR. HOCHSTEIN: Let me just answer –
Q: OK, sorry.
MR. HOCHSTEIN: We have – as you said, Iran has been limited to between a million and a million – 1.1 million barrels a day of exports. We believe that under the JPOA – the Joint Plan of Action – that has been maintained, the policy has succeeded in maintaining those levels of exports. They’ve also been limited to specific consumers, the five consumers and Taiwan. But I think it’s also important to note that even when they so sell that oil to those five countries, they cannot repatriate the cash back to Iran. Those funds have to stay in the banks of those countries and can be used for only specific purposes such as purchasing, you know, for regular trade and so on, which is why they’ve developed these large account surpluses in those countries. So it’s not only that it’s how much can you export, it’s also the restriction of the funds. Those will remain in place as long as there’s no agreement reached. And I’ll be clear about that: that will not change. I have no expectation that we will not be able to maintain what the sanctions laws have called for. We have succeeded beyond what some had predicted at the beginning of this process. Iran was exporting approximately two-and-a-half million barrels a day, and today they’re at about a million if not below. And I think that that’s a pressure that will continue as long as an agreement is not reached.
MR. MORNINGSTAR: OK. This is really the last question.
Q: Thank you, Mr. Morningstar, for your consideration for (women ?). (Chuckles.) My question is – I’m Bai Jie from – a CSIS visiting fellow. OK, can I –
MR. MORNINGSTAR: Oh, thanks.
Q: OK. You mentioned the APEC meeting in a previous answer. My question is (toward ?) to the China and the U.S. climate change declaration. Actually, after the declaration was announced, I found a headline on a newspaper: “Clime As Change” (ph). So my question is, what’s your evaluation or assessment toward direct or indirect relations between the China-U.S. climate change declaration and your energy and diplomacy priority? OK, thank you.
MR. HOCHSTEIN: First of all, I think that was a remarkable agreement that was reached between the two presidents and a great achievement. And it’s – as I said before, the climate aspects of our policy are really front and center where we are. I run the energy bureau and Todd Stern is the – is the special envoy for – he’s our trade negotiator – he’s our climate negotiator, and so he really deals directly on the – on the climate goals and on the negotiations that preceded that announcement with China.
But in order to get the goal – the goals both the United States and China and Europe, anywhere else in the world, there has to be a path of how do you get there. It’s not just a negotiation about what the goals are going to be. And to that end, we believe that the investment and the – it’s not only a reduction in the use of coal and other fossil fuels, but it’s also how do we grow and increase the use of other technologies. And that’s where, when I tried to – the connection I was trying to draw before is that nexus of energy policy to climate policy. And in order to achieve climate – the climate goals, we need to have real change in energy policy. So I think that in large countries like China, that is growing its energy demand on a regular basis and across all the fuels, is how do we work with China and with India and with South America and with Europe and inside the United States to figure out that path to increase use of integration of renewable energy, and decline of coal or slow down the increase of coal in some cases, and increase the use of natural gas as that transition fuel until the cost structures and the infrastructure that’s required to scale up renewables is there? And that’s where we think that natural gas plays a very good role of being that transition, because as Ambassador Morningstar said before, this is not going to be a short process to where we get that big increase in renewable integration.
We are going to be living in a fossil era for quite some time, whether we like it or whether we don’t. So therefore, how do we mitigate that? How do we use transition fuels that are affordable to get to that future faster?
MR. MORNINGSTAR: OK. First, I want to thank you, Amos, for what was, I think, just a terrific opening session for the Global Energy Center. We will have many more sessions. It was a great opening presentation and I thought a really good discussion with really good questions. So thank you, everybody, and I hope we’ll see you all again soon.
MR. HOCHSTEIN: Thank you.
MR. MORNINGSTAR: Thanks, Amos. (Applause.)